There is a wild misunderstanding in Costa Rica about dying without a will. Most people believe if they do not have one, the government will take everything. This is not true. Here is a closer look.
What does happen is crooks steal the real property in some cases. Money sits in the bank without disbursement. And, personal property disappears quickly. The rule is first come, first serve. One famous painter came to Costa Rica in 1971 and died in 2003. His entire portfolio was lost to theft by family members. They had no clue as to its true value and squandered it away.
Another man who died early this year put all his money for safekeeping in his girlfriend’s bank account. When he died the money went poof and was gone. Most expats have nightmarish stories regarding this matter.
When someone dies, nothing happens automatically. No legal authority knows a person is dead until someone starts some kind of probate action. This is why it is important to have a will or trust in place.
Otherwise, the family has a mess on its hands.
Article 571 of the civil codes states (this is a paraphrased translation), “if a person dies without making a plan – as in a last will and testament – or has an expired or nullified will, inheritance will be given to legitimate heirs.”
Article 572 defines legitimate heirs. The law prioritizes them in order of importance as follows:
1. Children, parents and consorts including common law spouses;
3. Brothers and sisters;
4. Nephews and nieces; and lastly,
5. The board of education in the area of the deceased. The last, the board of education, only would receive proceeds in the event there is absolutely no family.
Allan Garro of Garro Law stated in an interview, that Article 572 is a bit difficult for a lay person to understand. It is best interpreted by a professional. He emphasized the need for an adequate last will and testament. “Not having one is a bad dream court proceeding that takes a lot of time,” he emphatically added.
When someone dies, a living person must go in front of an attorney and start a probate action. There are three legal ways to make a succession plan to avoid problems and years in court:
1. An open will: Open in this case means public, public in the sense a notary transcribes the document in his or her protocol book in front of three witnesses and files the instrument with the Archivo National. The national archive, located behind the Registro Nacional in Zapote, keeps an
index of all persons who have signed an open will in front of a notary.
2. A closed will: In this case, one writes down his or her wishes, puts the paper in a sealed envelope and takes it to a notary accompanied by two witnesses. The professional makes a razon notarial or “notary certification,” of the act. Someone then holds the envelope for safekeeping.
3. A trust: A trust can be set up at any time. The necessary parties are a trustor, also referred to as a grantor or principal, a trustee and beneficiaries. The last two component parts can be individuals, companies or banks. The grantor sets out his or her wishes for the trustee to follow in distributing assets to the beneficiaries.
There are advantages to making a will in Costa Rica. A will in Costa Rica can encompass all of one’s assets all over the world or be specific to only certain assets in Costa Rica. A specific will is a great way to leave an asset for a friend in this country without making other heirs aware of the transaction.
When someone dies, and he or she has an open, public will in which the beneficiaries are older than 18 and no disagreement emerges from the distribution of assets, a notary can probate the will using a fast track method called a sucesorio notarial. The probate process takes only a few months vs. years when no public will exists.
Here is a great tip: In 2006, the article “A clever clause can dodge the probate mess,” recommended using a limited liability company called an S.R.L in Costa Rica as a vehicle for holding assets and succession planning. However, now that a company must pay yearly taxes, most people do not find this method very convenient. The solution is to use a sociedad civil.
This type of company structure has almost all the benefits of an S.R.L without the tax implications. The secret is to put one’s assets into the civil society. Upon ones death using a will, divide the social capital of the company between heirs and appoint a group of them to administrate the entity.
Many Ticos and some expats, to avoid taxes, give undivided interests in property to their heirs. This is not smart at all. There is case after case in court where one of the parties get into a debt related problem – usually with credit cards – and causes an auctioning of the asset.
No one wants to die. That is why most people do not plan very well for the event. Like it or not, it is a must to do so. A person’s assets in Costa Rica are not given to a government as most people think, but they are stolen or disappear. Expats should protect heirs in life with a good succession plan so they do not suffer after ones death.
Garland M. Baker is a 44-year resident and naturalized citizen of Costa Rica who provides multidisciplinary professional services to the international community. Reach him at firstname.lastname@example.org. Baker has undertaken the research leading to these series of articles in conjunction with A.M. Costa Rica. Find the collection at http://crexpertise.info, a complimentary reprint is available at the end of each article. Copyright 2004-2014, use without permission prohibited.