Estate planning is not a common practice in Puerto Rico. Perhaps this is due to our culture, or it may be because our forced heirship laws limit the amount of assets that a person can dispose of after dying. Most people in Puerto Rico die intestate, without a will.
Banking policy in Puerto Rico establishes that all the decedent’s bank accounts are to be frozen as soon as the bank is notified of the passing. This means that regardless of the account being single, or co-joined, all deposited money is automatically frozen until the bank receives a copy of the Puerto Rico Estate Tax Release granted by the Department of Hacienda.
This creates a huge problem for the surviving spouse, because all bank accounts in Puerto Rico where the decedent is a signor are frozen until further notice. This is further aggravated by the fact that the Puerto Rico Tax Estate Tax Release usually takes several months to be granted. Oftentimes, the surviving spouse is left without any money to cover for funeral arrangements, or medical expenses incurred by the decedent.
There are a few ways to mitigate the damage that this limitation may impose on the surviving spouse.
Here are five tips to help you plan ahead:
1. Have enough cash around to cover living expenses for at least three (3) months.
While having cash lying around the house may be a nuisance at best, and a security risk at worst, given the propensity of bank accounts in Puerto Rico being frozen immediately after one spouse’s passing, it’s always a good idea to have enough cash on hand to cover for the first few months after passing. This will serve as a sure-fire “buffer” guarantee to be able to gather information regarding the estate division ahead, and serves as a safety net for the grieving surviving spouse. The higher the monthly cost of living, the more cash one has to store at home, or at a trusted location. A small home vault, which can be found at very reasonable prices, can be fixed to a concrete wall, and its combination set and shared with a trusted party, is usually the best bet when storing cash at home. It is always advisable to conceal these vaults, and entrust its location with a confidant with specific written instructions and its combination. Bank safety deposit boxes are not a safe location, because as with bank accounts, banks in Puerto Rico can freeze them, and prevent the surviving spouse from opening them until the PR Estate Tax Release is granted.
2. Have separate bank accounts with enough funds to cover living expenses for one (1) year.
Any conscientious investment portfolio must always include a portion of cash assets to cover for unforeseen expenses, while leaving long term investments accrue. It is always wise to have enough funds to cover anything from 8 to 11 months of living expenses. In the case of a newly deceased spouse, it is essential that the same amount be kept in two separate accounts, since co-joined accounts will be frozen. This way, the surviving spouse will be able to cover for any living expenses while the estate division is carried out, and the PR Estate Tax Form is filed, and subsequently, its release has been granted, thus enabling the spouse and heirs to withdraw from the accounts.
3. Set aside funds to cover legal fees.
Some estate divisions are more complex than others. If your proposed estate division is complex, it is a good idea to also include a portion of the saved funds to cover for the legal fees, or at least a retainer, that will be required by the attorney handling the estate division. This retainer can also be negotiated and agreed upon before any untimely passing, and many attorneys can accommodate pre-paid terms on a future estate division. Consulting legal counsel before a spouse passes away paves the road for a smooth estate division and asset transition.
4. Have a Life Insurance Policy naming the surviving spouse as beneficiary.
Life insurance policies are not subject to most estate division laws in Puerto Rico. They are unaffected by forced heirship, and do not require a PR Estate Tax Release. They can be disbursed at the time of passing without further documentation or legal proceedings, other than those required by the insurance company. Always check with the insurer, and review the terms of the policy in order to determine the specific requirements, which are oftentimes much less stringent than any other legal proceeding pertaining estate divisions in Puerto Rico.
5. Keep a file with copies of all the important documents regarding properties.
The single most time consuming task of any estate division, contrary to the public’s general belief that it is quibbling heirs, is searching and gathering all the estate properties. While estate divisions can be done in portions, it is much easier and cheaper to divide the complete estate in large portions, or all at once. Since finding properties in Puerto Rico is a labor intensive, costly and time consuming task, having a file with all the properties substantially lowers the footwork required to gather an estate inventory.
While these tips are not a guarantee that the estate division will go smoothly, they will help substantially during the transitioning period right after the decedent’s passing. Further estate planning is always advisable, but a little foresight will go a long way, and prevent unforeseen economic quagmires during the beginning of the estate division process.
The best thing is to have life insurance, where you can give the money to the people who really need it and deserve it. However, you should remember to update your life insurance’s beneficiaries. I had a nephew that passed away, so I had to change my list. People should also be aware that if you leave life insurance money to young children, the adult guardian will have access to it unless you write a Trust and give specific instructions on what that money is going to be used for (especially if you are a divorced parent). Also, I know of a lady whose husband died in a traffic accident and SURPRISE, he had never changed his beneficiaries, so the ex-wife got it all.
This is more of a question than a comment. I work for a medium size life insurance carrier in Philadelphia, PA, USA. All of our policies are group term life insurance, in other words, policies issued to a business/ corporation/ etc. that provides life insurance as a benefit to its employees.
We have a few policy holders in PR, that provide life insurance benefits to PR residents.
My question is this. After some reseach of PR law/ statutes, it appears as though we may be required to secure the tax receipts described in Title 13, Chap 91, Sec. 900, et seq. before we can pay the life benefit to beneficiary/ies in PR. (Provided of course, that the insured employee resided in PR).
Number 4 above “Have a Life Insurance Policy naming the surviving spouse as beneficiary” because “[T]hey are unaffected by forced heirship, and do not require a PR Estate Tax Release”.
Are the PR Estate Tax Release the ones I mentioned above, i.e., section 900, 901?
Dear Mr. Nelson,
Thank you for your question.
You are absolutely correct. The PR Estate Tax Release, or “Relevo de Hacienda”, is NOT required for life insurance. This has been established both by law, and by jurisprudence in Puerto Rico. Prior to relatively recent amendments to PR estate law, many life insurance companies, and the Dept. of Hacienda, required the filing of a PR Estate Tax Form (PRETF) for the release of the totality of the life insurance benefits. This has since changed, and the life insurance benefits are NOT part of the estate.
The benefits are part of a contract that is executable once the insured dies, and therefore, is exempt from any estate and tax law requirements, since it is the beneficiary who can claim the payment, and not the deceased insured party.