| 12 May, 2017 |
In November 1989, as the East Germans made their first forays into the Western part of the country, a telling graffiti appeared on the Berlin Wall: “They came, they saw, they did a little shopping.” This comical take on the Berliners using their hard-won political freedom to purchase VCRs and fresh fruit brought to light the failure of communism in Europe and rest of the world.[1] The fall of communism went hand in hand with liberal democracies cementing their position as the ideal system of governance, as the world moved towards a uni-polar world order.
In the wake of the Cold War, many nations were left dealing with the aftermath of the disintegration of the Union of Soviet Socialist Republic and the replacement of communism with capitalism. Countries, especially those under the command economy of the Soviet Union now were posed with the conundrum of choosing which economic model and political ideology to base their nation on. Czechoslovakia was one such nation which was facing the dilemma. This paper will aim to analyse the inheritance laws of the Czech Republic and their evolution form a socialist welfare state to an individualist liberal democratic state.
Czechoslovakia was one such nation which was under the Socialist Nazi German rule till 1945 after German occupation of the region during the Second World War. After the liberation of the region by Soviet troops, the Communist Party of Czechoslovakia came to power in 1946 and it remained as a one-party communist State until the Velvet Revolution of 1989 where free-market economy was reintroduced, and the communist regime collapsed. The nation further split into two different countries – the Czech Republic and Slovakia on 1 January 1993. The Czech Republic cemented its affiliations to the Western Bloc when it joined the North Atlantic Treaty Organisation (NATO) in 1999.[2]
Since 1989, after the change in regime, the law and justice system of the Czech Republic has been in constant development. The Czech National Council on 16 December, 1992, declared the Constitution of the Czech Republic, defining the now independent nation as a “Sovereign, Unitary and Democratic State” with its foundational pillars based on the ‘Rights and Freedoms of Man’.[3] The Country follows a system of parliamentary democracy, directly electing the President of the republic who serves as the head of the State. However, the powers of the President are mostly restricted as the representative of the State, with the executive powers solely vested with the Government. This is turn makes the Government politically responsible to the parliament itself.
The Czech Republic’s legal system (právní řád České republiky) is governed by a ‘continental legal system’ that has its roots embedded in history – more specifically, the “Germanic” legal culture. The essential characteristics of this legal system include codification of law and procedure (civil and criminal codes of conduct), a hierarchy of legal sources forming a structure of legal force from within the system itself and statutes taken up by the parliament hand-in-hand with the regulations adopted by the government and other administrative authorities are given recognition as the written, formal sources of law. The codification of the laws and procedure established can be broadly classified into three: Constitution Law, Criminal Law and Civil Law. The Civil Code (Act No. 89/2012 Coll. the Civil Code) codifies five core areas of private law, the first pertaining to the legal status of a person as an individual, the second which regulates family law and the remaining that regulate property rights of the citizens.
After eleven years of drafting and debates, the Czech Ministry of Justice implemented the new Czech Civil Code (Act No. 89/102 Coll.)[4] on January 1, 2014. Among the multiple amendments and changes made to the new Civil Code was legislation pertaining to inheritance. “Práva zesnulé strany” or “the rights of a deceased person” was one such law which was vastly strengthened with the introduction of instruments facilitating how deceased individuals may influence the disposition of their wealth and assets. The new institutes include specifically (a) a new instrument to deal with the liability of debts pertaining to individuals post mortem; (b) the scope of bequests; (c) the scope of facilitating inheritance agreements; (d) the scope of conditions pertaining to the distribution of inheritance.[5]
One of the most noteworthy laws on inheritance from the new Czech Civil Code is that of the ‘universal succession’ of heirs to the status of a deceased individual, which simply put, elucidates that the heir under Czech Law is liable for all the outstanding debts and payments of the deceased person from whom he inherits irrespective of the value of inheritance acquired. However, in cases wherein the debts on the inherited estate transcends the value of inheritance itself, the heir’s liability extends to even their assets and continues until they refuse the whole inheritance. Furthermore, in cases where there are multiple heirs, their liability will be joint and several. Nonetheless, a provision exists for the benefit of the heirs to circumvent the risk of paying debts exceeding inheritance, wherein the right to make an inventory of the inherited assets may be exercised by the heir in presence of a public notary – the stipulations of which include that each heir must separately conduct the calculations for the inventory.
Additionally, in cases wherein, testators donate to their heirs during their lifetime and do not wish that such donee inherit further assets after their death, it is possible that the testator and donee enter into an agreement based on which, the heirs renounce their right to future inheritance – which, in furtherance, applies even to their descendants. The facilitation of such agreements is likely to see a reduction in future conflicts among testator’s heirs after post mortem. The new code also puts forth that an heir, in favour of another heir, may waive their right to inheritance. This right however does not permit the transfer of such right in favour of an individual who isn’t an heir in to the testator’s original will.
The new Civil Code also incorporates the traditional notion of the institution of bequest wherein the testators may establish bequests in favour of their legatees by commanding them to transfer certain assets (for instance, a valuable statue) with the purpose of establishing rights in their favour. In such cases, the legatee doesn’t automatically qualify as the heir to the testator’s estate and is therefore exempt of liability from any impending debts of the testator.
The instrument of ‘inheritance agreement’ was among the most predominant changes instituted in the new Civil Code wherein testators, during the course of their lifetime, may enter into an inheritance agreement with a third party which sees the third party as the testator’s legatees or heirs. A huge plus-point of such agreements is that the unilateral termination by testators is prohibited without the consent of the heirs and legatees – granted in the form of a public deed in the presence of a public notary. The law however stipulates that the testator, in such agreements, is entitled to dispose of not more than three-fourths of his assets.
The provision of invoking substitute heirs as a replacement to formerly settled heirs also was added for the benefit of the testators, in light of the uncertainty posed in cases of death or ineligibility of original heirs to avoid conflict and confusion post the death of the testator. In furtherance to this, testators may also limit the heir’s freedom pertaining to the transfer or disposal of inheritance by defining the heir of the heir, limitations on which, may not be imposed for a period exceeding one hundred years.
Legislations prior to the new Civil Code held that the incorporation of any conditions into the last will and testament would not be effective irrespective of the fulfilment of said conditions which were merely deemed as “wishes of the testator” – the execution of which was not legally enforceable for inheritance. However, this provision under the new Civil Code of 2014 was however amended to bestow greater powers upon the testators once deceased. The new law serves its’ purpose as an enabler for testators in imposing upon the successors certain stipulations, orders or time limitations only upon the execution of which would the heirs be able to legally inherit from the testator’s estate. It is of great pertinence to note that the law clearly elucidates that such conditions must not interfere with the personal rights of the heirs. For instance, the testator may instruct that the heir inherit only after the completion of her education. However, the testator has no right to set conditions wherein the heir may inherit only after she gets married to a specific person or converts to a particular faith. Such conditions have been termed by Czech Law as “arbitrary and impossible conditions”.
Inheritance tax, on the other hand, is regulated by the Inheritance Tax, Gift Tax, and Real Estate Tax Act (No. 357/1992). Also, the application of the Double Taxation Treaty takes precedence over the Inheritance Tax, Gift Tax, and Real Estate Tax Act in cases of ‘cross-border acquisition’ of property by inheritance.[6]
The recodification of the Czech Civil Code in 2014 thus brought forth a series of very significant and substantial changes and has amended the pre-existing laws, while stressing on individual rights, especially with respect to that of inheritance laws. However, there exist some grey areas, more specifically with the issue of expats residing permanently or temporarily in the Czech Republic. The concept of citizenship for administering inheritance law was replaced with the notion of ‘habitual citizenship’ at the time of death. Now, although the expression ‘habitual residence’ is left undefined in the laws of the Czech Republic, it can be deduced from many sources and commentaries as “a place where a person resides to grant such place a permanent character”.[7] Among the multiple criteria utilised to assess the habitual residence of the deceased persons are family, time period of residence, employment etc. Due to this, in many cases, expats living in the Czech Republic would qualify as being habitual residents of the Czech Republic. The problem stemming from this interpretation would culminate in the inheritance of the expats being divided in accordance with the Czech Civil Code and not in that of their country of origin. In addition to this, the emphasis on contractual freedom is also seen in the statutes. This however has the risk of testators regulating their own rights and duties directly in their agreements rather than relying on the legislation governing the same. Simultaneously, the need to exclude default regulations could affect both the economic and legal stances of the contractual parties considerably thus, incorporating the drafting of specific contractual provisions. Therefore, the it would be reasonably prudent to expect the new law to have a negative impact in turn heightening the degree of legal insecurity. In the long run however, once certain ambiguities and drafting errors in the new legislation are eradicated by amendments, the new Civil Code of the Czech Republic is likely to have a positive bearing on the peoples of the nation, bestowing upon them greater freedom and individual autonomy – something which was neglected during the socialist and communist regimes.[8]
Eminent political economist Francis Fukuyama noted that the collapse of communism reflected the cognitive bankruptcy of the principle that a self-selected elite could make superior decisions on behalf of the society.
Renowned American Political Scientist and the author of ‘The End of History and the Last Man’ – Francis Fukuyama – argued that all the decisions which have led to the history we’re living today have made sure that the State turns to liberal democracies for survival and prosperity. Fukuyama highlighted the end of the Cold War, with the United States as the sole hegemon and the fall of the Berlin Wall in 1989 as the world settling in on liberal democracies as the ideal politico-economic system:
“What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of postwar history, but the end of history as such…. That is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.”[9]
The Czech Republic itself was under a communist command centre till the early nineties where the State controlled most of the assets and individuals had minimalist control over resources. The country however quickly adapted after the Velvet revolution where the market economy was incorporated into the Czech economy. The laws themselves have been amended and re-written to give individuals greater freedom. The Czech Civil Code of 2014 is a shining example of this wherein the statutes emphasised on autonomy of individuals. The State has thus transitioned into a liberal democracy and in this globalised world is further adapting into a system with minimalist state control.
Similar to the Czech Republic many nations, including those which were under communist and socialist regimes previously such as Russia, have implemented similar liberal democratic structures in their countries economies and with the world better connected than it has ever been, it is only prudent to assume that more countries will follow suit in adopting this model of political and economic governance and administration.
In the end, the only path left which will pave the way towards the growth of economy and individuals is liberal democracy. Using Fukuyama’s prediction of the eventual global triumph of political and economic evolution, the State must adapt to liberalism or face redundancy.
[1] John A. Gould, The Politics of Privatisation (first published 2011 by Lynne Reinner Publications
[2] Andrew Schwartz, The Politics of Greed (first published 2006 by Rowman & Littlefield Pubilcations)
[3] Olga Pouperova, ‘An Introduction to the Czech Legal System and Legal Resources’ (2013) <http://www.nyulawglobal.org/globalex/Czech_Republic1.html> accessed 20-03-2018
[4] Ministerstvo vnitra, ‘Czech Civil Code (Act No. 89/102 Coll.)’ (2015) <https://portal.gov.cz/app/zakony/zakonPar.jsp?idBiblio=74907&nr=89~2F2012&rpp=15#local-content> accessed 20-03-2018
[5] Rutland Jezek, ‘Main Changes & New Issues in Czech Inheritance Law’ (2014) <http://www.rutlandjezek.com/gb/menu/12/news/clanek-182-main-changes-amp-new-issues-in-czech-inheritance-law/> accessed 11-03-2018.
[6] Vladmir Tuschel, ‘Inheritance Tax in the Czech Republic’ (2007) <www.cfe-eutax.org/taxation/taxation/propety-taxes/inheritance-tax/czech-republic> accessed 21-03-2018.
[7] Havel Holasek, ‘New developments in real estate acquisition tax from 1 November 2016’ (2016) <http://www.havelpartners.cz/images/stories/publikace/legal_news_l-2017_hhp_en.pdf> accessed 19-03-2018
[8] Achour & Hajek, ‘The New Czech Real Estate Law’ (2012) <http://www.achourpartners.com/upload/publikace/58b7a1daaece5.pdf> accessed 19-03-2018
[9] Francis Fukuyama, The End of History of Man (first published Simon & Schuster; reissue edition (2012)
Bhrigu A. Pamidighantam 
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