Estate Planning: Keys to Avoiding Conflicts with the Usufruct of Shares and Equity Interests.

At the beginning of an estate planning process, we consider, among many other things, fostering a suitable environment and avoiding conflicts for future generations. Therefore, we use wills or succession agreements to anchor the elements of the succession so that, at the time of the decedent’s passing—and even thereafter—his wishes are not associated with unnecessary confrontations among his heirs and estate beneficiaries.

It is common that among the elements used for distributing the estate’s assets, we encounter usufruct. In fact, in Catalonia, the Fourth Book of the Catalan Civil Code grants the spouse the usufruct of all the decedent’s assets in an intestate succession. Thus, we understand that usufruct is, at the very least, a little-known concept in the world of successions, whether testate or intestate.

Now then, what does usufruct entail? And specifically, what does the usufruct of shares or equity interests entail? The Capital Companies Act (hereinafter: “LSC”) regulates this concept in its Articles 127 and 128, establishing that the usufructuary is entitled to the dividends agreed upon by the company during the usufruct period, while the status of shareholder remains with the bare owner—and with it, all political rights. The direct consequence is that, unless otherwise provided in the deed of establishment, the decision regarding the distribution of dividends will generally rest with the bare owner.

Having said the above and following this reasoning, Article 128 of the same law regulates default liquidation rules for the usufruct, supplementary to what is established in the deed of establishment. These rules are, in principle, harmless and, as always, devised by the legislator to ensure that the usufructuary is not left unprotected, which may result in a situation where, if no dividends are distributed by the company, the usufruct right transforms into an expectation to obtain the corresponding share of the reserves at the time of its liquidation by the usufructuary or their heirs.

In other words, unless otherwise agreed, since the decision on whether to distribute dividends rests with the bare owner—and hence the law protects the usufructuary in cases where the bare owner does not approve a dividend distribution—then, in accordance with the usufruct liquidation rules provided in the LSC, the usufructuary, or failing that their heirs, will be entitled to the company’s reserves generated and not distributed throughout the duration of the usufruct.

As already mentioned, the liquidation rules contained in Article 128 of the LSC are not mandatory, but can be modified in the deed of establishment—in this case, in the will or succession agreement. Therefore, it is very important to moderate and consider the effects of these liquidation rules so that the bare owner does not eventually have to face the payment of a portion of the increase in the value of the shares, especially in cases where the bare owner has not opposed the dividend distribution to block the usufructuary from obtaining them, or when, although the usufructuary has not received a dividend—say, on an annual basis—they have still benefited reasonably from the usufruct, considering that dividend distribution also depends on the company’s interests and not solely on the bare owner’s will. In summary, limiting the usufructuary’s right at the time of the liquidation does not strip the usufruct of its value, but rather prevents conflict between the usufructuary (or their heirs) and the bare owner at the time of liquidation, since the default liquidation rules established by the LSC create an expectation in the usufructuary or their heirs that may have never been anticipated by the bare owner.

Finally, as a guideline to limit these rules, let us recall the case law of the Supreme Court STS (Civil) of March 20, 2012, No. 125/2012, as well as the recent judgment of the Provincial Court of Barcelona that reflects the case law of the Supreme Court SAP Barcelona of July 19, 2024, No. 518/2024, regarding the content of usufruct and the relationship between the usufructuary and the bare owner.