Constitution and Contributions to Protected Estates

How to protect them and in what way? We explain the meaning of protected estate.

Protected estate is understood as the patrimonial mass that will satisfy the current and future needs of a person with a disability. This implies that said mass can be allocated to the payment of the beneficiary person's housing, food, medical care, and other associated needs that a person may require.

It is a set of assets and rights to which their yields are associated and which are contributed free of charge by family members or by the interested party themselves. This protected estate receives its name due to its administration, supervision, and taxation regime, since it is supervised by the Public Prosecutor's Office and also has tax benefits.

The protected estate is regulated in Spain by Law 41/2003 of 18 November, on the Patrimonial Protection of Persons with Disabilities. This law has undergone a significant reform by Law 8/2021, of 2 June, which is complemented in the tax field by Law 35/2006, of 28 November.

In Catalonia, it is also governed by articles 227-1 and following of Book II of the Civil Code, which have preferential application over Law 41/2003.

Let us look at its requirements:

According to Law 41/2003, this tool may only be allocated to people who justify and are in possession of a certificate or who provide a court ruling for being affected by a disability:

• psychic equal to or greater than 33%.
• physical or sensory equal to or greater than 65%.

It may be constituted by:

• Disabled persons who have sufficient legal capacity to act for their own benefit.
• Those who provide support to persons with disabilities.
• The trustee or holder of the succession trust.

We understand contribution to protected assets as income, whether monetary or in kind (in goods or rights) free of charge within an already established protected estate for a disabled person. Thus, examples of contributions to protected assets can include money, real estate, farms or land, jewellery, vehicles, companies, investment funds, securities, shares or stakes in commercial companies, public debt issues, insurance, life annuities, etc…

Contributions to the protected estate can be made by the disabled person themselves or by relatives (parents, uncles, grandparents…). Regarding contributions, and as Notaries in Barcelona, we recommend that those making them establish a purpose for them for when the protected estate is terminated. It is advisable that this latter point is reflected in the procedure of the public deed of contribution to protected assets.

Both contributions and the constitution must be reported to the Prosecutor of the jurisdiction of the beneficiary's domicile.

The heritage administrators can be the people or entities who can act as guardians, such as family members or an entity dedicated to assisting dependent persons.

The administrator's role will consist of preserving the assets, ensuring their productivity, and applying their yield to the beneficiary's needs, being able to defend the heritage in court.

Furthermore, judicial authorisation will be required for the guardian when the beneficiary does not have sufficient legal capacity and it is necessary to manage the disposal or encumbrance of commercial, industrial establishments or real estate, movable property, lease assignments exceeding 6 years, or loans, among others.

For the control and supervision of the administration, people and control mechanisms such as audits can be appointed. Also, the administrator will report on the management annually, presenting reports on the management of the assets, demonstrating the transparency of their administration and the responsibility with which they exercise it.

It can occur for two reasons. On the one hand, due to the death of the beneficiary or ceasing to have the status of disability. On the other, through judicial procedure if it is beneficial to the beneficiary.

The assets within the extinguished estate will be used as dictated by their contributor in the drafting of the deed, and if none were dictated, the person with a disability will remain the owner. In the event of death, it will be integrated into their inheritance.

Contributions to the protected estate offer tax advantages for the participants and, moreover, constitute one of the differences between regional and national taxation.

The taxation of contributions will depend on the type of contribution made, who makes it, and its amount, and it is a very complex subject. If you wish to establish a protected estate and make contributions, we will explain it to you in detail. However, we distinguish:

Monetary contributions made by third parties will be considered as employment income up to €10,000 per year per contributor, with an annual limit of €24,250, being able to reduce the IRPF from their taxable base up to €10,000 per year provided they are direct line family, collateral or spouse, who have the beneficiary under guardianship or foster care.

Contributions in kind will imply that the person with a disability will be subrogated in the position of the contributor.

Likewise, legal entities can also make contributions to the protected assets of workers, relatives up to the third degree, spouses or dependents of workers under guardianship or foster care.

Furthermore, the protected assets of people with disabilities are exempt from the Transfer Tax and Stamp Duty, but they must file it to have their exemption recorded.

In the case of the Inheritance and Donations Tax, contributions are not subject if they qualify as employment income.

In this case, the tax benefits do not apply to the IRPF and, in general, they are more limited benefits. However, there is a 99% exemption on the Wealth Tax in relation to the assets that correspond to the protected estate. In the Inheritance and Donations Tax, there is a 90% reduction on the excess contributions to be considered as employment income. Likewise, they will be exempt from the Transfer Tax and Stamp Duty.

The Notary plays a fundamental role as they are the only legal professional who can grant the public deed constituting the protected estates. The Notary proceeds with the creation of the notarial document constituting the protected estate and is also responsible for preparing the document for contributions to the estate.

From the very beginning, they will advise the parties involved so that the procedure takes place within the law, complying with current regulations, guiding and offering legal advice to protect the person's estate.

Furthermore, they provide public certification to the acts and confer legal certainty, and will facilitate the registration of the document as such.

Once advised, the deed will be drawn up, which will include the inventory of assets and rights, the administration and supervision of the protected estate will be established, and the provisions that must be included will be set out. The signing of the public deed of the protected estate will then take place.

The relevant simple or authorised copies will be delivered, and the constitution will be communicated to the Prosecutor of the jurisdiction of the disabled person's domicile. Finally, the registration of the document in the Civil Registry will be carried out. We must not forget the registration in the Property Registry in the case of contributions of real estate (homes) or real rights, and in other registries according to what is contributed to the estate.

For the public deed of constitution of assets, the following will be necessary:

• The identification document of the person constituting it and of the persons acting as administrators.
• Proof of disability or handicap of the person receiving the protected assets.
• Inventory of goods and rights that will make up the total protected assets.
• Property titles.
• Mechanisms for oversight and administration.
• Family book (if the assets are constituted by the parents).
• Certified copy of the judgment (to accredit guardians or trustees).

In this case, and as it is a procedure carried out after the constitution, it will simply be necessary to provide:

• Valid identification document of the contributor.
• The original deed of constitution of the estate.
• The identification of the assets being contributed.

The price for the establishment and contribution of protected assets is determined by the Notarial fee, which varies depending on the amount contributed, the total number of pages of the deed, the authorised copies required, the registration process in the Civil Registry, or possible changes or additions.

To obtain a personalised quote, we invite you to contact us directly through the method that is most convenient for you. You can choose to do so via the contact form on the main page of this website, through the contact section found in the footer of the website, using the direct access to WhatsApp at the bottom right of this page, by sending an email to bcn@jlanotarios.com, or by calling us on 93 159 17 62. We will provide you with an individualised quote tailored to your specific case.