2. What Is Subrogation Inheritance?

1. Article 1140 of the Civil Code provides that if an heir in the first order under Article 1138 dies before the opening of succession or loses inheritance rights, that heir’s lineal descendants by blood shall inherit per stirpes the statutory share that the heir would have received.

2. When a first-order heir, meaning a lineal descendant by blood, such as a child or grandchild, dies before the opening of succession or loses inheritance rights, that heir’s own lineal descendants by blood, such as children or grandchildren, may inherit by subrogation the portion that the original heir should have inherited.

3. Assume that the grandchild’s parent, namely the decedent’s child, passed away before the opening of succession, and all first-order heirs in the parent’s generation have waived inheritance. In that case, the grandchild may, under Article 1140 of the Civil Code, inherit the grandparents’ estate in place of the parent.
4. Subrogation inheritance, also known as inheritance by representation, is limited to the decedent’s first-order heirs. If an heir in the second order or a later order dies or loses inheritance rights and therefore cannot inherit, subrogation inheritance does not apply.

3. When Does Subrogation Inheritance Occur?

1. The Heir Being Represented Dies Before the Opening of Succession

• For example, a grandfather owns a townhouse in Xinzhuang worth NT$20 million. Before the grandfather passes away, the father dies in a car accident, leaving behind Grandson A. When the grandfather later passes away, because the father, a first-order heir, has already died, Grandson A may inherit by subrogation in place of his father and inherit the grandfather’s NT$20 million townhouse in Xinzhuang.
• Article 11 of the Civil Code provides that where two or more persons die in the same accident and the order of death cannot be proven, they are presumed to have died at the same time. Subrogation inheritance may still apply in this situation.
• Using the example above, if the grandfather and father were involved in the same accident at the same time, Grandson A may still inherit by subrogation in place of the father and acquire the status of heir to the grandfather’s estate.

2. The Heir Being Represented Loses Inheritance Rights

• If an heir loses inheritance rights for any reason listed in Article 1145, Paragraph 1 of the Civil Code, that heir’s lineal descendants by blood may also inherit by subrogation.
  1. Where the heir intentionally causes the death of the decedent or another heir, or causes harm that does not result in death but leads to a criminal sentence.
  2. Where the heir uses fraud or duress to cause the decedent to make a will concerning inheritance, or to revoke or amend such a will.
  3. Where the heir uses fraud or duress to prevent the decedent from making a will concerning inheritance, or from revoking or amending such a will.
  4. Where the heir forges, alters, conceals, or destroys the decedent’s will concerning inheritance.
  5. Where the heir has seriously abused or insulted the decedent, and the decedent has expressed that the heir may not inherit.

4. Two Ways, Other Than Subrogation Inheritance, to Let Grandchildren Directly Inherit an Estate

1. Designate the Grandchild as a Legatee Through a Will

• Grandparents may make a legally valid will and designate the grandchild as a legatee, directly leaving part or all of the estate to the grandchild by legacy.
• When making a will, attention must be paid to the legal form and requirements of the will. In addition, the contents of the will must comply with the compulsory portion rules under the Civil Code, so as to avoid other legal heirs claiming their compulsory portion and affecting the share of the estate that the grandchild should receive.

2.  The Parents Waive Inheritance

• When the grandchild’s parents, namely the decedent’s children, voluntarily waive inheritance rights, the grandchild may become a first-order heir and directly inherit the grandparents’ estate.
• However, it is important to note that only when all first-order heirs, namely the children, have waived inheritance will it become possible for the next eligible heirs, such as grandchildren, to inherit.
• Waiver of inheritance must be formally filed with the court in accordance with the law. Only after the court approves it for recordation can the grandchildren become heirs.

5. Four Lifetime Planning Methods That May Allow Grandchildren to Directly Receive Their Grandparents’ Property

1. Lifetime Gift: Directly Transfer Property to the Grandchild
   • Grandparents, as future decedents, may consider gradually transferring part of their property during their lifetime by gifting it to their grandchildren year by year.
   • Property gifted during life does not belong to the estate, so the order of inheritance does not apply. This may allow grandchildren to bypass the order of inheritance and directly receive their grandparents’ property.
   • However, special attention should be paid to Article 15 of the Estate and Gift Tax Act, which sets a time limit for lifetime gifts. If part of the property is gifted within two years before the opening of succession, the gifted portion will still be counted as part of the estate.

2. Contractual Trust

• A trust relationship may be established by contract. The settlor, namely the grandparents, transfers trust property to a trustee by contract, so that the trustee may manage, use, and dispose of the trust property for the benefit of the beneficiary, namely the grandchild, in accordance with the purpose of the trust.
• During the existence of the trust relationship, the trust property will not become part of the settlor’s estate, so the order of inheritance naturally does not apply.

3. Life Insurance

• Grandparents, as future decedents, may use the property they wish to distribute to purchase a life insurance policy, list themselves as the insured, and designate the intended heir or legatee, namely the grandchild, as the policy beneficiary, so that the grandchild may later receive the insurance claim payment.
• Under Article 112 of the Insurance Act, where the insurance amount is agreed to be paid to the beneficiary designated by the insured upon the death of the insured, the amount shall not be part of the insured’s estate. Therefore, the order of inheritance likewise does not apply.

4. Nominee Registration

• “Nominee registration,” commonly referred to as using another person’s name, has been defined by the Supreme Court as a contract in which the parties agree that one party registers their own property under the name of another party, while still managing, using, and disposing of the property themselves, and the other party agrees to serve as the registered titleholder.
• Simply put, the party or property owner, the nominee registration principal, registers their property under another person’s name, the registered nominee, while the actual use and management of the property remain primarily with the principal.
  • Nominee registration principal, the grandparents: the person who actually owns the property and continues to manage, use, and dispose of it.
  • Registered nominee, the grandchild: the person who lends their name for registration of property ownership, but may not actually participate in the management, use, or disposition of the property.
• For example, the grandparents, as the nominee registration principals, purchase a house during their lifetime and register the real property directly under the grandchild’s name as the registered nominee. Although the grandparents are the actual owners of the property and have been paying house tax, utilities, management fees, and other expenses during their lifetime, after the grandparents pass away, the property will not become part of the estate and there will be no inheritance issue. Instead, it will directly become the property of the grandchild, the registered nominee.
• Legally, nominee registration is an unnamed contract and is not expressly provided for by statute. As long as the contract does not violate public order or good morals, the law will recognize its validity.
• However, according to Supreme Court judgments, the following types of evidence may be needed to prove a nominee registration relationship:
  • Witness testimony: witnesses who can prove that a nominee registration relationship existed between the parties.
  • Proof of funding and cash flow: including proof of expenses such as renovation costs, mortgage payments, passbook records, and land administration agent fees.
  • Original ownership certificate: to prove actual ownership of the house.
  • Utility bills, taxes, and fee receipts: such as house tax, water and electricity bills, and management fees, showing that the principal actually managed and used the house.
  • Proof of rental income: if the house is rented out, documents such as a lease agreement may be provided.
  • Nominee registration contract: if a nominee registration contract was signed from the beginning, or even notarized, it would be the most direct and effective evidence.
• As long as sufficient evidence above can be provided, the court will usually recognize that a nominee registration relationship exists between the parties, and the registered nominee must transfer the property ownership back to the principal. Therefore, using nominee registration to bypass the compulsory portion also has a critical drawback.