Adjudication on the Division of Inherited Property | Judgment on Whether Death Insurance Proceeds Received by an Heir by Representation Constitute a Special Benefit Under the Civil Act

Before the decedent A passed away, B, one of the decedent's children, died first.

Before B's death, the decedent had entered into a life insurance contract designating B as the insured and B's heirs as the insurance beneficiaries, and had been paying the premiums as the policyholder.

Subsequently, A passed away, and the opposing parties, who were B's heirs and thus A's heirs by representation, came to receive the insurance proceeds at issue in this case.

The claimants, who were A's heirs, and the opposing parties came to seek an adjudication on the division of inherited property through a principal adjudication and a counter-adjudication.

The lower court determined that the insurance proceeds at issue in this case constituted a special benefit under Article 1008 of the Civil Act, and it included these insurance proceeds in the inherited property subject to division when calculating the specific inheritance shares of the opposing parties.

Article 1008 of the Civil Act (Inheritance Share of a Special Beneficiary)

Where any of the co-heirs has received a gift or testamentary gift of property from the decedent, and such donated property falls short of his or her own inheritance share, that heir has an inheritance share to the extent of the shortfall.

The Supreme Court, however, reversed the lower court's decision and remanded the case to the Seoul High Court, the lower court.

1. Whether, where an heir by representation received a gift from the decedent before the occurrence of the cause for representation, the amount of the gift received by the heir by representation constitutes a special benefit (negative)

2. Where the decedent entered into a life insurance contract designating the person represented as the insured and the heir by representation as the insurance beneficiary, paid the premiums as the policyholder, and the heir by representation received the life insurance proceeds upon the death of the person represented, the timing of the gift (the time of designation as the insurance beneficiary) and whether such insurance proceeds constitute a special benefit (negative)

-The purpose of Article 1008 of the Civil Act, where any of the co-heirs is a special beneficiary who has received a gift or testamentary gift of property from the decedent, is to ensure fairness among the co-heirs by treating such donated property as an advance on the inheritance share and taking it into account when calculating the specific inheritance shares.

-Where an heir by representation received a gift from the decedent before the occurrence of the cause for representation, this was not received in the capacity of an heir and therefore cannot be regarded as an advance on the inheritance share. Were it otherwise regarded as an advance on the inheritance share, an unreasonable result would arise in which property that would not have constituted a special benefit had the decedent died first before the person represented becomes a special benefit owing to the fortuitous circumstance that the person represented died before the decedent. Accordingly, it is reasonable to hold that such a benefit of an heir by representation does not constitute a special benefit.

-In determining whether something constitutes a gift to be included in the inherited property subject to division for the calculation of specific inheritance shares, one must not stop at grasping the legal nature of the decedent's disposition of property in a formal and abstract manner. The determination must be made according to whether the disposition of property constitutes, from a substantive standpoint, a gratuitous disposition that reduces the decedent's property.(See Supreme Court, Judgment of August 19, 2021, 2017 Da 230338; Supreme Court, Judgment of August 11, 2022, 2020 Da 247428)

- Where the decedent entered into a life insurance contract designating the person represented as the insured and the heir by representation as the insurance beneficiary, paid the premiums as the policyholder, and the heir by representation received the life insurance proceeds upon the death of the person represented, it is reasonable to hold that a gift substantively reducing the decedent's property had already occurred at the time the heir by representation was designated as the insurance beneficiary.

In this way, so long as the heir by representation was designated as the insurance beneficiary before the occurrence of the cause for representation, even if the heir by representation thereafter received the life insurance proceeds upon the fulfillment of the condition of the death of the person represented, the proceeds were not received by the heir by representation in the capacity of an heir, and the opinion was therefore that they cannot be regarded as a special benefit constituting an advance on the inheritance share.

Setting out the above legal principles, the Supreme Court held that, because a gift to the opposing parties had already been made at the time A designated them as the insurance beneficiaries before B's death, the insurance proceeds at issue in this case, which the opposing parties received after B's death, were not received in the capacity of heirs and therefore did not constitute a special benefit amounting to an advance on the inheritance share.

Accordingly, the lower court had regarded the insurance proceeds at issue in this case as inherited property subject to division for the calculation of the opposing parties' specific inheritance shares, but the Supreme Court determined that this finding misapprehended the legal principles concerning the special benefit of an heir by representation, and that this error affected the outcome of the case.

Whether an inter vivos gift constitutes a special benefit must be determined by considering the decedent's lifetime assets, income, standard of living, and family circumstances, taking into account fairness among the co-heirs, and according to whether the inter vivos gift can be regarded as advance provision of part of the share of inherited property that would in the future accrue to the person who is to become an heir.(Supreme Court, Judgment of December 8, 1998, 97 Meu 513, 520, 97 Seu 12)

Where the value of a special benefit exceeds the inheritance share, the special beneficiary is under no obligation under the Civil Act to return the excess.

If you need legal advice regarding an adjudication on the division of inherited property, you are welcome to request a consultation with the Family and Inheritance Group of Daeryun Law Firm LLP at any time.