Property in Europe? – New EU Cross-Border Rules.
EU SUCCESSION REGULATION – NEW CROSS-BORDER RULES
The EU Regulation No 650/212 will come into force on 17 August 2015. It affects individuals with property in more than one EU state and aims to harmonise succession rules across the Member States.
Although the Succession Regulation (commonly known as Brussels IV) was passed in 2012, it becomes effective on 17 August this year and it will only apply to estates of people who die on or after that date.
Although the UK (along with Ireland and Denmark) opted out of this Regulation, it still has implications for anyone who owns assets in any of the other EU states which are members, in particular places such as Spain, France or Italy.
The Regulation applies a single national law of succession to a person’s moveable and immovable property passing on death whether the person has made a will or not. The applicable law is the law of the country where the deceased had his or her habitual residence, unless:-
the deceased was manifestly more closely associated with another State (which will be decided on case by case basis), or
the deceased elected in their will for their national law to apply.
With the increased mobility of individuals, particularly across the European Union members States, problems arising from cross-border issues where a person’s estate includes investments or property abroad, and how such assets are to be dealt with in the event of death, have been known for many years. As indicated above, the above Regulation attempts to harmonise succession rules for all Members States and so, whereas in the past different laws could apply depending on where the individual’s assets were based, from 17 August 2015 the general idea is that the law of where the individual had been habitually resident prior to his/her death would apply to all assets in their estate regardless of the location of the asset.
The fact that Ireland, UK and Denmark have opted out somewhat frustrates the purpose of the Regulation, however the Regulation will still have effect on UK nationals with property in other EU countries. This is because a UK testator can elect to choose the law of the nationality to apply even if that State is not a signatory to the Regulation. It is also expected that the choice of law of the opted-out State will be applied within that State. This is particularly relevant to the UK, in particular in relation to the doctrine of Renvoi which applies where there is a potential conflict of laws. More on this later.
The practical implications of the above are as follows.
UK expats resident in other EU states
For UK expats habitually resident in other EU States such as Spain, France etc. without anything else, the local laws, ie. Spanish, French etc. will apply to succession in the event of their death. This is, of course, very significant given that these countries impose local forced heirship rules which, for example, do not apply in England. Typically, it will not be possible, for example, to disinherit ones children as it is possible in England and Wales. Of course those domiciled in Scotland are already familiar with similar rules, namely legitim which applies there. Interestingly the forced heirship rule in Spain is called ‘legitima’.
Clearly English nationals who would prefer for English law to apply to succession on their death should elect in their will for English law to apply. This can be done ahead of 17 August 2015, although it will only apply to estates of people who die on or after that date. This is, of course, the theory and it assumes that local notaries (where a will may need to be registered as is the case in Spain) will be aware of the new rules. For example, it has been reported in expat press in Spain that some notaries were refusing to register a will with an election of the national law on the grounds that UK had opted out of the EU Regulation. Whilst this may not be correct, it illustrates potential problems one may encounter to get things organised.
UK habitual residents with property in another EU state
For English people habitually resident in the UK but with property in another Member State, under the EU Regulation, the relevant law of succession will be of their habitual residence, ie. English, Scottish etc. However, this is where another problem arises. For example, if an Englishman dies with a property in France but with the rest of his estate in England, the French property will pass in accordance with English law. However, under English law, the French property, in accordance with a doctrine known as Renvoi, will, as at present, pass in accordance with French succession rules whilst the rest of the estate will be governed by English succession rules. This will mean that the French forced heirship rules will not be avoided. What the said individual will have to do in order to ensure that the forced heirship is avoided, is to opt for English law to apply to his worldwide estate in which case the doctrine of Renvoi will be specifically excluded.
There is of course a lot more to the Regulation and individuals with assets in more than one country should generally be advised to involve a lawyer practicing in the country in which they are either resident or where they have property. In some cases a separate will may need to be prepared in respect of property located in another EU State and of course even if national law is chosen to apply to succession, this will not regulate matters such as conveyance of property to the legatees or general succession matters such as testamentary capacity, revocation, status of spouses, recognition of divorces etc.
There are also a number of exceptions which apply as well as the principle of ‘public policy’ in accordance with which it is always possible to set aside a provision of an otherwise applicable law if it be incompatible with the public policy of the relevant State. It has even been suggested that it is possible that the concept of forced heirship such as that applying in France, Italy, Spain or Germany may be ruled to constitute a matter of public policy and, in such a case, avoiding it by election for national law to apply may not always be possible in practice.
There are many questions that have been raised as a result of the Regulation that remain unanswered, as a lively discussion on the STEP Trusts Discussion Forum illustrates. It will be interesting to see how things evolve over time. However, given that the Regulation provides both opportunities and pitfalls, depending on the circumstances of the individual, it is important for anyone considering cross-border estate planning to take advice and revisit their will.