Prepare to Die

This post explores cross-border estates and the EU Succession Regulation.

Cross-border issues arise whenever a somebody holds assets in more than one jurisdiction, or has a will made under the law of another jurisdiction, or there is some other factor linking the client with another jurisdiction.

It is increasingly rare to find a someone who does not have such connections:

• property abroad, whether a holiday home or stock options,
• a child who is now living and working in a different jurisdiction,
• a parent, spouse, civil partner or cohabitee who was born abroad or who has a different nationality.

In a globally interlinked world, any of these facts can create cross-border issues and the EU is working on the assumption that there are approximately 450,000 cross-border successions every year.

There is an enormous amount to take into consideration when structuring one’s local and foreign assets including potential tax consequences, forced heirship rules, the existence of Double Taxation Agreements, the legal framework of each country, the law of situs, and the effects of the EU Succession Regulation.

If you do have foreign assets, it is vital to ensure that any experts involved in structuring your estate – including both local and foreign assets – have full sight of your worldwide estate to ensure consistency and applicability and to save a potentially costly, time-consuming legal dispute following your death.

In the UK and many countries whose laws are influenced by the common law, immovable property is always subject to the local succession law, while movables are governed by the law of domicile. UK-situated assets are always subject to inheritance tax, as are the worldwide assets of persons UK-domiciled or deemed domiciled, subject to one of the 10 current double tax treaties.

Other states have completely different rules. The most common rule is that succession law is governed by the law of nationality and that the entire estate, both movable and immovable, is governed by that law. Send the client to the Outer Mongolian lawyer to prepare a will for Outer Mongolian assets and he is likely to be sent straight back, saying that British law must apply and that a British will should deal with the Outer Mongolian assets.

Surviving family members are often puzzled to learn that the law in Scotland is different to that in England and Wales or Northern Ireland and that the Channel Islands are not part of the UK.

The historic conflicts stem from the entirely different succession laws that apply across states. These differences do not simply boil down to the perennial clash between testamentary freedom (broadly applied in common law jurisdictions) and forced heirship (found in many civil law and Nordic jurisdictions). The differences are even more involved. Examples of this include the multiple variations of forced heirship within civil law jurisdictions; and the lack of a common succession law language – domicile in one country can mean something entirely different elsewhere.

Given this plurality, it is inevitable that conflicts and uncertainty arise.

In the European Union, the Succession Regulation (EU) 650/2012, which became applicable on 17th August 2015 across many EU Member States, has completely changed the private international law landscape and introduced uniform rules across the participating Member States. The effects of the Succession Regulation are still being discovered and explored, and this is a complicated area, but will be outlined with some examples below.

The Regulation

The EU Succession Regulation was introduced with the aim of unifying succession laws across EU member states. For individuals who hold assets in those EU member states who are signed up to the Regulation, the default position is that the succession of those assets on death will be governed by the law of the country in which the individual died habitually resident. Alternatively, such an individual may choose, in their will, to apply the law of their nationality to the succession and administration of their estates. All EU member states have signed up to the Regulation with the exception of the UK, Ireland and Denmark.

Where the Regulation applies, when an individual dies, the default position is that the law applicable to the succession of that individual’s estate, regardless of where the assets in their estate are situated, and whether moveable or immoveable, will be the law of the country where the individual was habitually resident at the time of their death. The intention is that only one succession law will apply. The default position can be overridden by an election in an individual’s will for the law of the individual’s nationality to apply instead. Multi-nationals can choose any of their nationalities. The default position can also be overridden if an individual was manifestly more closely connected with another country when they died, for example they had only just recently left that country.

Examples of how the Regulation Might Affect you

If, for example, an individual lives and is domiciled in Scotland and owns a holiday home in France, then France will apply the Regulation. The holiday home in France will likely be governed by French law because Scottish law says that immoveable property located in France is governed by French law. However it is possible for that individual to make a Will in Scotland in which they choose Scottish law to apply to the Succession of their estate as a whole. In that case, France should apply the rules in the Regulation and Scottish Law should apply in relation to the succession of the whole estate, including the holiday home in France.

If someone who was born in Scotland moves to live in Cyprus and becomes domiciled there, owning houses in both Scotland and Cyprus, there could be a conflict between which law is to apply. Cyprus will apply the rules in the Regulation. This would mean that Cypriot law would apply to both the house in Scotland and the house in Cyprus. However Scottish law would apply Scottish law to the house in Scotland because it is immoveable property located in Scotland. This could lead to uncertainty and possible disputes. It would be possible to remove this uncertainty by including a choice of Scottish law in their Wills. Cyprus would then apply Scottish law to their estates as a whole, including both houses.

If you have connections with a Member State who has implemented the Regulation, the Regulation may not just affect who benefits from your estate when you die, it can also affect who administers your estate, how your estate is taxed and if certain family members are automatically entitled to shares in your estate.

If you believe that the Regulation may affect you, you should review any existing Wills to make sure that no amendments are required. It is better to make a Will than to have a costly and time consuming cross-border legal dispute following your death.

If you own heritable property abroad it may still be beneficial to have a Will in that country dealing with the heritable property there as the Will should be drafted in accordance with local formalities and may make the transfer of that property easier. Both Wills should include the same choice of law.