European Union: Ties To The EU? Review Your Will Now...

Everyone with ties to the EU by reason of nationality, habitual residence or simply owning assets in an EU Member State should review their Will in light of this new EU regulation which applies to the succession of persons who die on or after 17 August 2015. Iris Harvey, Partner in London, explains the implications.

Traditionally each country has its own conflict of law rules to determine the jurisdiction and the applicable law of succession. National conflict of law rules are complicated and differ widely in terms of the connecting factor, for example, is it domicile, residence, nationality or habitual residence that counts? The rules may also differ depending on whether the assets in question are movable or immovable. Uncertainty and disputes can result from the application of these diverse rules in cross-border estates. It is important to know which country's laws will govern who inherits an estate because many countries provide that certain shares in an estate are reserved for close family members (so called forced heirship) whereas under English law and other common law systems you can usually leave your property to whom you want.

The EU Succession Regulation attempts to create a unified framework for determining which country will have jurisdiction over an EU estate and which country's succession laws will apply to those assets. The Regulation applies in 25 of the 28 EU Member States: the UK, Ireland and Denmark are not parties. This does not, however, mean that the Regulation will not apply, for example, to a UK resident domiciled in France or who holds assets in Italy. In other words, the Regulation affects the way in which conflict of law rules in the UK interact with the rules of the EU Member States where it does apply. The Regulation will also have implications for non-EU nationals such as Swiss citizens who have assets in EU Member States.

In broad terms, the default position under the EU Succession Regulation is that the law applicable to the succession as a whole is the law of the state in which the deceased had his or her habitual residence at the time of death. However, the default position is overridden if the deceased was manifestly more closely connected with another country when he or she died (for example, because the deceased had only just moved out of it). This was introduced to prevent people from moving shortly before death to frustrate the forced heirship rules of the country of their closest connection. Unfortunately, it waters down the certainty of the default rule.

Fortunately, one can choose in a Will or Codicil to apply the law of one's nationality instead. This has advantages in that for many people choosing to apply the law of their nationality will ensure that their estate is governed by the law with which they are most familiar. Making a choice of the law of nationality will also reduce uncertainty if it is not clear where an individual is habitually resident or whether an individual is more closely connected with another country.

A UK national can choose to apply the law of the jurisdiction within the UK with which he or she is most closely connected (that is, England and Wales, Scotland or Northern Ireland). The same applies to other countries with more than one legal jurisdiction (such as the USA, Canada, Australia and Switzerland) unless the country concerned has its own rules about this.

It is important to note that if a Will has already been made prior to 17 August 2015 in accordance with the law of nationality, the individual may be treated as having chosen to apply that law even if the Will does not mention this. This may mean that a Will does not have the effect that was expected when it was made.

Countries where the EU Succession Regulation does not apply will continue to apply their own conflict of law rules.

 By way of example let's look at Anne and Bruce who are British and live in Cyprus. They are domiciled there, but are most closely connected to England in the UK. They own houses in Cyprus and Devon. They want to know how the Regulation affects these properties.

Cyprus will apply the rules in the Regulation. If Anne and Bruce do nothing, Cyprus will apply Cypriot law, including its forced heirship rules, to both properties. However, England will apply English law to the house in Devon because it is immovable property located in England. This will lead to uncertainty and potential disputes if Anne and Bruce want to override Cypriot forced heirship rules for the property in Devon.

Anne and Bruce can remove this uncertainty by including a choice of English law in their Wills. Cyprus will then apply English law to their estates as a whole, including both houses.

Making this choice will also mean that English law will apply to Anne and Bruce's other assets (that is, their movable property in both countries) instead of Cypriot law.

The EU Succession Regulation does not only affect who receives an estate on death and which court decides any disputes about an estate. It may also affect who administers an estate and who can make claims against an estate. Although the Regulation does not change the tax law of any country, inheritance taxes often depend largely on who inherits the estate. For example, a jurisdiction may tax assets that pass to a testator's children at a lower rate than assets that pass to other relatives or to non-relatives (including trustees). If the Regulation changes who receives assets from an estate, this will probably have a knock-on effect on how it is taxed. It is important to take all these factors into account when making a Will or carrying out other estate planning such as making gifts or creating trusts during one's lifetime.

The idea behind the EU Succession Regulation is to create certainty so that individuals know in advance which courts will have jurisdiction and which law will apply to their assets, thus enabling them to plan accordingly. It is, however, recognised that there are still unanswered questions, especially with regard to how the Regulation will be implemented in practice. It remains to be seen whether the sought after certainty is achieved.

What is evident is that careful consideration needs to be given to the interplay of these new rules with your individual circumstances and with any existing Wills to ensure that your estate will pass to your chosen beneficiaries in the most tax efficient way and to minimise the risk of costly disputes. It is important to take specialist advice and to get it right. Maitland can advise on Wills and other estate planning tailored to your specific circumstances, taking into account your residence, domicile and nationality status as well as any changes you expect in future. It is essential to co-ordinate Wills and planning in each country concerned and we can liaise with foreign advisers on your behalf.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.