European Union: Cross-Border Estate Planning: The EU Succession Regulation

Last Updated: June 4 2015
Article by Carla Figliomeni and Rahul Sharma

A major step in facilitating cross-border succession was the adoption of the Regulation (EU) Nr. 650/2012 (hereinafter referred to as the "Succession Regulation") on jurisdiction, applicable law, recognition and enforcement of decisions and acceptance and enforcement of authentic instruments in matters of succession and on the creation of a European Certificate of Succession. This was adopted on July 4, 2012 and will come into force and be applicable to deaths of residents of the succession countries after August 17, 2015.

Except for Denmark, the United Kingdom and Ireland, the Succession Regulation provides a direct application in all participating member states of the Succession Regulation (hereinafter referred to as the "Member States") and enjoys universal character, in that, the selected law can be the law of a Member State, a third state, or a non-Member State. On a practical level, the Succession Regulation is an important arm in ensuring predictability for estate planners.

Overview of the Succession Regulation

The Succession Regulation introduces novel concepts for cross-border succession planning of individuals with multi-jurisdictional estates and ties to a Member State. The following is a brief overview:

  1. Habitual Residence: The most significant criterion of the Succession Regulation is the adoption of the concept of "habitual residence" instead of nationality or domicile. This means that the law of the country where the deceased habitually lived just before death will govern inheritance issues. In the Member States, one law will govern the entire succession, regardless of the nature or location of the estate's assets. The default rule will, in general, apply the laws of the habitual residence of the deceased except if:

    1. the deceased maintained closer ties with another state, established on a case-by-case basis;
    2. state mandatory laws where the property is located overrule this general rule; and
    3. "renvoi" to another jurisdiction is authorized, depending on the circumstances.
  2. Choice of Law: The second major innovation of the Succession Regulation is Article 22, which allows the general rule of habitual residence to be overridden by the use of the concept of "party autonomy", in order to permit a testator or testatrix to designate his or her national law as the law governing his or her succession as a whole, by expressing his or her choice expressly and in testamentary form. Should a person have a double nationality, he or she may designate one of the two national laws.
  3. Jurisdiction in one Country: While Article 22 allows for a testator or testatrix to select his or her national law to govern his or her succession, the Succession Regulation does not allow a testator to choose the jurisdiction to rule on the succession as a whole. Instead, the courts of the jurisdiction in which the deceased had his habitual residence at the time of death shall have jurisdiction to rule on the succession as a whole.

    However, where the deceased made a choice of law in accordance with the Succession Regulation and the law chosen by the deceased is of a Member State, the parties concerned may agree that the courts of that Member State are to have exclusive jurisdiction to rule on any succession matter. The courts of the Member State in which the deceased had his habitual residence at the time of death can also decline the jurisdiction to govern the succession if it considers that the courts of the Member State of the chosen law are better placed to rule on the succession, taking into account the practical circumstances of the succession, such as the habitual residence of the parties and the location of the assets.
  4. Loi Uniforme: Article 20 of the Succession Regulation provides that any law specified by the Succession Regulation shall be applied whether or not it is the law of a Member State.
  5. European Certificate of Succession: The Succession Regulation creates a European Certificate of Succession. This standard form certificate will allow heirs, legatees, executors or administration to prove their legal status and/or rights in any of the Member States and benefits from direct circulation, as no formality is needed for its recognition in the destination state.

What Canadian Advisors Should Know

The Succession Regulation may impact Canadian nationals who own property in a participating EU member state (and who may also be nationals of that state). Canadian estate planners and advisors should be cognizant of the Succession Regulation if they are approached by a client who meets this general profile, particularly if they or the client is concerned about the potential application of a forced heirship or other particular legal regime to the succession of the client's EU-based property. Although the Succession Regulation will take effect later in the year, it is possible and may be prudent for Wills prepared for dual Canadian and EU nationals at this time to specify that the law of a particular Canadian province should apply to the succession of the testator or testatrix's property.

Particularly given the changing nature of EU law and the jurisprudence which is likely to ultimately emerge from the Succession Regulation, it may be most advisable to involve a lawyer who practices in the EU member state in which a client may have property (and of which he or she may be a national) in order to determine whether:

  1. A separate Will should be prepared in respect of the property located in the EU member state, which Will may specify that the law of the Canadian province in which the client is otherwise resident should apply. Although the Succession Regulation appears to permit such an election to be made, many aspects of the general law of the jurisdiction in which property is located might nevertheless apply to its succession. This is also contemplated in Article 10 of the Succession Regulation. As an example, transfers or conveyances of real property would quite likely need to proceed under the local laws of the jurisdiction in which the property is situated. Similar considerations may apply to the shares of corporations governed by the laws of an EU member state. The Succession Regulation does not appear to permit a client or testator to divert himself or herself from the application of local law in such cases; and
  2. Whether other aspects the law of the EU member state in question (such as matrimonial laws, for example) or public policy considerations may impact the effect of any elections made under and in keeping with the Succession Regulation.

The Unanswered Questions of the Succession Regulation

The principle of Public Policy is a recognized "national" safeguard in Private International Law and it will be possible to set aside a provision of an otherwise applicable law, if said law should be obviously incompatible with the Public Policy of the State. Contrary to Public Policy would mean a significant contradiction to a State's basic social principles. Difficulties will remain for some time as the right to choose the law of the nationality under the Succession Regulation will certainly trigger questions as to what constitutes a contradiction to basic social principles and whether, the concept of forced heirship, prevalent in countries like France, Italy and Germany, might be ruled as being a basic social principle which cannot be trumped by a deceased's testamentary choice of law. If the concept of forced heirship is ruled to constitute a matter of Public Policy, the autonomy provided to a testator or testatrix under the Succession Regulation may be significantly curtailed.

The Succession Regulation appears to leave many questions unanswered. While there are outstanding questions as to which law will apply to the succession of a deceased person's EU-situs property, there are also unanswered questions as to which law applies to other incidental matters such as testamentary capacity, revocation, children's rights and legitimacy, adoption, status of spouses, recognition of foreign divorces, family allowances, matrimonial property regimes, and the ranking of creditors of the estate. The Succession Regulation suffers from exceptions, which underline a renewal of conflict of laws and legal issues that practitioners must keep in mind when implementing the multijurisdictional estate plan. It will be interesting to see how these questions are answered over time, if at all, and whether guidance will emerge from EU courts and tribunals which will be of assistance to Canadian advisors when discuss the impact and implications of the Succession Regulation with their clients.

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.

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Authors
Carla Figliomeni
Rahul Sharma
 
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