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02/07/14

THE EU SUCCESSION REGULATION – A GIFT FROM EUROPE?

Succession planning for families where there is an international or European dimension is complicated and, so, anything which might simplify the position is welcome! The European Succession Regulation No.650/2012 (or “Brussels IV”) promises that.

Brussels IV will apply to the estates of individuals dying after 17 August 2015 and in all of the EU Member States except the UK, Denmark and Ireland, who have opted out.

Why is Brussels IV probably good news?
Succession planning where European countries are involved is rarely straightforward since there can be conflicts between the relevant countries’ respective “private international law” (the rules which determine which country’s law decides a particular question, such as whether a particular gift is valid or not or whether a succession document is validly executed) and domestic succession laws. For example, most continental European countries have a Civil Code that prescribes how most of a deceased person’s estate should pass according to his family circumstances. This differs starkly to the domestic law of England where, subject to limited statutory control, an individual is free to dispose of his assets as he wishes. Even as between different Civil Code countries there are differences of approach.

Consequently, there are presently numerous factors which need to be fed into the succession equation in order to formulate effective succession arrangements for an individual where there is a European dimension.

How does Brussels IV potentially help?
Brussels IV attempts to harmonise the approach to succession across the EU and, even though the UK, Denmark and Ireland have opted out, it still affects them.

Brussels IV aims to ensure that only one law determines how an estate is dealt with across the Brussels IV zone.

  • The default position is that the law of the state in which the deceased was “habitually resident” applies to succession to assets across the Brussels IV zone.
  • The state of habitual residence need not itself be a Brussels IV state.
  • If, however, the deceased was “manifestly more closely connected” with another state the law of that other state governs succession.
  • The deceased may choose the law of his nationality to apply to succession to all of his assets across the Brussels IV zone.
  • Where a person has more than one nationality he may choose the law of any one of them.
  • The selection of the law of nationality must be made expressly in a will or analogous document.
  • Generally the selection of the law of nationality means applying the domestic succession laws of that state to succession to assets in the Brussels IV zone.

The application of these clear rules to the estates of individuals dying after 17 August 2015 should simplify matters.

But, not all is plain sailing!

The legal effect on succession of matrimonial property regimes (a concept that exists in continental Europe and certain other countries) is beyond Brussels IV.

Furthermore, a Brussels IV state may refuse to apply the law of another state if that would be “manifestly incompatible with the public policy” of that state.

How is Brussels IV likely to apply in practice?
Here are a few examples:

UK nationals habitually resident in the Brussels IV zone
The law of the state of “habitual residence” will apply to assets in the Brussels IV zone.

Due to the UK opt-out, if the expatriate UK national owns English land this will still pass in accordance with English law.

But, if the state of habitual residence is a Civil Law country, the court there, when determining how the Brussels IV zone property should pass, may bring “offending” gifts of English land into account and thus enlarge the shares of family members who are given fixed entitlements by the law of that country.

On the other hand, if the UK national elects to apply the domestic succession law of England (being the part of the UK with which he is most closely connected) to assets within the Brussels IV zone he will be able to import English law and its principle of freedom of succession.

UK nationals habitually resident in England with assets in the Brussels IV zone
For assets in England, England will apply its own private international law principles – English law would govern land and the law of domicile would govern all other assets located in England.

If the UK national does not elect for English succession law to apply in the Brussels IV zone, English succession law (including English private international law) would apply and that might result in succession issues being governed by the laws of another jurisdiction, for example, to the law of the country where the land is located.

If the UK national elects for English domestic succession law to apply in the Brussels IV zone then the relevant Brussels IV state should apply that law to determine the destination of property located in that state. This course is probably better.

What should you do now?
In our view anyone who:

  • lives in;
  • owns property in; or
  • is moving to or from a Brussels IV state

Should obtain advice on how Brussels IV and the laws of the relevant states may impact upon his or her succession planning.

As part of the exercise it would be sensible to review any documents affecting succession to matrimonial property – as mentioned matrimonial property regimes are beyond the scope of Brussels IV.

In general terms we recommend that UK nationals make elections that their assets located in the Brussels IV zone should pass according to English law.

Where an individual is a national of a Brussels IV state but is also a British national it may be helpful to elect that English law should govern succession to assets located in the Brussels IV zone. This would provide freedom for the individual to decide how assets should pass.

But, the unknown factor at present is the attitude of continental European courts to that. Would, for example, a French court decide that such a step by a dual French and British national amounted to a breach of French public policy? We shall have to wait until after August 2015 to discover the attitude of continental courts and, ultimately, that of the European court on this question.

In the meantime, Brussels IV appears to be good news for UK nationals living in or owning assets in the Brussels IV zone.