Author: Helena Luckhurst
This article is taken from Helena Luckhurst’s blog The Wealth Lawyer UK
Finally, the EU Succession Regulation (Brussels IV) is fully in force. It’s been a long time coming. Part of it came into effect as long ago as 2012 but in recent months, as 17 August 2015 (‘coming into force’ day) approached, there has been much more discussion about what Brussels IV is going to mean in practice. Essentially, if you or your clients hold assets in virtually any EU state, or have a residency or nationality connection with an EU state, Brussels IV affects you. This blog does not attempt to explain what Brussels IV is (see my September 2013 blog for the basics: ‘Succession planning for EU residents: a major development’). Instead, it gives the latest thinking on how Brussels IV might apply in practice and what to do now.
The laudable aim of Brussels IV is to enable EU citizens with assets and connections in EU states to be able to estate-plan with greater confidence. Each EU state has its own set of rules to determine how assets devolve on death (succession); often they conflict with each other. Brussels IV lays down a set of rules for determining which jurisdiction’s rules prevail in situations where a number of different jurisdictions could have a say in the matter, perhaps due to whatever happens to be the person’s nationality, residency, habitual residency or domicile at the date of death.
So who will be affected? The following examples demonstrate the wide impact that Brussels IV will have:
BOB, a British national, habitually resident in England, with a second home in France
France should apply Brussels IV on Bob’s death, which provides that English succession rules apply because Bob is habitually resident in England. Brussels IV is not recognised in England, though (Britain, Ireland and Denmark opted out of it). English private international law states that the laws of the country in which the real estate is situated should govern how it passes on death, so the matter reverts to France. France will apply its domestic forced heirship rules. If the property is valuable, that is likely to have adverse Inheritance Tax consequences for Bob’s estate. Brussels IV does not extend to taxing rights, but how a property passes on death often has tax implications, so indirectly Brussels IV has tax consequences.
Things could have been different, though. Brussels IV allows a national of any country to opt for the law of their nationality to govern their succession instead. If Bob had made a Will and included a choice of law clause in it, electing to have property dealt with in accordance with the laws of England (technically, England and Wales), which Brussels IV allows, France would have to apply English law instead (with no reversion to France).
To make dealing with the French property after Bob’s death as easy as possible, English lawyers will usually advise that it is better to make a French Will limited in its scope to dealing with French situated assets only, and an English Will for anything else. There is currently some debate as to whether it is possible, or even desirable, to include a choice of law clause in more than one Will (especially if one of those Wills is an English Will); and, if Brussels IV calls for English succession rules to apply in France, whether France will have to accept the English way of administering estates, i.e. usually with a middleman called an executor involved. These are examples of two Brussels IV issues that are yet to be ironed out.
STEPHANIE, a US national, habitually resident in New Jersey, with a second home in France
Depending upon how the applicable US succession rules operate, the outcome could be the same for Stephanie as it is for Bob. It makes no difference that Stephanie is not a national of an EU state. Brussels IV says that she can still make a choice of law election in her Will for the law of New Jersey to apply to the succession of her estate.
GRAHAM, a British national, habitually resident in Spain
Let’s assume that Graham has retired to Spain and intends to stay there permanently. Brussels IV will result in Spain applying Spanish law to Graham’s worldwide assets (although countries not bound by Brussels IV may attempt to apply their own succession rules regardless). If Graham would prefer his assets to pass in accordance with the relative freedom afforded by English succession rules, he will have to include an English choice of law clause in his Will, at which point Spain should apply English succession rules to his entire estate as long as Graham is still UK domiciled.
STEFAN, a German national, habitually resident in England
Stefan moved to London to work in the City and brought his family with him. He rents out their former home in Germany. Stefan will want to ensure that there is no doubt that he is regarded as habitually resident in England if he wants English succession rules to apply to any real estate he owns in England. However, English private international law will say that German succession rules apply to his German real estate and his non-real estate wherever situated, as long as he is domiciled in Germany on death.
Life has a habit of not being as straightforward as the above examples, of course, but the simple message to take away is that if someone owns assets in an EU member state, they need to be advised now about how Brussels IV will affect their Will and estate planning. Brussels IV is here, even if we don’t entirely understand how it will apply in practice yet.