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). 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.
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.
