EU Succession Regulation Comes into Force31st August 2015
According to the European institutions, 450,000 cross-border successions take place in the EU every year, representing assets estimated at more than 120 billion euros. It is now common to live in different countries during our lifetime – work in Paris or Brussels, have a second home in Portugal or spend retirement in the Canary Islands. As a result, many British citizens will have assets in multiple countries at the end of their lives.
International Succession Complexity and Forced Heirship
Unfortunately, the international factor often complicates the inheritance process, as different countries have vastly different succession laws and it is not always clear which country’s laws and courts should prevail in a particular case. Moreover, most European countries (including the popular second home and retirement destinations like Spain, Portugal and France) have forced heirship rules in place and you are required to pass a certain portion of your estate (e.g. one half or two thirds) to protected heirs, such as your spouse or children, instead of having complete freedom of testation like in England and Wales.
EU Succession Regulation 650/2012
To simplify cross-border inheritance procedures and eliminate the uncertainties and clashes between individual jurisdictions, a succession regulation was passed by the EU institutions on 4 July 2012. After the member states had about three years for its implementation into their national legal systems, the regulation has come into force and applies to the estates of all people who die on or after 17 August 2015. Besides its official reference 650/2012 it is known in the European and professional circles as “Brussels IV” or “Brussels IV rules”. You can find full text of the regulation here.
Although the UK (as well as Denmark and Ireland) has opted out of this regulation, the rules still apply to British citizens who are resident or have assets in other EU countries.
Single Jurisdiction Principle
The main underlying change is that a single country’s laws will always apply to the entire estate of a deceased person, including movable and immovable property in all “Brussels IV” countries. Decisions made in that matter by the courts of the particular country must be recognized in the other member states.
By default, it will be the country of “habitual residence” immediately prior to death. For example, if you are a British citizen but live in Spain in retirement, Spanish laws will apply to your assets in all the EU countries (but not those in Britain, as the UK has opted out of the regulation). Conversely, if you only had a second home in Spain and still lived in the UK for most of the year, British succession laws would apply to all your British and EU assets.
Overriding the Habitual Residence Rule
The regulation gives you an option to select a different jurisdiction to govern your estate. This can be the country of your nationality (any of them if you hold multiple passports) or a country which you have been “manifestly more closely connected” with prior to death.
Importantly, the decision to change the applicable jurisdiction must have an explicit, verifiable form – typically a Will.
While the new EU succession regulation is a huge step forward, there are still many issues which remain unresolved. For example, it is not entirely clear yet if and how individual countries will recognize gifts prior to death, as different countries have different rules regarding the timing, amounts and other circumstances for such assets to be excluded from the estate. Taxation is another area where individual EU countries both have very different rules and may not be willing to make compromises given the current fiscal difficulties. Another example is different treatment and recognition of trusts and more advanced estate planning tools. While a few years of practice should bring some clarity into some of these issues, others will most likely require further regulations and deeper European integration, which is quite uncertain at the moment.
Get Your Will in Order
If you live or have assets in other EU countries, it is strongly recommended to write a Will or review your existing one to make sure your wishes will be recognized under the new rules. As the above mentioned examples illustrate, even with the new regulation in place there are still complexities and potential problems. You should always seek legal advice before taking any steps.