This article drills into detail of the new EU legal framework through which people will, in theory at least, have more choice over which jurisdictions to use in drawing up wills.

From the middle of August, a new European regime took effect in covering how people can elect to choose jurisdictions for the purpose of making a will. On the face of it, this move seems to be a step forward in expanding the estate planning choices of individuals to reflect the increasingly international lives many people, and not just the wealthy, live. But the devil is in the details. In this article, Barry Adamson, partner at UK-based Berkeley Law, a boutique that deals in legal and wealth advisory matters, considers the new framework. (To see another article around this topic, see here.) This publication welcomes responses from readers and can be contacted at tom.burroughes@wealthbriefing.com

Inheritance questions become more difficult to answer if the person who died resided in one country but owned assets in (or was a citizen of) another or his estate comprises assets that are situated in more than one country.  

It is not possible to advise who inherits a particular asset until the law that governs that issue has been identified. Such identification is simple where only one country is involved. Such identification becomes less simple in relation to a cross-border estate as it involves reference to the ‘conflict of law’ (otherwise known as the private international law) rules of all relevant countries.

Having considered the conflict of law rules of each country involved, it is then necessary to analyse how all these rules interact. Unfortunately, such interaction is often complicated and the outcome unclear. This means that the relatively simple question of who is entitled to inherit when a person dies can be frustratingly difficult to answer.  

A conundrum no more?
The Succession Regulation is intended to cut through this “Gordian Knot” by simplifying how the applicable inheritance law is identified in relation to those estates governed by the Succession Regulation.

2 What estates are governed by the succession regulation?
The Succession Regulation governs the estate of a person with a connection to any one or more of the EU “Member States”.  A person will have a “connection” with a Member State if, at the time of death, they were resident or a national of, or owned assets in a Member State. 

What qualifies as a “Member State” for the purpose of the Succession Regulation is not defined but should include those EU member states which have signed up to it. It is unclear whether those countries, including the UK that have not signed up to the Succession Regulation will be regarded as “Member States” and how the Succession Regulation will be applied by them.

How does the succession regulation apply?
Habitual residence v nationality
The primary purpose of the Succession Regulation is to provide a uniform approach to identifying the law that will govern the inheritance to a person’s estate. This uniform approach is that the law which will govern the succession to a person’s estate will be either:

a.    the succession law of the deceased’s nationality if the deceased has so elected; or 

b.    if no such election has been made either 

i.    the country in which the deceased was habitually resident at the time of their death; or

ii.    the country where the deceased was manifestly more closely connected.

Accordingly, in countries where the Succession Regulation applies, the default position is that the law of a person’s final habitual residence will govern the succession to that person’s estate.  

"Habitual residence"
Although determining a person’s habitual residence is key if the Succession Regulation applies, it is not defined in the Succession Regulation. The concept of habitual residence has been considered in a number of EU law cases. There are a number of factors to be taken into account - it is understood that the amount of time spent is not the sole factor to be looked at in assessing where a person is habitually resident. Although the aim of the Succession Regulation is to simplify the issue of succession, we foresee that the determination of a person’s habitual residence could be a potential source of disagreement.

Choosing law of nationality
An election can be made by will or codicil of the law of any country of which a person is a national either at the time of the election or at death. The election of the law of nationality extends only to that law’s succession rules and the conflict of law provisions of that jurisdiction are ignored.  

If a choice of law had been made 17 August 2015?
The conflict of law rules of a number of jurisdictions (for example Italy and Switzerland) permitted a choice of the succession law to apply to a person’s estate on death. There are transitional rules in the Succession Regulation that prescribe whether such a choice will remain effective.     

Scope of the applicable succession law
The law which applies for the purposes of the Succession Regulation will govern the question who is entitled to inherit when a person dies. The aim is that a single law will govern the succession to a person’s entire estate (the “panacea”) - which might be achieved if all the countries where assets are owned at death adhere to the Succession Regulation. 

a. Property covered by the Succession Regulation – The Succession Regulation applies only to property that forms part of a person’s estate which does not necessarily include all property passing on death.  For example the Succession Regulation has no relevance to those assets that the deceased jointly owned if ownership passes automatically by right of survivorship. Further, any applicable matrimonial regime rules would need to be checked as a preliminary step as these rules can determine whether or not assets form part of a deceased’s estate.

b. Ancillary matters – Although the purpose of the Succession Regulation is to determine which law will govern the question who inherits when someone dies, it can also have a bearing on the following which should therefore be taken into account when deciding whether or not to elect to choose the law of nationality as the applicable succession law – so that this choice is an informed one: 

i.    The persons who are entitled to administer the estate;

ii.    Whether any claims can be made against the estate; and  

iii.    Taxation – The Succession Regulation does not itself determine how an estate is taxed but the Succession Regulation can have an indirect effect.   

4.    Illustration
Glenn and Jacqueline are both British citizens living in England where they are domiciled. In addition to their English assets, they own a holiday home near Nice. France is an EU Member State that has accepted the Succession Regulation. Although the UK is an EU Member State, it has not accepted the Succession Regulation. Accordingly:

•    English succession law will apply to their English assets;
•    Unless an election of their national law is made, English conflict of law rules will apply to determine which succession law governs the devolution of the French property;
•    The effect of these rules (and their interaction with French conflict of law rules) is that the inheritance of the French property will be governed by French law, as the lex situs. This will mean that the forced heirship provisions of French succession law will be relevant;
•    If however, Glenn and Jacqueline elect in their wills to choose English succession law, France should accept that election, and 
•    The effect of the election should be that English succession law will apply to the French property and so override the forced heirship rules.  

Conclusion
Advising who is entitled to inherit from a cross-border estate is often a difficult task and any attempt made to simplify this task is to be welcomed. The panacea of one (easily identifiable) succession law governing the devolution of a person’s worldwide estate is rarely achievable if the estate comprises property in more than one jurisdiction. The objective of unifying the approach to determine the succession law which applies in relation to those estates involving EU Member States only and so avoiding the complexities that the interaction of conflict of law rules can often entail is laudable. 

There are a number of significant issues that need to be clarified, including how the concept of “habitual residence” is defined and the approach to be adopted by (and status of) EU Member States who have not formally accepted the Succession Regulation. Guidance from the European Court of Justice would be welcomed!

Where the Succession Regulation does not apply, identifying the governing succession law will continue to require an analysis of conflict of law rules and the uncertainty this can cause. At present, the Succession Regulation is more plaster than panacea, but where it applies, provides a mechanism which enables a person to identify which law will govern the question who is entitled to inherit from them. 

6. Practical considerations
Following the Succession Regulation coming into force, it advisable that a Will made by any person with a connection with an EU Member State by reason of the location of their assets, nationality or residence is reviewed:

•    to ascertain whether any existing choice of law is valid and continues to be appropriate; and

•    to identify which succession law will now apply and to assess whether it is necessary or desirable to make an election in accordance with the provisions of the Succession Regulation.

Generally, it is imperative that advice is obtained in relation to each jurisdiction which needs to be considered so that a cohesive plan is put in place.