A new EU succession regime comes into play allowing, its framers hope, for people to choose the laws governing who receives their EU-based assets on death. But there remain complexities.

The European Union is famous – or infamous, depending on one’s view – for much-touted efforts to create simpler legal and economic regimes, but which sometimes leave the situation more complex than before. One of the latest features to come into the spotlight are rules designed to simplify cross-border EU succession, so that people can choose the laws governing the succession of their EU assets on death. (To see a report by this publication several weeks ago about experts' views, click here.)

The new regime comes into force next week (17 August) and this means anyone with assets in an EU member state should review the terms of their wills, lawyers argue.

At Wedlake Bell, a UK firm, it said clients must examine how they might be affected under the rules, known as “Brussels IV”.

“Under Brussels IV, the default position for a UK citizen with EU assets (with the exception of those in Denmark or Ireland), is that the succession to those assets will be governed by the law of the country in which the deceased was resident when he died. However, if that country has forced heirship rules– as they do in France – this default position may not be favourable as forced heirship means that a portion of the estate must pass to certain family members, and you may, for example, wish to leave your assets entirely to a spouse. Importantly, Brussels IV allows individuals to override this default position by making an election in their will for the law of their nationality to apply,” the law firm said in a commentary.
 
“Currently, EU cross-border succession law is extremely complex. Which country's law applies depends on a multitude of different factors across EU member states. In addition, some EU member states apply forced heirship rules. Brussels IV is revolutionary as it gives all EU citizens for the first time the ability to choose the law of their nationality to govern the succession to relevant EU assets,” it continued.

Among the benefits of the new regime are that people will have the ability to control the succession of their EU assets by making an election for the law of their nationality to apply; UK nationals have the ability to avoid the forced heirship rules that might otherwise be applied by some EU countries, giving them freedom to leave their EU assets to whomever they wish. The rules also reduce the potential time and cost of working out the rules. The regime also means there is less need for persons to have several wills to deal with different jurisdictions.

UK citizens will be affected even though the UK hasn’t opted into the Brussels IV system, the law firm said. It affects “anyone with EU assets in the countries which have adopted it (all of the EU except the UK, Ireland and Denmark),” Wedlake Bell said.

For example, a UK citizen with a holiday home in France could update the UK will to cover the French property with an election for UK law to apply, instead of having a separate French will for that holiday home.

Still complicated
Jason Porter, of Blevins Franks, a firm specialising on such cross-border tax and estate planning issues, struck a cautionary note.

“Eighty-four articles split across seven chapters mean the EU has not quite attained the simplicity of succession across Europe it was hoping for. The outstanding areas of conflict mean there is a great deal still to be clarified, and may have only served to add to the confusion with these new rules,” he said. “Over the centuries European states have built up vastly different rules around succession, and it was always going to be difficult to try and unify such disparate systems. It will only be when an EU wide regime seeks to accommodate common law we might arrive at a position of certainty in cross-border succession,” he said.

“The main provision is to establish which jurisdiction's law of succession will apply, and then apply it to the whole estate. The default position is determined by the deceased place of `habitual residence’ at the time of death, but there is the ability under the rules to alter this application by electing for a different applicable law, which can be the state of nationality of the individual. In this case, the law and courts of nationality will have jurisdiction to decide all matters of succession, with recognition of their jurisdiction in any member state concerned,” he said.

Porter said the UK chose not to opt into the new system because many civil law codes have clawback provisions: “Lifetime gifts can sometimes be clawed-back where they are at odds with forced heirship. The law of England and Wales does not include such provisions, and gives individuals full rights of lifetime and testamentary disposition over their property. The UK’s concern was in following ‘Brussels IV’, this capacity could be significantly affected.”

Another complicating factor, Porter said, is matrimonial law. “When two people marry, depending upon a number of factors, including place of marriage, residence status, etc., certain rules can apply regarding the disposition of property and debts on the breakdown of a marriage, or on the death of one of the spouses. Civil law countries have a variety of matrimonial regimes, either applied by default or choice. Different matrimonial regimes have different rules concerning the rights and powers of the spouses over their property,” he said.

“England and Wales, and even though a separate regime, Scotland, do not have a matrimonial property regime as such; there is no community of property, and thus marriage in principle does not affect the ownership of property. The new EU succession regulations have not addressed the issue of matrimonial property, explicitly excluding them. On this basis then, some of the significant matrimonial property rights will override the new succession rules,” he said.

One further complexity is around trusts, which are essentially a common law phenomenon, Porter said.

“Those states that have specific legislation generally seek to `look-through’ the trust to the original settlor of the assets gifted, or the ultimate beneficiary. These vastly differing interpretations during the life of the settlor are potentially compounded by Brussels IV at death,” he said.