People who own assets in more than one country usually face extra complexities in their Wills and estate planning. Our specialist International Private Client Team works with clients with cross-border connections to help address these complexities.
The European Succession Regulation
The EU Succession Regulation (known as ‘Brussels IV’) came into force on 17 August 2015. It aimed to simplify the complex cross-border legal issues of succession of the estates of deceased persons within the EU.
The Regulation is important for any person with significant connections to an EU member state. This might include a person’s nationality, residence, the location of their assets, or location of heirs.
The Regulation is coming up for review and possible reform by the European Commission on its 10-year anniversary in 2025. The Commission has not yet published its proposals, but the European Council of Notaries (CNUE) has published a number of major recommendations for reform.
Any reform is likely to have a significant impact on the estate planning of any person with assets in the EU, or who is a resident or national of an EU country.
The Regulation in the UK
The Regulation has never had direct effect in the UK, as the UK (along with Ireland and Denmark) never ratified it. That position is even clearer following Brexit. However, the Regulation is relevant to many UK people with EU connections. We discussed this in our previous article: The EU Succession Regulation – a UK Perspective
What changes can we expect?
The CNEU has made 18 recommendations for reform, but three themes are particularly significant to UK clients and advisors.
- Habitual residence
The framework set out by the Regulation relies heavily on a person’s ‘habitual residence’. For example, the default law which applies to the succession of a person’s estate is the law of the country in which they were habitually resident at death. ‘Residence’ means more than where a person’s home is located, but includes where their emotional, social, business, and political affairs are centred.
This may sound like a simple rule, but what if the person had their home in France, yet worked in Belgium? What if they lived in Germany every summer, and Italy every winter? What if they lived in Spain, but moved to the UK late in life to receive care after losing mental capacity? Currently, the answers to these questions are very uncertain. The CNUE recommends more guidance and clarity is given in these uncertainties, which would be welcome.
The Regulation also allows a departure from the law of the country of habitual residence where “the deceased was manifestly more closely connected with [another state]”. Given that ‘habitual residence’ is intended to include all of a person’s connections, it should be extremely rare that any person is habitually resident in one country, but manifestly more closely connected to another. Unfortunately, this has all-too-often been used as a get-out clause by many notaries (sometimes under pressure from the family) who are simply reluctant to apply the law of the country of habitual residence. The CNEU is asking the European Commission to make clear that this exception is very narrow.
- Choice of law
Currently it is possible for a person to elect to apply the law of the country of their nationality (or one of their nationalities) to govern the succession of their EU estate, which election will override the ‘default’ law of habitual residence. This is especially helpful for British nationals owning EU assets and who wish to have freedom to leave those EU assets to whoever they wish after death.
English law upholds this right to ‘testamentary freedom’ – this is a major contrast with most European countries which apply ‘forced heirship’ rules to designated legal heirs. Typically, children, spouses, parents, and even some more distant relatives are entitled to fixed shares of the estate.
Currently, long-term UK residents who own land in the EU are unable to elect English law if they are not British nationals. This causes many difficulties, as choosing which law applies to an estate gives much greater certainty and clarity than relying on the default ‘habitual residence’ regime. The CNUE is recommending that this right be extended to allow a person to elect the law of their habitual residence, allowing a foreign national resident in England to elect for English law to apply to their estate.
- Public policy exemption
The Regulation includes a general ‘escape clause’ which allows an EU court to disapply the Regulation in particular narrow cases where it would be ‘manifestly incompatible’ with local public policy to apply it. Clearly, this was anticipated to be a rare occurrence.
However, both France and Germany have recently taken steps (by legislation and by court intervention respectively) to apply local forced heirship rules to overrule a person’s Will, even where that person has elected the law of their nationality which gives them the right to testamentary freedom. In both cases the rationale is that avoiding forced heirship rules is manifestly incompatible with local public policy.
These developments have confounded many commentators and advisors – after all, if a person is obliged to follow local forced heirship rules despite electing the law of their nationality, this would remove one of the core principles of the Regulation.
Helpfully, the CNUE recommends that guidance is issued to make clear that the public policy exemption may not be used to protect the reserved mandatory shares of close relatives. However, the CNEU does suggest that this might be acceptable where the forced heir can demonstrate clear financial need and dependence on the deceased. These considerations are familiar to UK advisors as they are similar to English law mechanisms for protecting dependents as we discussed in our previous article: All you need to know about The Inheritance (Provision for Family and Dependants) Act 1975.
Conclusion
2025 will be an interesting year for practitioners specialising in assisting clients with EU connections, as we watch and see what changes are made to the Regulation. Many clients will need to review their Wills and estate planning to make sure that they will be still be effective, and achieve the intended outcomes after the changes.
Please get in touch with our team of experts if you would like to discuss any of the issues raised in this article.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at March 2024.