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Recipe for success
16/03/2010Richard Bate explains how the European Commission is trying to solve the problems of succession across the European Union
The rules governing cross-border successions are notoriously complex. They involve a plethora of diverse national laws and conflicts of jurisdiction which reflect the fundamentally different approaches countries take to inheritance and the administration of estates.
The European Commission considers that the greater mobility of people within the European Union (EU) has exacerbated these complications. It estimates that 9-10% of the 4.5 million deaths in the EU each year involve successions with an international dimension. The total value of such estates could amount to €123.3 billion per annum. The Commission believes that the introduction of a regulation on succession issues would further its aim of "promoting the compatibility of the rules applicable in the member states concerning the conflict of laws and of jurisdiction" and help to enable people to organise their succession in advance and to guarantee the rights of heirs / legatees and creditors.
On 14 October 2009, the Commission proposed a regulation on jurisdiction, applicable law, recognition and enforcement of decisions and authentic instruments in matters of succession and the introduction of a European certificate of succession (2009/0157/COD).
The UK and the Republic of Ireland have a choice as to whether to be bound by this new regulation. They can opt in to the proposal either within three months of its publication, or at the end of the negotiations, when the final text has been adopted. However, the latter would restrict the government`s ability to influence matters during negotiations. The Ministry of Justice (MoJ) is currently considering these options and, on 21 October 2009, it launched a public consultation on whether it would be in the UK`s national interests to opt in to the proposal.. The deadline for responses to the MoJ consultation was 2 December 2009, after this edition went to press.
On 26 October, the House of Lords sub-committee E (law and Institutions) launched an inquiry as part of its scrutiny of the Commission`s proposal. The call for evidence contained details on the scope of the inquiry. The deadline for submission was 27 November 2009, after this edition went to press.
Applicable law
The proposed regulation allows a single competent authority - that of the deceased`s `habitual residence` - to be used to settle all aspects of succession. It is the domestic law of each member state that is relevant, not its private international law, and so the principle of renvoi is excluded. Although habitual residence is not specifically defined, and the MoJ has expressed concern about such lack of a definition, it must be assumed that reliance would be placed upon the understanding and case law used elsewhere in the European Court of Justice jurisprudence. In basic terms, it may mean the place where a person has his or her permanent home or habitual abode.
However, someone may choose in his or her will to have the inheritance law of his or her country of nationality apply to the whole of his or her succession, instead. The validity of the determination is assessed under the law chosen. The ability to so choose the law of nationality, it is claimed by the Commission, enables a testator who has benefited from the freedom of movement offered within the EU but who is keen to preserve close links with his or her country of origin, to maintain these links by means of their succession. If no valid choice is made, the default law is that of the deceased`s habitual residence.
Under article 27 of the draft regulation, the courts of a particular member state may disregard the application of a foreign law on the grounds that it would be contrary to "public policy". It is specifically stated, however, that the draft regulation cannot be disregarded on the grounds of public policy just because the reserved portion of an estate would be different than the national law of a particular member state.
Where a country is made up of different territorial units with separate rules relating to succession, then each legal jurisdiction is treated as a separate member state for these purposes. However, a member state would not have to apply the regulation in respect of conflicts between such units, and so the UK government would need to decide how to apply the regulation between, say Scotland and England and Wales.
The draft regulation represents a move towards simplification. An ability to choose applicable law is in keeping with the UK`s idea of testamentary freedom. It would mean that different laws would no longer apply depending on whether assets are moveable or immoveable, and a single law would govern all estate assets of an individual across the EU. This would, in turn, enable a testator to plan the division of his or her property between his or her beneficiaries in a fair manner, irrespective of the location of the property. Quite how the courts will deal with unfamiliar legal concepts of other countries remains to be seen.
The draft regulation (in article 21) makes special provision to recognise common law legal systems (such as the UK), so that personal representatives (PRs), rather than heirs, acquire the rights of the deceased on death. This would give PRs authority to deal with assets abroad, although it is less clear on what, if any, additional obligations would be imposed to deal with assets in different jurisdictions.
Jurisdiction
The draft regulation designates the competent court, in relation to all elements of a succession, as that of the member state where the deceased had his or her habitual residence at the time of death.
Matters can be referred to another jurisdiction, however, if the parties consider another court is better placed to hear the matter, taking account of such matters as whether the deceased made a choice as to the applicability of the law of his or her nationality, the habitual residence of an heir / legatee, and whether the application relates to property solely in the member state. According to the explanatory memorandum accompanying the draft regulation, this rule would allow a balanced solution to be found where the deceased had lived for a short while in a member state other than that of his or her nationality, and where his or her family remained in the member state of origin.
Recognition and enforcement
All court decisions and authentic documents made pursuant to the draft regulation are to be recognised in all member states along the same lines as the rules contained in regulation 44/2001 (Brussels 1). `Court` is defined widely to include "any judicial authority or any competent authority which carries out a judicial function in matters of succession", and so that could include a foreign notary.
European certificate of succession
The draft regulation proposes a new uniform European certificate of succession for use throughout the EU, and includes a prescribed form for an application for such a certificate, and the certificate itself, which sets out the details of the deceased and the applicant with a list of heirs / legatees and their entitlement. This would constitute proof of the beneficiary`s entitlement under the relevant law, but is not obligatory, and can be made subject to a member state`s internal laws and domestic systems, so that, presumably, the probate (and corresponding inheritance tax accounting) procedures in the UK could remain.
Limitations as to scope
The proposed regulation states that it does not affect family, property or taxation laws of member states; it makes no attempt to reduce the complexity of tax systems applicable to international successions, and to prevent EU citizens from being subject to double taxation.
The proposed regulation also does not cover the formal validity of wills and other testamentary documents, leaving the Hague convention of 5 October 1961 to apply, even though this has not been ratified by all member states.
The question of the registration of wills throughout the EU is not addressed, and this is stated to be part of a "future Community initiative".
The draft regulation would apply to all member states of the EU with the exception of Denmark and (depending on the use of the opt-in / out) the UK and Ireland.
Concerns about `clawback`
Although, in its consultation paper, the MoJ noted in principle the significant benefits for individuals of satisfactory European legislation on succession, it does specifically raise, as one of its concerns, the issue of `clawback`, and how this could cause difficulties. Indeed, the paper includes a comparative analysis of the laws of various member states in this area.
Clawback arises in relation to gifts made by individuals during their lifetime. Such gifts are generally complete and valid at the time they are made. However, an individual may subsequently die in a country under whose law of succession mandatory, or forced, heirship rights are established, in favour of close family members. If that law governs the deceased`s succession, then it may also provide that, under certain conditions, lifetime gifts made by the individual, or their monetary value, should be brought back into their estate for distribution to their family heirs.
Clawback could also arise even when, under English law, no `succession` exists, such as the termination of a life interest or the passing of joint property by survivorship.
The operation of clawback varies significantly from county to county, but the concept exists in most member states.
Clawback claims based on a foreign law of succession are not currently recognised or enforced in the UK. If this were to change, however, it could affect the legal certainty of lifetime gifts (which could have a serious impact, for example, on charitable giving, and the establishment of trusts) and the guarantee of title in respect of land.
This is an area where a degree of `diplomacy` may be required to ensure that the regulation is framed in such a way as to be acceptable to all member states.
Looking ahead
At the time of going to press, the Brussels office of the Law Society of England and Wales was formulating a response to the various consultations and liaising with the Society of Trust and Estate Practitioners on a potential joint response to the proposed regulation. Individual practitioners are urged to read the draft regulation and voice comments and concerns on how the proposal may operate in practice. If the government does choose to opt in, practitioners may wish to observe the developments closely. The Brussels office produces regular legislative updates to brief practitioners of developments in the private client law field. To register to receive these bulletins, email brussels@lawsociety.org.uk
Richard Bate is a partner at Brabners Chaffe Street and a member of the Society of Trust and Estate Practitioners.
For further information contact Richard Bate at Brabners Chaffe Street on 0161 836 8800
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