Last month marked the 5th anniversary of the application of the EU Succession Regulation 650/2012 (also known as Brussels IV). It has had a significant impact on the way that cross-border estates can be distributed on death.
English law (common law) provides for the concept of testamentary freedom: you can leave your estate assets to whomever you choose without the obligation to provide for close relatives. That said, certain categories of person – including a surviving spouse, minor children, and someone who the deceased person was supporting at the time of his death – could bring a claim against the estate for inadequate financial provision, to argue that some benefit from the estate should be redirected towards themselves.
French law, like many other countries on the continent, is based on civil law, and for successions, the main principle is that children are protected heirs. Children are not to be disinherited completely and so they entitled to a reserved portion of the estate – la réserve légale. Many British couples who own a French property and who haven’t reviewed their Wills after buying often find that following the death of the first of them, the property share is inherited by the surviving spouse and the children even if their Will provides for the surviving spouse to be the sole heir. For many, this may not turn out to be a problem, but for some it can be an unexpected and unwanted surprise.
Prior to the EU Succession Regulation, French succession law dictated how a property (immovable asset) in France would be distributed on death.
One purpose of the EU Succession Regulation was to harmonise the application of succession laws across the EU Member States. There is now a general rule applying where a person dies owning assets in an EU Member State - the succession laws of the deceased person’s country of habitual residence are to apply. So, you would assume that a British person living in England at his death, owning a property in France, will have English succession law apply to the French property. Unfortunately, not so. This scenario actually leads to the issue of succession being redirected back to French law. This is because the UK didn’t opt in to the Succession Regulation and so is treated as though it’s a Third Party State to the Regulation, even though at the time of signing, the UK was an EU Member State.
A second rule of the Succession Regulation is that you can expressly declare in your Will for the succession laws of your country of nationality to apply to your estate assets in the EU. Here, there is no reverting back to France and so a person with British nationality and whose links in the GB are closest to England can have English succession law apply to the French property – the freedom to leave the property to whomever he chooses.
Thus, children’s inheritances can be delayed until the surviving parent’s death, or they could be disinherited completely.
We have dealt with many estate administrations in France where the death has occurred after the coming into application of the Regulation in August 2015, and where no such declaration has been made in a Will.
In some cases, specific transitional provisions of the Regulation will imply a declaration in respect of a Will made under a British law, and allow English and Welsh, Scottish or Irish law to govern the French estate, but in others this will not be accepted in France (particularly for a Will that pre-dates the date the Regulation was signed, in 2012) and the réserve légale will apply.
This highlights the great importance of reviewing your Will if you own assets in France (or indeed any other EU Member State) and you haven’t already done so, to take into account the Succession Regulation.
Does Brexit change all of this? NO. Because the UK didn’t opt into the Regulation, the position will not change on 1 January 2021. A person with British nationality can expressly state in his Will that he wants English and Welsh, Scottish or Irish law (as applicable) to apply to his French property.
French inheritance tax is another important, related topic, and in our view it must always be considered when looking at the structure of Wills. The rules are very different in France, and with a top rate of 60% applying when non-blood related beneficiaries inherit (including step-children) it will be a high price for your beneficiary to pay if you don’t consider inheritance tax when making your Will.
In summary, for French property owners:
- A review of your Will is highly recommended, particularly if you haven’t reviewed it since 2015, or you have made your Will with a legal adviser who doesn’t specialise in cross border estates;
- A declaration of applicable law to state for a succession law of Great Britain to apply won’t always be the most appropriate option. The content of each Will must to be considered on the specific facts and objectives of the testator;
- The application of French inheritance tax should be taken into account in the drafting of Wills;
- You don’t necessarily need to have a separate French Will to deal with the distribution of a French estate. For example, an English Will will be recognised in France. For some people, a separate French Will will be advisable;
- It’s generally recommended that you avoid having the property pass into a trust. This can potentially complicate matters in France and possibly increase the tax liability.
- Seeking professional advice on the most appropriate ownership structure at the time of buying the property can pave a much smoother pathway to achieving your objectives for the passing on of the property following your death.