Need ideas for a New Year’s resolution – Review your Will

Posted by Sarah Bogard

Senior Solicitor & Chartered Tax Adviser

The EU Succession Regulation 650/2012 (aka Brussels IV)

On 17 August 2015 the EU Succession Regulation changed the way estates are administered and distributed, for all those estates where there is some connection with the European Union.

It will be particularly important for you to review your Will, or make a Will if you don’t have one, if:

  • you are a UK resident and you have some connection with another EU Member State (eg ownership of foreign assets or foreign nationality);
  • you are a UK resident British national owning assets in another EU Member State (eg you have UK assets and assets in the Regulation Zone - which is all EU Member States other than Denmark, Ireland and the UK);
  • you are a British national resident in another EU Member State;
  • you have dual nationality and links with the Regulation Zone (eg residence or location of assets); or
  • you are habitually resident in another EU Member State, regardless of your nationality.

Although the UK has chosen not to opt in to the Regulation (and Ireland and Denmark have opted out), if you have some connection with an EU country that has opted in then the Regulation will affect you and so you should read on.

What was the position before the Regulation?

If you had advice in the past on succession matters, you will know that French law gives fixed inheritance rights to children, even if you attempt to disinherit them by your Will.  A surviving spouse also has inheritance rights. Prior to 17 August 2015 French law applied to your estate in the following way:

  • For someone domiciled outside of France, it applied to the succession of all land and property located in France only;
  • For someone domiciled (or habitually resident) in France, it applied to the succession of all assets located in France and possibly also movable assets (eg bank accounts and investments) located outside of France.

So the laws of multiple countries could apply to one estate on death.

There were ways to get round the fixed inheritance rights of children, the most common options being to buy a property tontine, to make a change of matrimonial property regime deed to declare a community of assets regime, or to buy a property through an SCI. However, many bought property in France without taking advice, only to find that following a spouse’s death the survivor ended up jointly owning the property with children and/or stepchildren, despite this being against the intention of the testator.

What has changed?

The aim of the Regulation is to apply one country’s rules to the whole of an estate. It doesn’t create a new set of succession rules.

The general rule of the Regulation is that the succession law applying to an estate as a whole will be that of the State (not necessarily an EU Member State) where the deceased had his last habitual residence at the time of death.

Instead of only having the general rule apply, the Regulation allows for a testator to make a choice of law declaration in his Will to choose the succession law of his country of nationality to apply instead. This includes a choice between several nationalities, where applicable. It doesn’t have to be an EU country.

It’s considered that for British nationals, they can choose the country in Great Britain to which they are most closely associated.

Even if you don’t make a declaration in your Will it’s possible that one could be implied on the wording of the Will, making it important for you to review your Will, especially if it might be better for you to rely on the general habitual residence rule.  If you do now have a choice you should make that choice wisely.

Is everything now crystal clear?

There are some aspects of the Regulation that are not yet completely clear. We are most likely to have to wait for practical cases to be brought on the interpretation of parts of the Regulation before we have an unequivocal understanding.  However, we recommend you act now to a review your affairs.

What about Inheritance Tax?

The Regulation doesn’t cover tax, and so the current IHT rules continue to apply. For example, if you live in England and own a French home, both French and UK IHT might be payable on your death. It’s now even more important to consider both succession and tax matters alongside each other. A testator may now want English law to apply to his French assets, but he would ignore at his peril the fact that, in the least, French property will continue to be taxable in France, and the rate of 60% IHT will apply to almost the whole inheritance by an unrelated beneficiary, which includes a stepchild.

What Does the Regulation Mean for You?

If you are a British national with habitual residence in England or Wales, owning a secondary residence or let property in France, you can generally avoid French fixed inheritance rights by declaring in your Will for English law to apply to your whole estate.  This might be more in keeping with your wishes, but don’t forget to check what the inheritance tax position will be, especially if you intend to leave French assets to people not related to you.

If you are habitually resident abroad or you are a national of another country you should find out what your options are, which will depend on your particular circumstances and taking into account the consequences of the UK having chosen not to opt in.

We suggest the following action points:

  • review your current Will arrangements and get advice on whether a revised Will is recommended;
  • review the foreign property ownership structure;
  • understand the impact of any existing matrimonial property regime; and
  • decide on the preferred distribution of your foreign property under your Will, not forgetting about the impact of inheritance tax.

If you want us to carry out a review of your Will with you, please either contact the member of Furley Page who last worked with you, or contact a member of the French Property, Tax and Estates Team at (00 44 1227 763939).

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