TRANSNATIONAL INHERITANCES IN THE EUROPEAN UNION: CHOICE OF LAW AND FACILITIES FOR ORGANIZING SUCCESSION REGULATION (EU) NO 650/2012 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL OF JULY 4 ON JURISDICTION, APPLICABLE LAW, RECOGNITION AND ENFORCEMENT OF DECISIONS AND ACCEPTANCE AND ENFORCEMENT OF AUTHENTIC INSTRUMENTS IN MATTERS OF SUCCESSION AND ON THE CREATION OF A EUROPEAN CERTIFICATE OF SUCCESSION INTRODUCTION 2 LAW APPLICABLE TO SUCCESSION 2 INHERITANCES AFFECTED BY THE REGULATION 2 CONSEQUENCES OF THE APPLICATION OF THE REGULATION FOR FOREIGNERS RESIDING IN SPAIN 3 EUROPEAN CERTIFICATE OF SUCCESSION 4 CONCLUSIONS 5 APPENDIX SCHEDULE OF LEGITIMATE PORTION AND RIGHTS OF THE WIDOWED SPOUSE IN A TESTATE INHERITANCE SCHEDULE OF AN INTESTATE INHERITANCE 6 7 LEGAL FLASH I LITIGATION AND TAX PRACTICES JULY 20, 2015 WWW.CUATRECASAS.COM LEGAL FLASH I LITIGATION AND TAX PRACTICES 2/7 INTRODUCTION Regulation 650/2012 of the European Parliament and of the Council of July 4 comes into effect on August 17, 2015. The regulation introduces important new developments regarding international succession and entails a change in the rules of the Member States of the European Union (EU) regarding succession in international private law. LAW APPLICABLE TO SUCCESSION The main new development of the regulation is that, from the moment it comes into effect and in the EU Member States to which it applies, the law applicable to succession will be the law of the State in which the deceased had his or her habitual residence at the time of death, unless he or she has chosen the law of the State whose nationality he or she has at the time he or she made his or her will or at the time of death. The law applicable to succession greatly affects the distribution of the estate, as it regulates, among other aspects, the determination of the heirs and legatees, the capacity to inherit, disinheritance, the part of the estate distributed by the testator at will, legal reserved shares and legitimate portions, and the administration of the inheritance. In addition, in the case where the deceased dies intestate, the applicable law determines who is entitled to the inheritance. INHERITANCES AFFECTED BY THE REGULATION The inheritances of persons who die as of August 17, 2015 if: a) The deceased is a citizen of an EU Member State, although he or she dies in a non-EU country; or b) The death occurs in an EU Member State. In this case, there must be a point of connection with the territory of the European Union, i.e., the inheritance must have implications in several countries due to (i) the location of the assets; and (ii) the nationality or country of residence of the deceased, of the heirs, legatees and other persons with an interest in the inheritance. WWW.CUATRECASAS.COM LEGAL FLASH I LITIGATION AND TAX PRACTICES 3/7 The regulation applies throughout the European Union, except in the United Kingdom, Ireland and Denmark and, therefore, these countries are not bound by its provisions or subject to its application. This exception may cause problems when a British, Irish or Danish citizen dies in another EU Member State in which he or she has his habitual residence. We must also keep in mind that the concept of a habitual residence may not coincide with that of the tax residence. The regulation does not interfere with the tax sovereignty of the Member States, meaning that the tax implications of an inheritance will be the exclusive jurisdiction of the national law based on the points of connection that such law envisages. CONSEQUENCES OF THE APPLICATION OF THE REGULATION FOR FOREIGNERS RESIDING IN SPAIN If foreign citizens residing in Spain decide not to opt for the law of their nationality, from August 17, 2015, their inheritance will be governed by the applicable Spanish law, whether they have made a will or die intestate. As there are many civil law systems in Spain, the determination of the applicable law will depend on where the deceased had his or her last habitual residence. a) The Civil Code of Catalonia will apply to the inheritance of a foreigner with his or her residence in Catalonia. Under this code, if the foreigner dies without having made a will, the inheritance will be distributed equally among the lineal descendants, and the widowed spouse will retain the right of universal usufruct over the inheritance, which he or she can exchange for the full ownership of one-quarter of the inheritance and usufruct rights over the habitual residence. Any lineal ancestors will have the right to onequarter of the estate. If the foreigner did make a will, its terms will prevail, but the legitimate portion must be respected. In the case of the descendants, this is equal to one-quarter of the inheritance, which will be distributed equally among them. b) If the deceased had his or her last habitual residence in the Balearic Islands, in the absence of the choice of another applicable law, his or her WWW.CUATRECASAS.COM LEGAL FLASH I LITIGATION AND TAX PRACTICES 4/7 inheritance will be governed by the succession rights of the island on which he or she resided. c) The inheritance of a foreigner resident in a Spanish region without its own civil law (e.g., Madrid, Andalusia, Valencian Community, Canary Islands), who dies intestate, will be governed by the Spanish Civil Code, meaning that it will be distributed among the lineal descendants equally and the widowed spouse will have the right of usufruct over one-third of the estate. If a will exists, under the Spanish Civil Code, two-thirds of the inheritance must be reserved for the lineal descendants, and the usufruct rights over one third of it are reserved for the widowed spouse. For more detail, we include a table in the appendix summarizing the scheme of the legitimate portion and the legal rights in inheritances in the Spanish regions where the greatest number of foreigners have established their habitual residence. EUROPEAN CERTIFICATE OF SUCCESSION The regulation creates the European Certificate of Succession to be used as proof of the status of heirs, legatees or administrators of the inheritance vis a vis other Member States. The notary that processes the inheritance will issue this certificate. It will be especially useful for (i) registering the assets and inheritance rights in the registry of a Member State, (ii) speeding up the processing of inheritances made up of assets located in several countries, and (iii) facilitating the formalities that the heirs must carry out. CONCLUSIONS When the regulation comes into force, the law of State where the deceased had his or habitual residence at the time of death will apply to inheritances. However, there is also the possibility to opt for the application of the law of the deceased’s nationality. WWW.CUATRECASAS.COM LEGAL FLASH I LITIGATION AND TAX PRACTICES 5/7 This gives the person the opportunity to plan his or her succession and guarantee the rights of his or her heirs. However, each case must be studied individually, as the application of the law of the deceased’s nationality or the law of his or her habitual residence can lead to important differences in the distribution of the estate, both if there is a will and if the foreigner dies intestate. Therefore, we advise reviewing any wills already made to ensure that they reflect the testator’s wishes and, in such case, opt for the law applicable to the inheritance that can best serve the interests and needs of the testator and his or her family. If the testator wishes to apply the law of his or her nationality, he or she must modify the will and include a special clause choosing that law. The law applicable to the inheritance can affect the inheritance rights of the surviving spouse or partner. WWW.CUATRECASAS.COM LEGAL FLASH I LITIGATION AND TAX PRACTICES 6/7 APPENDIX SCHEDULE OF THE LEGITIMATE PORTION AND RIGHTS OF THE WIDOWED SPOUSE IN A TESTATE INHERITANCE 1 REGION LEGITIMATE PORTION FOR LINEAL DESCENDANTS LEGITIMATE PORTION FOR LINEAL ANCESTORS SPOUSAL RIGHTS COMMON LAW PARTNER Common territory, including: MADRID ANDALUSIA VALENCIANAN COMMUNITY CANARY ISLANDS,… 1/3 divided equally among lawful heirs 1/3 distributed among the legitimate heirs or their lineal descendants as the testator chooses 1/3, if there is a surviving spouse 1/2, if there are strangers Usufruct of 1/3, if there are lineal descendants Usufruct of 1/2, if there are lineal ancestors Usufruct of 2/3, in remaining cases No inheritance rights recognized CATALONIA 1/4 1/4, if there are no lineal descendants Up to 1/4 for “extra portion for widowed spouse,“ if he or she justifies having insufficient resources to meet his or her requirements BALEARIC ISLANDS MALLORCA AND MENORCA 1/3 among four or fewer children 1/2 among more than four children 1/4, if there are no lineal descendants Usufruct of 1/2, if there are lineal descendants Usufruct of 2/3, if there are lineal ancestors Universal usufruct in remaining cases IBIZA AND FORMENTERA 1/3, if there is a surviving spouse 1/2, if there are strangers No inheritance rights recognized 1 Spanish regions where a large number of foreigners have their habitual residence. WWW.CUATRECASAS.COM LEGAL FLASH I LITIGATION AND TAX PRACTICES 7/7 SCHEDULE OF AN INTESTATE INHERITANCE 2 REGION LINEAL DESCENDANTS LINEAL ANCESTORS SPOUSAL RIGHTS COMMON LAW PARTNER Common territory, including: MADRID ANDALUSIA C. VALENCIANA CANARY ISLANDS, … Universal heirs in equal parts Heirs, if there are no lineal descendants Usufruct of 1/3, if there are lineal descendants Usufruct of 1/2, if there are lineal ancestors Heir, if there are no lineal descendants or ancestors No inheritance rights recognized CATALONIA Universal heirs in equal parts 1/4, if there are no lineal descendants Right to universal usufruct if there are lineal descendants. The widowed spouse can ask to exchange the usufruct right for ¼ of the full ownership of the inheritance and usufruct of the habitual residence. Universal heir, if there are no lineal descendants BALEARIC ISLANDS MALLORCA AND MENORCA Universal heirs in equal parts Heirs, if there are no lineal descendants Usufruct of 1/2, if there are lineal descendants Usufruct of 2/3, if there are lineal ancestors Universal usufruct, if there are strangers 2 In common territory: Civil Code, arts. 806 and following In Catalonia: Civil Code of Catalonia, arts. 442 and 451 In Balearic Islands: Compilation of civil law of the Balearic Islands, arts. 41 and following; arts. 70 and following. Supplementary application of the Civil Code. Act 18/2001 on Common Law Relationships – art. 13: Both in situations of testate inheritance and intestate inheritance, the partner that survives the deceased partner has the same rights that the Balearic Compilation provides for the widowed spouse. ©2015 CUATRECASAS, GONÇALVES PEREIRA. All rights reserved. This document is a compilation of legal information prepared by CUATRECASAS, GONÇALVES PEREIRA the purpose of which is strictly informative. Therefore, the information and comments included herein do not constitute legal advice. The disclosure to third parties of the information contained in this document, in its entirety or in part, is prohibited without the prior authorization of CUATRECASAS, GONÇALVES PEREIRA, all in order to prevent the incorrect or undue use of the information contained herein.