Donald Manasse is a member of ICC Fraudnet
In a stunning break with the past, Monaco adopted a new Code on Private International Law in July 2017. The code aligns Monaco’s inheritance law with the European Union’s Regulation 650/2012, among other measures.
Residents of the Principality will now be entitled to choose the law of their nationality, without reference to conflict of laws rules, and thus without the principle of “renvoi” attaching to their estate world-wide. If they do not specifically choose their national law, then the law of domicile will apply, which for residents will often be the law of Monaco.
Selection of the national law must be made in writing.
The Monaco Civil Code incorporates forced heirship rules that make it impossible to disinherit children. When Monaco law applies, the children inherit 50 percent of the parent’s estate if there is one child, 2/3 if there are two children, and 75 percent if there are three or more children. For intestate estates, surviving spouses and children share the estate in equal parts.
The choice of the national law covers all property, including Monaco real estate. In the past, case law established that the national law of a decedent would apply, but that if the national law used the law of domicile (for example, the law of England) then Monaco law would apply. When the national law employed the law of nationality (as is the case for Germany or Italy, for example) then the national law would apply, except for Monaco real estate, which was always subject to Monaco law.
Today, Monaco’s three notaries will be utilizing foreign law rules for Monaco real property.
Monaco’s 1936 law on trusts remains in force. This law, known as 214, allows Monaco residents whose national law allows trusts to avoid forced heirship by establishing trusts under the national law, but with the requirement of respecting a Monaco form. The 214 trusts must be declared before a notary (either in authentic or mystic form) and must have a corporate trustee that is approved by Monaco’s Court of Appeals.
While Monaco inheritance tax normally attaches only to Monaco-based property, the 214 trust is subject to tax on all property, wherever situated, that is settled on the trust. However, the taxation is limited to 1.7 percent of the amounts when there are two or more beneficiaries (plus a 1.5 percent notarial fee).
Otherwise there is no inheritance tax on assets passing between spouses, or in direct line between parents and children, or grandparents to grandchildren. Tax applies to gifts and bequests between siblings (8 percent); nephews, nieces, aunts and uncles (10 percent) and other relatives (13 percent). The tax between unrelated persons is 16 percent.
The highest rate goes for any assets found in Monaco that are transferred into trust, regardless of how the settlor and the beneficiary are related.
Therefore, particular care must be taken in applying the provisions of the new Code of Private International Law that, for example, reinforce Monaco’s recognition of trusts under The Hague Convention on Recognition of Foreign Trusts. If a trust is not settled in the Monaco 214 form, and yet settles Monaco-based property, a 16 percent tax will apply, as well as the 1.5 percent notarial fee.
The new code also:
- Changes jurisdictional rules for civil cases and procedure for implementing jurisdictional challenges
- For the first time adopts litis pending, allowing Monaco judges to suspend proceedings when cases on the same matters between the same parties are pending in foreign jurisdictions
- Clarifies the law applicable to contracts
- Addresses legal rules in matrimonial cases and allows foreign married couples to modify the law applicable to their spousal property and enter into post-nuptial agreements
- Changes the rules on the recognition of foreign judgments
The impact of this far-reaching legislation will be interpreted, over time, by case law.