Official statistics suggest that over 450,000 cross-border successions occur in the EU every year, representing a value estimated to be worth more than €120 billion. Given this statistic, it seems staggering to think that each case would have been confronted with the same costly and hugely time consuming legal issues that confront each and every cross-border estate, due largely to the different and often conflicting laws which can apply to the estate's assets.
These additional burdens on a cross-border estate apply both at the planning stage and, in particular, after death, where expensive disputes over which country's laws should apply to which assets are sadly common place.
A new dawn…sort of
For over a decade, talk has rumbled on at the European Council about improving the status quo. Finally, in July 2012, the Council passed new legislation colloquially known as Brussels IV, in the hope that this would be the panacea for Europe's cross-border woes.
UK nationals should note that the UK has opted out of Brussels IV, along with Ireland and Denmark (due largely to a perceived incompatibility between legal systems, rather than political squabbles, which makes a change). But all is not lost, since the Regulation affects all assets in European states regardless of the place of death or the citizenship of the deceased.
It is therefore crucial that anyone with property in Europe understands the benefits of the new Regulation and what planning steps they need to take now in order to take full advantage of its potentially considerable benefits.
Brussels IV in a nutshell
The revolutionary step under Brussels IV is to unify the succession law which applies to an estate, rather than allowing any number of succession laws to (possibly) apply to different assets in different circumstances. The default position under the Regulation is that the law of the country in which the deceased was 'habitually resident' will apply. However, this can be overridden by an express election (usually in a Will) for the law of the testator's nationality to apply (if they have more than one nationality, they may choose between them). In theory, this will enable a testator to plan their succession with complete certainty over which laws will apply to their estate.
This is also a significant relief for UK nationals who own property on the continent, since an election to English law will allow them to circumvent the forced heirship provisions which apply in the majority of jurisdictions on the continent (whereby certain individuals must receive a pre-determined share of the estate, potentially resulting in additional unnecessary tax exposure).
What should I do now?
Although the Regulation came into force in 2012, the provisions will not apply until 17 August 2015. That said, Wills can be prepared and executed now which take advantage of the Brussels IV provisions, and we would strongly advise anyone with assets abroad to review their existing estate plan sooner rather than later, to ensure that any planning is in place by the time the Regulation takes effect.
For UK nationals, it is important to note that there is some uncertainty in the wording of the Regulation that casts doubt on the benefit of relying on the habitual residence test. Those wanting to be certain that English law will apply to their European assets should be sure to make an express election in their Will.
Notwithstanding the progress made by Brussels IV, planning for cross border estates remains a complicated area and it is important that the circumstances of each client are reviewed carefully by an advisor experienced in this work.