Monegasque Act n°1.448 dated 28 June 2017 regarding private international law provides for the application of a single law on succession. Yet, if estate planning where Monaco located assets or Monaco residents are involved is going to be simplified from a civil law perspective, complexity will remain as the unicity of the applicable law is not extended to tax matters.
1. Civil resolution of estate transfers is made uniformed…
Resolution of international estate transfers first requires to figure out which law(s) on succession is (are) applicable. In the 28 June 2017 Act, Monaco opts for criteria which are similar to those set out in European regulation n°650/2012 dated 4 July 2012 (hereafter “the Regulation”). Monaco used to apply a double criterion, which led to conclude to the application of two different laws on succession: the law of the State the deceased was a national of where moveable assets were considered, and the law of the State of location of assets where immoveable assets were concerned. This double criterion has been repealed and replaced by a “domicile of the deceased at the time of death” single criterion. The new Monegasque Act defines the domicile as the principal place of establishment. In most cases, this “last domicile” criterion should correspond to the European “habitual residence of the deceased at the time of death” criterion, thus preventing any conflict of laws on succession between EU Member States and Monaco.
Thus, a single law, Monegasque law, will rule the estate of any Monegasque resident who holds assets both in Monaco and in various EU States. However, as it remains committed to forced heirship rules, the new Monegasque law states that the heir may claim for the application of the deceased’s national law’s forced heirship rules (see 3. Example).
In line with the provisions of the Regulation, the Monaco resident will be entitled to elect for their national law when planning his estate transfer. Electing for his national law, so-called professio juris, may be relevant to any Monaco resident who is another State’s national. Estate planning solutions set up according to the latter’s national law will remain secured at the time of their death.
Besides, Monegasque law provides for the recognition of trusts. The new Act specifies that applying to a trust the law under which it has been settled does not impede applying to an estate transfer the law of the deceased’s last domicile or his national law under professio juris. Where the trust is settled by a national of a State the law of which ignores of forced heirship rules (such as British law), such rules, as they are provided for in Monegasque law, will not be applicable (article 63, para. 2 of the new Act). In such a situation and though the deceased’s national law does not recognize it (which is the case of British law), a professio juris may be considered. It would allow for Monegasque law on succession to be disregarded as a whole and not only where forced heirship rules are considered.
Monegasque law also provides for the recognition of valid succession agreements concluded abroad. However, such an agreements cannot hinder forced heirship rules provided for in the elected law on succession (Monegasque law or a national law where professio juris is elected for) where the forced heir is not a contracting party.
2. Yet a tax resolution of estate transfers which remains fragmented
Monaco law applies estate tax only to assets located in Monaco and provides for an exemption of estate transfers to spouse or children. Estate tax applicable to transfers to more distant relatives remains limited (8 to 13%) and goes up to 16% for transfers between third parties. Successful estate planning, with assets located in Monaco and with chosen heirs who may be entitled to estate tax exemption or subject to estate tax to a lesser extent than in other States, is therefore improved by the civil reform. Estate taxation in another State, according to domestic law provisions, may however be applied. It can yet be limited where some of the heirs are excluded through the application of civil rules.
Monaco entered into only one tax treaty on succession, with France. This tax treaty stipulates that it is applicable to French or Monegasque nationals but it may also apply, under certain conditions, to nationals of other States who reside in Monaco. Pursuant to this tax treaty, the right to tax the estate is allocated either to Monaco or France owing to the asset’s nature. As an example, immoveable property as well as some tangible moveable assets will be taxed in the State in which they are located, whereas other assets will be taxed in the State of domicile of the deceased at the time of demise.
As regards States which have not signed a tax treaty with Monaco, estate taxation will be applied according to Monaco’s and the other State’s respective law. Where the deceased was Monaco-domiciled, some States would only tax assets located within their territory - though this is subject to some exceptions. Some other States may tax Monegasque assets on account of the deceased’s or their heirs’ status. Elimination of double taxation mechanisms will then be considered on a case by case basis.
a) An Italian national, who has been domiciled in Monaco for more than 5 years, drafted a will with the view to transfer his whole estate to his two children, one being a French resident and, the other a Monegasque resident. His spouse is to be excluded - which would not be allowed under Italian law but is possible under Monegasque law as the surviving spouse does not figure among forced heirs.
If the deceased did not opt for the Italian law through a professio juris, Monegasque law is applicable to the estate transfer. Monegasque private international law as well as Italian law, as it results from the Regulation, are in accordance on the matter. Yet, pursuant to Italian law, the spouse may claim forced heirship to the extent of a quarter of the estate, as Monegasque law provides that the law to be applied to the estate transfer cannot deprive a heir of the forced heirship rules that are applicable in the State the deceased was a national of at the time of death (article 63 para. 2).
For the sake of our example, we assume that the will remains unchallenged.
The estate to be transferred consists in Monegasque financial assets, a directly-held Italian immoveable asset and another immoveable asset held through a French look-through entity (Société civile immobilière). Those assets being held in several States, as many tax laws may apply.
As regards the Monaco resident offspring, the financial assets will be exempted from estate taxation whereas the Italian immoveable asset will be taxed in Italy according to Italian law.
As regards the French resident offspring, Italian estate tax will be applied in Italy pursuant to the provisions of the French-Italian tax treaty on successions.
The situation of the look-through entity as well as that of the financial assets transferred to the French offspring will be settled in accordance with the French-Monegasque tax treaty on successions dated April 1st, 1950. The non-discrimination clause stipulated in the French-Italian tax treaty actually forbids applying a less favourable taxation to an Italian deceased than that applied to a French person in similar circumstances, even if the Italian deceased is a resident of a third State (i.e. Monaco) at the time of death.
The French-Monegasque tax treaty stipulates that Monaco is entitled the right to tax both the financial assets and the interest in the look-through entity, which will be then exempted from estate taxation.
b) Assuming that the Italian national wishes to transfer his estate to both his wife and children, with his wife being exempted from estate taxation, the will could provide for a preferential assignment of the French or/and Monegasque assets to his wife, subject to Italian forced heirship rules regarding the children and the spouse. If so, she will be exempted from estate taxation in Monaco and will not fall within the scope of Italian estate taxation.
4. To conclude
Estate transfer planning where Monaco is to be dealt with, as well as the estate resolution, require reviewing both civil and tax aspects and take into consideration the residence and nationality of the deceased, the location of the presumed heirs as well as the location and nature of the transferred assets, in order to reach the most relevant and effective match.