16 November 2009
Following several years of consultation the European Union have proposed a Regulation with the objective of simplifying the procedure where someone dies owning assets in more than one EU country.
At present who is responsible for dealing with an asset on an individual's death as well as who can benefit, will depend on where the deceased was resident or domiciled or his nationality. The system of law which applies to determine who is entitled to the asset can depend on where that asset is situated and whether it is personalty or real property.
The proposed Regulation suggests:
- The adoption by Member States of a "common connecting factor" in determining which law will be applicable to governing succession. The common connecting factor will be that of the deceased's habitual residence.
- Heirs and administrators can prove their capacity to act in the Member State of succession by means of a "European Certificate of Succession". This will act as proof throughout the EU of a person's capacity as heir or administrator to deal with the succession.
- Powers are conferred on an individual to designate (within limits) another system of law to govern the succession.
- That the rule under common law stating that immoveable property is governed by the law of the country in which it is situated, be abolished.
Will it work?
Common connecting factor – at present the principles governing the conflict of laws when dealing with international succession are complex. The proposal reduces complexity and also provides the individual with some freedom of choice of governing law. However, if a deceased were to die intestate having recently moved his habitual residence from a common law jurisdiction to that of a civil law jurisdiction, the consequences could be unintended and drastic. For instance if a UK citizen were to retire to France then his worldwide assets could be subject to forced heirship provisions.
European Certificate of Succession – this would bypass the need for a Grant of Probate in common law jurisdictions, notably the UK, where there is a European dimension to the assets. This is likely to be strongly resisted as probate is an essential part of the tax gathering system and also ensures debts are paid before distributions are made to beneficiaries.
Common law and civil law – there are fundamental differences between civil law and common law. For instance under the forced heirship provisions in France and Belgium, an heir can "clawback" any monies that the deceased has given away during his lifetime which exceed the amount the donee is entitled to receive under forced heirship. This cannot be reconciled with the common law provision of the freedom of an individual to dispose of his property as he wishes. It may lead to a situation where a gift is made by the deceased whilst living in a common law jurisdiction, but because he dies in a civil law jurisdiction, the heirs seek to have the gift set aside.
Effect on the UK
The notion of clawback and the common connecting factor are areas of concern.
Clawback would represent an interference with UK property law and the legitimate expectations of those who receive gifts. We have seen above the effect that it may have on individuals but the effect on charities may also be severe as, potentially, any gifts made to a charity may also be susceptible to clawback.
The common connecting factor of habitual residence has yet to be defined. What time period should elapse before somewhere becomes your habitual residence? Some 1.4 million UK citizens currently live abroad and no doubt some intend to return to the UK at some point. With no clear definition of habitual residence these individuals are at risk of falling under the succession laws of the country they currently reside in. No doubt the concept of habitual residence will need to be tested in the courts which could lead to significant litigation costs.
The UK does have an option not to opt in to the proposed Regulation but to participate in negotiations. The potential benefits of simplifying the procedure are outweighed by the concerns relating to clawback and the common connecting factor on common law jurisdictions. Therefore involvement in the negotiations is key and the outcome of those negotiations will help determine whether or not the UK opts in.
There are several issues which need to be clarified. Any regulation seeking to bring together common and civil law has inherent problems, but there is a manifest desire on the part of the EU to harmonise the international aspects of succession. It will be interesting to see the developments over the coming months. The intention is for the Regulation to be brought into force by 2011, but it is interesting to note that, as the Regulation currently stands, there is a provision for the UK to opt out. The Ministry of Justice have recently published a consultation paper in relation to the proposal. This public consultation will end on 2nd December 2009.
If you would like further information please contact Beatrice Puoti by e-mail or by telephone on +44(0) 117 902 2765.