Avoiding unforeseen consequences – changes to the EU regime on Succession

It is now easier than ever to live, work and own property and assets in multiple jurisdictions. Jonathan Riley comments on the impact of the new EU Succession Regulation, which takes effect in August 2015 and governs the transfer of a person's property following their death. 

Diverse legal systems mean that often, obstacles are faced when dealing with cross-border issues following the death of a person with assets abroad. 

This is a growing issue for British citizens with assets overseas. An estimated 5.5m British people live permanently abroad – almost one in ten of the UK population. The trend is now rising again: some 2,000 British Citizens move permanently away from the UK every week.

The different outcomes that can result from local rules on succession are  demonstrated in a recent case (Scarfe v Matthews [2012] EWHC 3071 (Ch)) concerning the French assets owned by the late English Turkey tycoon, Bernard Matthews. Matthews had an unconventional family set up; he adopted three children with his wife, Joyce, had an illegitimate child with his Dutch mistress and a long-term French partner, Odile, with whom he spent increasing amounts of time in his luxury villa in the South of France.  Matthews never divorced Joyce and sought to give the French villa to Odile. Matthews knew he had to abide by the part of the ancient Napoleonic Code that governs the distribution of French assets upon death.

As a general rule, French testators are limited in the disposition of their estate by Will, because they cannot disregard the reserved rights of certain heirs. 

The part reserved for specific heirs is called the 'réserve héréditairé'. The part of their estates which testators can bestow freely is called the 'quotité disponible'.

The 'réserve héréditairé' are defined in the Code as close relations such as children, and Matthews was aware that his children (Matthews' three adopted children and one illegitimate child) were entitled to 75% of the villa on his death, and that would leave only 25% as 'quotité disponible'.

Matthews made a French Will leaving his French villa to Odile. This was not just his 'quotité disponible', but the entire villa.  Matthews wrote private letters to each of his adopted and his illegitimate children setting out his wishes that they did not exercise their rights to the 'réserve héréditairé'.  In the event, only his illegitimate child respected Matthew's wishes: the three adopted children did not. Odile did not get the French villa, as Matthews had intended. 

The outcome of this case would have been different, had Matthews died after 17 August 2015. New rules on EU succession contained in the regulation number (EU) 650/2012 came into effect from 16 August 2012 and will apply from 17 August 2015. The UK has opted out of this regulation, though it has considerable relevance to UK residents and nationals because almost every other European Union member country will apply it.

If Matthews' had died after 17 August 2015 then, under the new regulation, he could have made an English Will giving the French villa to Odile which, if valid under English law, would have applied to his estate in France, including the villa. The French 'notaire' dealing with the estate would have had to apply the English rules on death. Odile would have taken the villa as Matthews had wished. This is a fundamental change.

It is important to note that this applies to all European Union member states, except the UK, Denmark and Ireland. Under the regulation only one single criterion remains for determining the jurisdiction and the laws applicable for cross-border succession: that is the last habitual residence of the deceased at the time of their death. Therefore criteria such as nationality (Germany) or the location of the asset (France) will not be the determining factors for dealing with assets on death.

Testators will be entitled to make a choice of law and to determine the law applicable to the succession of their assets.

After 17 August 2015, a testator will (for example) be able to be resident in England and create an English Will that stipulates that English law is to apply to his/her entire worldwide estate, including property in other EU member states. As such, any EU member state which is a signatory to the regulation would be required not to apply its own succession rules, and apply English law instead. 

The regulation does not deal with tax matters, including inheritance tax.  National law determines how inheritance tax is calculated and whether the estate or the beneficiary is liable for the payment of the tax.