The new inheritance laws
David Anderson and Nicole Gallop Mildon explain the new inheritance laws and how you can best deal with the changes
The new rules are contained in regulation (EU) no 650/2012 and came into effect from 16 August 2012. They will apply from 17 August 2015. The UK has opted out of this regulation, though it is of considerable relevance to UK residents and nationals because almost every EU country will apply it. This article sets out the rules and the unanswered questions with respect to the UK and France.
WHY THE RULES MATTER
From now on, people resident in England can, in most cases, provide in their wills that English law is to apply to their estate in France, including French land. Provided this is done correctly, the French notaire will apply the English rules on your death (if you die after 17 August 2015).
This is a fundamental change, as previously French law had always applied to French land regardless of whether the deceased died resident in England. It is sensible to review existing wills.
WHAT THEY DO
The regulation applies to the succession of estates on death rather than to lifetime gifts. The general rule is that the law applicable is that of the country where the deceased had his habitual residence at the time of death (article 21.1). This law will then apply to the deceased’s worldwide estate. Only one law applies to the entire estate, be it moveables or land. If, however, the deceased was manifestly more closely connected to another country, that country’s law will apply (article 21.2). As an example, if an English person moves to France and dies shortly thereafter, English law is more likely to apply.
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A person can also choose the law to apply to their worldwide estate. They can only choose between the law of their habitual residence or their nationality (article 22.1). If you have several nationalities, you can choose whichever nationality you wish. You choose by putting a declaration in your will (article 22.2).
WHAT THEY DON’T DO
They do not deal with tax matters, including inheritance tax or the registration of real estate. National law determines how inheritance tax is calculated and whether the estate or the beneficiary is liable for the inheritance tax (preamble 10). It also does not deal with matrimonial property regimes (marriage contracts) to the extent that they do not deal with succession matters (preamble 12).
While trusts are not generally dealt with by the regulation, where a trust is created under a will the law applicable to the succession will apply with respect to the devolution of the assets (preamble 14). This will be problematic in France.
The relevant periods are:
A) Pre entry into force of the regulation (pre-16 August 2012)
B) Between entry into force (16 August 2012) and the implementation date (17 August 2015)
C) The period after the date of implementation (after 17 August 2015)
WHAT IT MEANS
1) If you make a will after 17 August 2015 and then die after that date (period C), the rules will apply to you.
2) If you make a will after 16 August 2012 (period B) and die after 17 August 2015 (period C), the rules will apply to you.
3) If you die before 17 August 2015 (period B), regardless of when you make your will, the rules will not apply to you.
4) However, it is unclear whether the new rules will apply if you made a will before the rules came into force on 16 August 2012 (period A) and die after 17 August 2015 (period C).
WHO IT APPLIES TO
The regulation applies in all member states, except the UK, Ireland and Denmark
An English person who dies resident in France and stipulates that English law is to apply to his entire estate will have his French estate administered according to English law. This is because even though the UK has opted out of the regulation, any law can be chosen (article 20) and that must therefore include EU countries which have opted out.
A French person who dies resident in England and stipulates that French law is to apply to his entire estate will have his worldwide moveable and French property administered by French law, and his English property administered by English law – this is the same as the current position. Nothing changes because the UK has opted out.
Where an English person dies resident in France and stipulates that French law is to apply to his entire estate there may be complications in respect of his moveable assets. Previously his worldwide moveable assets (English, French and worldwide) would be administered according to English law (the law of his domicile). Under the new regulation, his moveable estate is administered according to French law (law of habitual residence).
However, in respect of the English moveable assets there is a conflict, as the French analysis will be law of last residence (France), while the English analysis will be law of domicile (England), because the UK has not opted into the regulation. It’s not clear how this will be resolved. The regulation in fact complicates the position. The regulation suggests that English land would be administered under French law, but the UK’s opt-out would block this. This is not clear for the moveables.
A French person dies resident in England and stipulates that English law is to apply to his entire estate. The regulation does not apply in the UK, though English law is, as before, applied to English property, and French law applies to worldwide (including English and French) moveables (law of domicile). The French assets which would have been administered under French law (French property and moveables) may end up being administered under English law (France does apply the regulation).
Article 83 of the regulation contains transitional provisions. It is clear the regulation only applies to deaths on or after 17 August 2015. When drafting a will, you may need to consider the scenario of death on or before 16 August 2015 (current regime) and on or after 17 August 2015 (new regime).
Although the regulation does not deal with tax, having only one law applying to your worldwide estate should present you with previously unavailable tax planning opportunities. Consideration will be needed to ensure that by choosing a particular law you do not prejudice the inheritance tax liability of your estate.
David Anderson is a solicitor advocate and chartered tax adviser; Nicole Gallop Mildon is a solicitor and former clerc du notaire
Tel: 020 3178 3770