WILLS – CONFLICT OF LAWS – BRUSSELS IV

Brussels IV (European Regulation 650/2012) is the European Union’s answer to the problem of whose law is to apply to the distribution of a deceased’s assets when the deceased owns assets in different countries. This is sometime called “Conflict of Laws” and can result in some strange answers especially if one country says the law of another country applies to a particular asset, and then the laws of that other country say that the laws of the first country apply! (going round in circles). It is this very problem that Brussels IV, which came into force on  the 17^th August 2015 has tried to solve.

You should note that Brussels IV has an opt out provision, and the United Kingdom and Denmark and Ireland have exercised to opt out of the provisions of Brussels IV, and so Brussels IV does not apply to United Kingdom; Danish or Republic of Ireland assets owned by the deceased national or habitual resident of those Countries. If Brussels IV does not apply, then movable property in England as at the date of death, is governed by the law of the deceased’s domicile (which in many cases is going to be the laws of the country of which the deceased was a national).

In order for Brussels IV to apply you must therefore have assets in at least one of the EU Countries.

For example:

Jane is a US citizen, and was born and brought up in Texas, and she lives in the UK and has a holiday home in France. She is affected by Brussels IV.

Richard is British and lives in the UK and has a salmon fishing home in Ireland. He is not affected by Brussels IV

Henry is a British national and lives in Cornwall, and has a holiday home in France. He is affected by Brussels IV.

Ricard is French and lives near Paris. He is buying a home in England. He will be affected by Brussels IV.

Mark lives in Denmark and has a holiday home in Norfolk, England. He is not affected by Brussels IV (the opt out provision has come into play).

Mary is British and lives in Cyprus, and retains a house in England. She is affected by Brussels IV.

Brussels IV provides that the law of the country where you are habitually resident when you make your Will or when die governs the succession to your assets as a whole (both movable and immovable property) – in simple terms land and buildings (i.e. real estate) is immovable property, and everything else is movable property). Under Brussels IV there is no distinction between movable and immovable property, and so Brussels IV applies to both.

Be careful when drafting the Will as some countries have different rules as to what makes you an “habitual resident” – for example you need to be resident in the Netherlands for at least five (5) years in order to be classified as an habitual resident.

This basic rule that habitual residence applies to determine the law applicable to the Will, is overridden if:

(1)          You choose that the law of your nationality (i.e. what your passport states) is to apply to the distribution of your estate; if you are a British subject you can choose the local law with you are mostly connected to apply such as the laws of Northern Ireland; Scotland or England & Wales.

This choice of law must be made by Will or Codicil and the nationality choice must be your nationality as at the date of your Will or Codicil. You therefore cannot chose a different law from your nationality just because is suits your intentions.

As the regulation applies to all citizens wherever they come from, it is possible for different nationalities to specify that their national law is to apply to their European assets. In the above example Jane (as a US citizen) can specify that the laws of the State of Texas are to apply to her property (movable and immovable) in France.

This now means that your English Will can govern the distribution of your French or Spanish real estate holiday home (immovable property) and as to its contents (movable property). Likewise, because of the opt out provision a French or Spanish Will made by a UK national, may not necessarily govern the distribution of United Kingdom movable assets, hence the suggestion that an English Will or Codicil at least limited to English assets should be made. Obviously it would be best for any British national to make a Will governing all foreign assets within the European Countries which are subject to Brussels IV. The English real estate being immovable property will be governed by English law in any event (the opt out provision will apply to the same).

In the above example, Henry should make an English Will (choosing the laws of England & Wales to apply to the Will) and its provisions will govern the distribution of the French property (immovable property) and also the contents (being movable property).

It is important to note that your Will must be made in accordance with the law of your nationality, and the Will should state the chosen law to avoid any future problems in interpretation of the Will, i.e. the Will should state that the disposition of French, Spanish or other European assets (not assets in Denmark or Ireland) is to be made according to English law succession rules.

If you are going to make your Will on the basis that you “habitually reside” in a particular country, then it is advisable that you include words to that effect in your Will, as such a statement will ensure that the your chosen courts will have jurisdiction (if you habitually reside in your chosen country) if there is any dispute about the EU assets which are included in the Will.

For example, if you habitually reside in Australia and have a German ski chalet, then you can make a Will under the laws of Australia, state you habitually reside in Australia, and dispose of your German ski chalet as you wish in accordance with Australian law, and you will not have to deal with German forced heirship laws.

A problem will arise if the person making the Will (the “Testator”) moves to (for example – Spain or France) and retires there, i.e. the Testator has now become habitually resident in France or Spain, and thereupon French or Spanish succession law (including forced heirship laws) will be applicable to the Testator’s estate in those countries. As mentioned below, such forced heirship rules may also include a claw back provision which enables gifts or transfers made by the deceased during his or her lifetime in breach of what the beneficiaries are entitled to receive under forced heirship laws, to be taken into account when the final distribution and accounting of the assets takes place. This means the beneficiaries will be made whole in due time so that they receive their full entitlement under the forced heirship laws of Spain or France (as the case may be).

In the above example Mary is subject to forced heirship laws in Cyprus, and as she is habitually resident in Cyprus, Cypriot forced heirship laws will apply to the whole of her estate, except for the English property which being immovable property will be governed by English law, but the contents being movable property will probably be governed by Cypriot law. By making an English Will (under Mary’s own nationality – being British), Mary will have both the Cyprus and the English properties governed by English law (so removing such assets from the forced inheritance laws of Cyprus, and substituting English law for the both the movable and immovable properties).

A further twist, is that a European Citizen (for example, a German) who is not resident in England but who has English assets, will under Brussels IV be able to make a Will in Germany governing his English movable assets (but not the immovable (real estate) assets, which will be governed by English law; although the English courts will usually give effect to any provisions as to the distribution of the English immovable (real estate) assets which are contained in the German Will).

Thus, in the above example, Ricard cannot have French law apply to his London flat, but by making an English Will (limited to English assets or by making a French Will in terms similar to the English laws of succession) he can determine how his London flat is to be distributed, and he can avoid French forced inheritance laws as regards the London flat.

Any such Will when made by a United Kingdom national, should also consider any effect that the provisions of the Inheritance (Provision for Family and Dependants) Act 1975 may have upon the assets of the deceased.

(2)          You were “manifestly more closely connected” with another country when you died.

It is anticipated that this will be very rarely used, and only in exceptional circumstances.

You may care to note that when a person is habitually resident in one of the EU Countries, then that Country will issue a European Certificate of Succession which in turn will be recognised in all the other EU Countries (but not the UK, Ireland or Denmark because of the opt out provision). For example a British deceased living in France with a German ski chalet or Italian flat in Rome will have the Certificate of Succession issued in France recognised in Germany and in Italy.

You should also note that Article 4 of Brussels IV, states that the Courts of the Member State in which the deceased had his habitual residence at the time of death shall have jurisdiction to rule on the succession as a whole. If therefore you are a British national who habitually resides in Spain or France, you run the risk of their forced inheritance (heirship) laws applying to the whole estate and not just to the property in France or Spain (as the case may be). Choosing to apply the law of your nationality to your Will can allow the Courts of that European Country of nationality to decide matters.

As mentioned above in reference to conflict of laws, the concept of “Renvoi” (i.e. when one country’s law says that another country’s laws are to apply, which other country then refers the matter back to the first country or onwards to another third country) may need some consideration, especially if the potential result is totally outside the  deceased’s contemplation at the time of making the Will (such as forced heirship rules – which are rules stating by law who is entitled to inherit the assets of the deceased and how much is to be inherited; and such rules may also include a claw back provision which enables gifts or transfers made by the deceased during his or her lifetime to be taken into account when the final distribution and accounting of the assets take place). This concept of renvoi can have unfortunate results and under Brussels IV may still be permitted when:

(a)          The law of succession is determined by habitual residence (i.e. when no election has been made in the Will to apply the particular law where the testator states that he or she was habitually resident);

(b)          The law of the applicable “habitual residence” is the law of a Country which is outside Brussels IV (such as the USA; Canada, Australia; South Africa); and

(c)           The private international law of such third country (such as the USA; Canada, Australia; South Africa) would make a renvoi decision to apply the law of a country that has implemented Brussels IV.

It is therefore advisable to consider making a proper election in the Will as to the law to apply to the Will instead of not making any election, and just rely on the habitual residence test (which could be very difficult to determine and apply when the deceased habitually travelled the world and lived in several different countries from time to time). A simple example is a Northern European (say a Dutchman) having movable and immovable property in Spain or Italy where the Dutchman spends winters in the sun.

One other matter to consider is which court actually has the power to administer the assets of the deceased? Generally speaking it will be the courts of jurisdiction whose succession laws apply, will have the power to administer the assets of the deceased.

You should note  that there is a reservation in Brussels IV which provides that a country may refuse to apply the law of another Country if that law of the other Country would be “manifestly incompatible with the public policy” of the first Country.

Very careful thought therefore needs to be given as regards Brussels IV and its application.