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Cross border estate planning in Europe has been simplified, all you need is a will?

In August 2015, a new European law came into force, styled to simplify inheritance cases across Europe. It is snappily named “Regulation on Jurisdiction, Applicable Law, Recognition and Enforcement of Decisions and Acceptance and Enforcement of Authentic Instruments in matters of Succession and on the Creation of a European Certificate of Succession of 4 July 2012, No 650/2012” (deep breath).

This law has changed the way Europeans can decide to dispose of their assets on death if living in another European nation to that of their origin country, i.e. this new ruling supersedes local French inheritance law.

What was this legislation brought in for?

Many Europeans (such as the British) are used to the idea that they can leave their property to whoever they choose upon death. However, some countries, such as France have “forced” inheritance rules. French inheritance laws enforce a deceased's estate to be passed to children, ahead of a surviving spouse or partner.

Before the new European law came into effect, complicated cross border issues around inheritance tax in France, for example, kept on cropping up, with only the lawyers benefiting from the confusion.

For example:

A British man dies in France. Under previously ruling, the distribution of the man’s estate would follow French property law on death. However, as of August 2015, the man is able to state that he would rather his will be read in accordance with UK law, rather than French inheritance law.

For this to happen, however, the man’s will MUST clearly state that he doesn’t want his will to be read under French property inheritance law, as well as which country’s laws he would like applied instead. Upon his death, inheritance laws in France will be ignored in favour of the more recent ruling, covering the deceased’s entire worldwide estate (including French property).

With the introduction of the 2015 law, though, a person's right to choose has been addressed. Additionally, the current cross-border disputes have been simplified – which has saved difficulty on an estimated 300,000 European cases annually. 

So, if you think you may be impacted by the current inheritance tax in France, it may be time to revise old Wills to reflect your actual wishes in accordance, as is made possible by the new law. 

Things to watch out for.

Your will needs to be properly drafted and someone needs to know where it is. If you have French residency, your estate can now benefit from the new rules, rather than having to adhere to traditional French property inheritance law, so make sure your family and heirs know where to find your wishes.

French inheritance law vs inheritance tax in France 

While drafting your will, however, make sure to not get mixed up between French inheritance laws, and the inheritance tax in France. The 2015 rules apply to HOW the estate is distributed, but does not change the fact that your European country of death will still have the right to tax your estate for inheritance purposes. If you don't consider this properly, you could open up a huge can of worms.

For example:

An elderly British gentleman wishes to leave his entire estate to his stepchildren on his death in France and not to his biological son, who he has not spoken to in several years.

This, in the past, would not have been possible under French inheritance law and succession rules, and 50% of his estate would have automatically been protected for his bloodline son.

Under the 2015 ruling, which supersedes French property law on death rules, however, he can decide to disinherit his own “bloodline” in place of his stepchildren. Despite this though, as they are not directly related to him, they will receive his estate minus 60% in inheritance tax. Thus, the French tax man becomes the biggest beneficiary of his estate.

Clearly, therefore, additional thought is required, to reduce this liability though peripheral financial planning so that taxes are kept to a minimum for heirs.

The UK and Eire (and a few other European states) have opted out of this legislation meaning that Europeans dying in the UK, for example, will not be afforded the same rights as those dying outside. This opt-out does not affect the British benefiting from the new rules living in the majority of the other European countries who opted in.

Essential

There could be estate planning opportunities for many living in Europe under the new rules, but this needs to be undertaken with care, and a valid will is just part of your overall planning.

Have you written your will? 

Perhaps surprisingly, only three in ten people have a valid testament. More than ever, though, this should be a fundamental requirement for anyone living abroad.

Blacktower now has an in-house will writing facility, designed to help guide you through your estate planning questions. Not doing so could leave the state of your assets in a mess, with wasted legal fees and unnecessary taxes causing problems for those you intend to have your things when you have gone.

Disclaimer: The above information was correct at the time of preparation and does not constitute investment advice. You should seek advice from a professional regulated adviser before embarking on any financial planning activity.

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