Cross border estate planning in Europe has been simplified, all you need is a Will?
A new European law came into force on August 17th 2015, with the intention of simplifying inheritance cases across Europe. 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 country to that of their origin country.
Basic example; a British man dies in France. He leaves a UK Will stating he wishes UK law to apply to his property and assets on death not French law. The French will have to abide by this decision and their inheritance rules will not apply and this is for the deceased's worldwide estate including French property. Important to note is that the Will must clearly state which country's law is to be applied for this to work. In this case UK rules would then be adopted by the French.
So, it may be time to revise old Wills to reflect this if required.
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 who they choose on death, whereas some countries such as Spain and France have “forced” inheritance rules which can see estates being passed to children ahead of a surviving spouse or partner. Complicated cross border issues have arisen again and again with really only the lawyers benefiting from the confusion. The new law addresses a person's right to choose but also aims to simplify the current chaos of cross border disputes, estimated at 300,000 cases per year just within Europe.
Things to watch out for.
Your Will needs to be properly drafted and someone needs to know where it is. If you are reading this, congratulations, your estate can benefit from the new rules!
Never mix inheritance rules with inheritance taxes. The new 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 and this could open up a huge can of worms if not considered properly.
As an example, an elderly British gentleman who 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 succession rules and we would have seen 50% of his estate automatically protected for his bloodline son. Under new rules he can decide to disinherit his own “bloodline” in place of his stepchildren, but as they are not related to him in the eyes of the French then they will receive his estate minus 60% in inheritance tax and thus the French tax man in fact becomes the biggest beneficiary of his estate. Clearly therefore, additional thought is going to be 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. the UK. 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.
Clearly, therefore, 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.
Will you make your Will? Only three in ten people dying have a valid testament, and more than ever this should be a fundamental requirement for anyone living abroad.
Blacktower now haa an in-house Will writing facility and we can help guide you through your estate planning questions. Not doing so, could leave a mess when you have gone and will likely see assets wasted on legal fees and unnecessary taxes and not to the full benefit of those you intend to have your things when you have gone.