Until the arrival of the EU Succession Regulation (EUSR) in 2015, the matter of which country’s law should apply to the succession of a cross-border estate involving an EU country was complex and unsettled. Each jurisdiction’s conflict of law rules could, and often would, conflict with equivalent rules of another jurisdiction.
This murky area of private international law affected UK nationals owning property on the continent, for example a holiday home in France. Without delving too deeply into the complexities, civil law jurisdictions (like France, Germany and the majority of the EU states) apply forced heirship rules (or some version of these) to the succession of an estate. This means that certain individuals receive set shares of an estate irrespective of what the deceased’s will says. In a common law jurisdiction, like the UK, we have testamentary freedom meaning that we can choose (by way of a will) who should inherit when we die. This is subject to a claim being made under the Inheritance (Provision for Family and Dependants) Act 1975 (IPFDA 1975), but that is not a right and is subject to the Court’s discretion. Clearly, forced heirship and testamentary freedom are in direct (and often bitter) conflict with one another.
Along comes the EUSR to save the day. It applies to property located in the EU even if the owners or beneficiaries are resident elsewhere. Therefore, even though the UK never opted into the Regulation (and has of course since left the EU), the EUSR is very much relevant to UK nationals (and nationals of other ‘third countries’) who own property in the EU. In short, the Regulation provides that:
1. As a general rule, the law of the country of “habitual residence” at the time of death governs the succession of the deceased’s estate, unless the deceased was “manifestly more closely connected” with another state.
HOWEVER
2. This is subject to the deceased having elected in their will that the law of their nationality should apply instead. If the individual has multiple nationalities, then they have the privilege of being able to choose any one of them.
It is important to note the difference between the application of the above. Where habitual residence is the governing factor, that means the law of that jurisdiction applies, including its conflict of law rules, which could result in a reference to another country’s law. For example, where ‘immovable’ property (real estate) is located in another jurisdiction, the UK would apply the principle of lex situs, resulting in the law of the location applying as opposed to English succession law. Where, by election under the Regulation, the law of nationality applies instead, it means the domestic succession law in that country.
So as an example, George is a UK national and resident who owns an apartment in Bordeaux. He and his wife have two children. Contrary to French forced heirship rules, on his death he wishes for the property to pass to his wife, absolutely. Before the EUSR came about, a gift of the apartment in George’s will to his wife would not have held up; English conflict of law rules provide that French succession law (including forced heirship) should apply to the Bordeaux apartment, as it is immovable property situated in France.
Following the introduction of the EUSR, as George is a UK national, he can elect in his will that English succession law should apply to the succession of the apartment, meaning that it would pass to his wife.
The EUSR has provided a period of relative certainty and uniformity in cross-border estate planning in the region. However, two developments have now set it on shaky ground. These come in the form of the 2021 Amendment to the French Civil Code, and the 2022 German Federal Court Case (Case No. IV ZR 110/21).
Amendment to the French Civil Code:
As we have mentioned, France has forced heirship rules. These provide that children are entitled to between 50% and 75% of the estate depending on the number of children. As per the above example, these can effectively be overridden by an election under the EUSR.
However, amendments to the French Civil Code effective from November 2021 have provided that:
So, let’s say that Harriet (who is UK domiciled) has a house in the UK and owns investments in a French company. One of her two children lives in Portugal, the other in the UK. Under her will, Harriet leaves all of her estate to her husband:
1. Under English law, the law applicable to the real estate would be English law and, the law applicable to the French investments, being movables, would be the law of the individual’s domicile, that is, the UK.
2. French law (under the EUSR) applies the law of habitual residence, being English law, which under its conflict of law rules applies English law.
HOWEVER
3. As UK law does not include any forced heirship rules, the new provisions in the Civil Code would apply and it would appear that all of the children, not just the child resident in Portugal, could claim the French investments to satisfy their compulsory share under French forced heirship rules.
If we go one step further, what happens if Harriet were to have made an express election in her will that English succession law applies to her EU assets? This would bring the Civil Code Amendment into direct conflict with the ability to make this election under the EUSR. Which law/rule would a French court then uphold? This is a question that has surprisingly not yet been tested, but is certainly ripe for a case, so let’s watch this space.
German Federal Court Case (Case No. IV ZR 110/21):
In this case, the testator, a British national who had lived in Germany for over 50 years made a will which disinherited his adopted son and elected, in accordance with the Regulation, for the law of his nationality, i.e. English law, to apply.
This should have meant that English domestic law applied, and the will could validly leave the individual’s estate away from any compulsory heirs; a triumph for testamentary freedom, although this could, of course, still be challenged under the IPFDA 1975 with the right facts.
However, the Federal Court held that the entitlement to a compulsory share was a matter of public policy (Ordre Public) and there was a violation of public policy if the applicable foreign law does not provide for compulsory shares, according to fixed rights and independent of need. Being able to make a claim under the IPFDA 1975 was not sufficient here, in the Court’s view, as the Act does not provide for a fixed right but rather financial compensation arising from a claim to maintenance being awarded at the discretion of the court, which is dependent on numerous factors.
The German Court decided that English law did not apply in this case because it would have deprived the son of his compulsory share, and this was a breach of public policy. Therefore, German law was applied, despite the deceased’s express efforts to disapply it, meaning that the son received his compulsory share. The Judge held, at paragraph 11 that:
“Contrary to the view of the revision, the application of English law is, at least in the case at issue here, obviously incompatible with the German ordre public (Article 35 EuErbVO). This is because English law is in such serious contradiction with the distribution of the estate constitutionally guaranteed under German law that its application in the case here is unacceptable. This has the consequence that it does not apply here.”
The Court justified its decision on that basis that where an election under the EUSR has been made, the foreign law would only be disapplied if there was a “sufficient domestic connection” to Germany. The decision should not therefore be taken as confirmation that generally every disinherited family member or spouse can enforce the compulsory share so long as a German court has jurisdiction. Unfortunately though, the Court did not provide any legal certainty as to where the limit of such a “domestic connection” lies. It did however take account of the habitual residence of the deceased and the son before and at the time of the deceased’s death; the location of the estate; and the citizenship of the son.
Clearly, these two developments have disrupted what had otherwise been a peaceful period of estate planning for EU situated property. Both developments undermine the very purpose of the Regulation and have given rise to questions about its superiority and whether public policy and/or Civil Code amendments can now trump it.
One thing that is clear is that careful and expert advice on cross-border estate planning is now more important than ever.
