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New EU Rules for Cross-Border Succession Now Apply from August 17, 2015

When a client dies leaving assets in more than one country, conflict of laws rules (also known as private international law or PIL rules) step in to help determine which country’s law should govern succession of the estate. As outlined in our earlier blog post of July 16, 2013, to achieve more clarity and certainty, the European Union passed a law known as the Succession Regulation in July 2012. It is now fully operational in all EU member states as of August 17, 2015 (except in Denmark, the U.K. and Ireland, which decided to opt out).

It is important to understand how the Succession Regulation operates and can be used in estate planning–the Succession Regulation can significantly impact all persons, including Canadians, with assets in or other ties to a participating EU member state. 

Overview of the Succession Regulation

The Succession Regulation, among other matters, provides rules to determine which country’s law will apply to a deceased person’s estate (both personal property and real estate) and applies to estates of people dying on or after August 17, 2015–whether with or without a will.

Under the Succession Regulation, in most cases a deceased person’s “last habitual residence” will determine which country’s laws apply, unless the deceased was “manifestly more closely connected” to another jurisdiction through his or her vital interests such as personal presence, family and, to a lesser extent, business and economic interests.

For example, if an Italian citizen with assets located in Italy moves to France and dies shortly after moving, Italian law will most likely apply to the succession of the deceased’s estate based on the closer connection rule.

A person can choose to apply the law of his or her nationality if it is different from his or her place of habitual residence. This feature is of particular importance to Canadians who have a EU connection. Also, if a person has dual or multiple nationalities, he or she can choose any of them to apply to his or her estate, even if it is a non-EU member state.

Below are some of the situations in which the Succession Regulation may be particularly relevant:

• a Canadian citizen resident in a participating EU member state;

• a Canadian citizen resident in Canada with assets in a participating EU member state; and

• a Canadian citizen resident in a non-participating EU member state (e.g., the U.K.) with assets in a participating EU member state.

Avoid forced heirship rules

As an example of how this new law can be helpful, consider the case of an Ontario resident with a vacation property located in Italy, a civil law jurisdiction. He or she can choose in his or her Ontario will that Ontario law should apply to the estate in Italy, including Italian real estate.

If correctly done, Ontario law should apply to the Italian real estate on his or her death on or after August 17, 2015. Without this new Regulation, Italian law would otherwise apply to Italian land. Italy’s internal laws incorporate “forced heirship” rules, which an Ontario resident will usually wish to avoid with respect to his or her Italian property. Forced heirship laws–present in a number of EU member states–often provide a mandatory distribution scheme among a person’s spouse and children, and not just to one’s spouse.

In the Canadian estate planning context, the ability to apply a Canadian jurisdiction’s laws to succession of property will help ensure forced heirship rules do not apply.

Another example is a Canadian citizen living in Germany and habitually resident there. Under the new Regulation, in the normal course, German law will apply to his or her worldwide assets, including assets outside of Germany. If there is real estate located in Ontario, the property falls under Ontario rules and is subject to Ontario law, but it can be brought into account in the German estate administration.

Habitual residence in Germany brings into play Germany’s forced heirship rules–which is potentially unintended or unwanted. However, the new law permits the Canadian (assume he or she is domiciled in Ontario) to choose Ontario law under his or her will. Ontario’s internal law would apply if the Canadian is considered domiciled in Ontario for property purposes, given that property matters fall under provincial law, and German law as a result will not apply.

It is important for Canadians who are habitually resident in an EU state to get advice on their estate planning to avoid the unintended application of the law where they habitually reside, and consider choosing their law of domicile of a Canadian province.

These new European rules are a welcome and positive development in estate planning and administration, including for Canadian clients who increasingly have ties to many EU jurisdictions given the ability to make a choice of law. In the Canadian context, it is critical to consider these rules when drafting a will for a client with connections to participating EU member states.

– Margaret O’Sullivan

Please watch for our next blog post on the new 2016 income tax rules and their impact on trust and estate planning.

The comments offered in this article are meant to be general in nature, are limited to the law of Ontario, Canada, and are not intended to provide legal or tax advice on any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your personal circumstances.