With recent changes to the EU Succession Planning regulations in place, Aileen Keogan examines the potential effects of these changes for Irish clients.
What is the Regulation About?
In advising on succession law as much as any other law, lawyers should confine themselves to advising only on the law of the country in which they are qualified. Nevertheless, a succession lawyer should be aware that the law of succession and the method of administering estates can be significantly different across jurisdictions. This matters where a testator has connections with other jurisdictions, whether he retains personal connections abroad or holds investments or a holiday home abroad.
When cross border issues arise in determining succession law, private international law (PIL) rules for each country are applied. These are known as ‘conflict of law’ rules. Unfortunately, PIL rules differ between jurisdictions. Some, like Ireland, use the concept of domicile as the basis for determining which jurisdiction’s succession law applies, others the concept of habitual residence, others residence and others nationality. Some distinguish between moveables and immoveables in their application of the local law, others do not. Even if a jurisdiction recognises the law of another jurisdiction, it may only recognise the internal of that jurisdiction and not its PIL. The courts in one jurisdiction might not recognise a decision made by the court of another jurisdiction, or it might consider the other court to be more appropriate yet that other court might refuse to take the case. The definitions also differ across countries, eg, that of domicile and habitual residence.
The EU Regulation on Succession Law (No. 650/2012) (the Regulation), also known as ‘Brussels IV’, seeks to resolve the concern that to date different member states of the European Union apply different PIL conflict of law rules for succession purposes. Unfortunately though, this Regulation has created ambiguities of its own.
The Regulation seeks to apply to member states a uniform system of recognition of succession laws. This is broadly based on the habitual residence of the deceased and does not distinguish between moveables and immoveables. The Regulation will govern the internal law and the PIL for succession (testate and intestate) in the participating member states. All assets should therefore pass based on the succession laws of the member state in which the deceased was habitually resident.
Ireland, the UK and Denmark have opted out of the Regulation, however, somewhat frustrating the purpose of the Regulation. Nevertheless the Regulation is still very relevant for testators in these ‘opt out states’ because a testator can elect to choose the law of his nationality to apply to the succession of his assets, even if that state is not a participating state, and it is anticipated that the choice of law of the ‘opt out state’ will be applied within that state. An Irish national might therefore elect to apply Irish law for the succession of his assets, which will be binding on the EU signatory members of the Regulation, and it is anticipated that the choice of Irish law would be accepted in Ireland.
The Regulation came into force on 17 August 2012 but most of it will not apply until 17 August 2015. Notwithstanding this delay, the Regulation is relevant for testators today as it is possible to make a will now that could apply to a death after 17 August 2015.
Why are Conflicts of Law Relevant?
The determination of which succession law applies to a deceased’s estate is relevant in determining:
if forced heirship provisions are to apply;
if the matrimonial regime or survivorship provisions under a joint tenancy is to be accounted for; and
if the clawback provisions for gifts made during a deceased person’s lifetime are applicable.
Forced heirship is the term used where a jurisdiction provides that specified persons have automatic rights to the succession of a portion of a deceased’s estate, taking precedence over the will of the deceased. Ireland has both fixed and discretionary based forced heirship provisions under the Irish Succession Act 1965, giving a spouse a right to elect to take a fixed legal right share (instead of what is left under the will of the deceased spouse) and providing children with the right to claim for a share of their parent’s estate.
Succession should not be considered in isolation to matrimonial property regimes. Before applying any inheritance rules to the estate of a deceased, it is first necessary to determine exactly what the estate includes. This process includes consideration of the matrimonial property regime (which Ireland does not have) and joint tenancies where the asset may pass outside of the succession under matrimonial contract law or by survivorship (which Ireland does provide for).
Clawback provisions often feature in forced heirship regimes. These provide that where a statutory heir is not able to receive his correct share on the death of the deceased because the assets are eroded, assets given away during the deceased’s lifetime can be brought back into account for the purposes of calculating the share of the statutory heir. Ireland has a clawback regime under our Succession Act 1965.
The Regulation only deals with assets passing under a deceased person’s will or intestacy. Therefore assets passing by survivorship are still dealt with under local law. Nor does the Regulation affect the taxation that may arise in any member state on the death of a person (albeit the EU is currently reviewing harmonisation of inheritance tax). Nonetheless the impact of the Regulation on where assets are to pass will inevitably impact on the inheritance tax payable, particularly in jurisdictions which tax on a beneficiary/receipts basis (such as Ireland and Germany).
Conflicts of Law – Ireland and the Regulation
When it comes to ascertaining what law should apply to the estate of a deceased, different jurisdictions look to different connecting factors and apply their PIL rules accordingly. Irish law provides that the law of the domicile of the deceased determines the succession of moveable property whereas the succession of immoveable property is determined by the law of the country where the property is situate (the lex situs). In contrast the Regulation provides that between the participating member states the habitual residence of the deceased will determine the forum that applies the succession law of that deceased.
The Regulation, however, recognises that a person may wish the law of his nationality to apply even if the person has acquired a habitual residence in another state. The effect of a choice of law is that the internal law of the nationality applies and not its PIL and so the national court should accept jurisdiction. A testator who is an Irish national and who has cross border issues should therefore take advice on whether to elect to apply Irish law to the entire estate to avoid foreign forced heirship provisions applying if Irish forced heirship provisions are more in keeping with that testator’s wishes.
Doctrine of Renvoi – Ireland and the Regulation
The Doctrine of Renvoi occurs in the process by which a court adopts the rules of a foreign jurisdiction with respect to any conflict of laws that arises. In some instances, the rules of the foreign state might refer the matter back (‘renvoi’) to the law of the forum where the case is being heard or on to another jurisdiction.
Where the assets are situate in Ireland, the Irish courts as the forum court will apply Irish PIL in determining whether Irish law or foreign law should apply. When, following the application of the Irish PIL rules, it is decided that a foreign law governs the matter, eg, the deceased died domiciled outside Ireland or there are no Irish immoveable assets, the decision is made by the Irish court as to whether to apply the law of the foreign country and send the matter to that jurisdiction. However, where the Irish court applies the law of the foreign country, it also should apply that country’s PIL. In such a case the foreign country’s rules of conflict of laws may refer the matter back (renvoi) to the law of Ireland. If so, the Irish courts must decide whether to accept the renvoi and so apply Irish internal law.
Under the Regulation, renvoi is abolished between participating member states. If the applicable law is that of a ‘third state’, the PIL rules of that third state are included insofar as they make a renvoi to the law of a participating member state or to the law of another third state. Unfortunately, it is not clear if Ireland, the UK and Denmark are considered to be a third state under this part of the Regulation. This leads to uncertainty in relation to the impact of the Regulation on Ireland, the UK and Denmark.
Examples of the possible effects on Irish PIL by the Regulation are set out below.
Deceased dies habitually resident in Ireland, holding a French domicile and French nationality, owning assets both moveable and immoveable based in France. No choice of law. Ireland as forum court applies Irish PIL so that the lex domicilii (French) applies to the moveables and the lex situs (French) to the immoveables. French law however applies Irish law to all assets under the habitual residence rules and so sends it back (renvoi) to Ireland. If Ireland is a third state under the Regulation, France would accept the referral under Irish PIL so that French succession law would apply to all the assets. If Ireland is not a third state under the Regulation, the internal (not PIL) laws of Ireland should apply so that French courts would seek to apply Irish law to all the assets. This doubt would be removed if the deceased elected to apply the internal law of his nationality, where France would then apply its law to the whole estate in accordance with the Regulation (accepting the choice of law), and Irish law would still apply its PIL, whereby the law of the domicile and the law of the situs are both French.
Deceased dies an Irish national, habitually resident and domiciled in Germany. No choice of law. Irish law will apply to immoveables situate in Ireland as Ireland is not a party to the Regulation. However, Germany will account for that division in determining the administration of the assets worldwide under German law, ie, the assets will be taken into account in dividing up the remaining estate under German law. If the deceased elected to apply the internal law of his nationality, where Ireland would then be asked to apply its law to the whole estate, German law would not apply to the Irish immoveable property and Ireland would consider the choice made and should accept that Irish law applies to the whole estate.
Deceased dies domiciled and habitually resident in Ireland, an Irish national holding Spanish immoveable property. Without a choice of law under Irish PIL rules the Irish courts would apply the lex situs and seek for Spanish law to apply. Assuming Ireland is a third state Spain must accept the PIL of Ireland as the deceased was habitually resident there but this is not without doubt. Prior to the Regulation applying, Ireland would have considered accepting the renvoi from Spain and so the Regulation appears to provide an opposite outcome than before. A choice of Irish law would be helpful here whereby the choice would be for the Irish internal law to apply to allow Ireland accept jurisdiction over Spanish immoveables.
When dealing with cross border estates, care will need to be taken to account for the Succession Regulation for all who maintain contact with any of the EU Member States. Even though Ireland is not a party to this Regulation, it will affect Irish testators in succession planning. With careful planning and the consideration of the use of the choice of law based on nationality, there may be opportunities to minimise complications later. A valid choice of law now will be effective in 2015.
© Aileen Keogan Solicitor and Tax Consultant 2014
A version of this article was first published in the Law Society Gazette Ireland.
 Regulation (EU) No 650/2012 of the European Parliament and of the Council of 4 July 2012 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.
Aileen Keogan Solicitor CTA STEP is the founder of Keogan Law & Tax www.klt.ie, a boutique private client legal and taxation firm in Ireland. Her practice focuses on Irish succession planning both international and domestic, advising on estates, trusts and capital tax matters. She acts as consultant to solicitors and accountants and other tax advisers personal estate and tax planning, trusts and capital tax issues and as expert witness particularly in complex trust and tax issues. Aileen has specialised in these areas for over 25 years. Aileen has written in international and domestic professional press and published widely on estate and trust planning, including The Law & Taxation of Trusts (Keogan, Mee and Wylie, Tottels 2007) and the Law of Capital Acquisitions Tax, Stamp Duty and LPT (ITI annual publication) and Laffoy’s Conveyancing Precedents (Bloomsbury, annual). She is a council director of the Irish Tax Institute, a Law Society of Ireland’s Probate, Administration and Trusts Committee member, its representative at TALC (a liaison committee between Irish Revenue and professional bodies), a committee member of STEP Ireland and its representative in STEP Europe.