Among the many and varied detrimental consequences of the COVID-19 pandemic is the impact on the savings and investments of individuals, particularly in relation to estate planning. Financial markets have...
Your choice of law
It may now be possible to choose the law of your nationality to apply to your entire estate (not part) on death, in accordance with the EU Succession Regulation (EU/650/2012) (also known as “Brussels IV”).
Electing the law of your nationality can allow you the opportunity to avoid the “forced heirship” provisions which apply in the majority of European jurisdictions whereby specified individuals must receive a specific proportion of your estate.
This guide aims to set out when and how to make such a choice, and the consequences of doing so. This guide applies to English nationals living at home or abroad. Specific advice is available on request for non-English nationals.
It is not necessary to make a choice of law if you do not have any foreign assets nor are likely to have any foreign assets as at the date of your death.
If you do have foreign assets at the date of your death, but no choice of law has been made, then Brussels IV provides that the law of the country in which you are “habitually resident” will apply in the event of your death. However, the UK has not opted in to Brussels IV, and so English law (and, in this guide, reference to English law means the law of England and Wales) provides for the law of the country in which the land/property is situated to apply. For English nationals, this conflict of laws is likely to result in severe difficulties in the administration of your estate.
Which jurisdictions recognise choice of law under Brussels IV?
The jurisdictions which recognise choice of law (the “Brussels IV States”) are all of the EU member states except for the UK, Ireland and Denmark.
Whilst English law does not therefore allow someone to choose the law that governs succession to their estate, an English national may nevertheless still want to make a choice of law under Brussels IV. This is because English rules may determine that foreign law applies to, for example, foreign land and property on death. If that foreign jurisdiction is a Brussels IV State then the law of that jurisdiction will recognise a choice of English law.
How to make a choice of law under Brussels IV
A choice of law under Brussels IV must be made in a Will that is substantively valid under the chosen law, even if that law does not permit a choice of law. “Substantively valid” means that someone choosing English law must make the choice in a Will that meets the English test for testamentary capacity and freedom from undue influence.
Scope of Brussels IV
Brussels IV applies to succession to the estates of persons who die on or after 17 August 2015. This covers all forms of transfer of assets, rights and obligations by reason of death, whether there is a Will in place or not.
A choice of law under Brussels IV does not apply to assets that cannot be disposed of by Will or cannot pass under intestacy rules such as jointly owned assets that pass by survivorship, nominated pension plans or life policies, and lifetime gifts. Further, Brussels IV does not apply to:
- Tax matters
- The status of natural persons (for example, whether a person is the child of another person)
- The creation, administration, and dissolution of trusts (other than Will Trusts and statutory trusts on intestacy)
Consequences of choice of law
The consequences of a choice of law include:
Entitlement to the estate: You may choose to apply English law to avoid foreign forced heirship rules and clawback provisions (that is, taking account of lifetime gifts when calculating an inheritance). However, this may result in claims against your estate under the Inheritance (Provision for Family and Dependants) Act 1975
Taxation of the estate: A choice of law does not determine which tax law applies, but tax consequences will flow from the distribution of the estate in accordance with the chosen law. For example, a foreign jurisdiction may tax assets that pass to any children you may have at a lower rate than assets that pass to other relatives or non-relatives. This may lead to a higher tax burden if forced heirship provisions are displaced by the chosen law
Administration of the estate: In some foreign jurisdictions, the principal beneficiaries of the estate are entitled to administer the estate rather than personal representatives as is the case in English law. Foreign lawyers may have difficulty applying English rules on administration in practice
Alternative planning: It might be possible to achieve your objectives in a different way to a choice of law, for example, by implementing estate planning tailored to the jurisdictions involved
Specialist legal advice should therefore be taken before making a choice of English law.