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European succession regulation takes effect next week

Thursday, 13 August, 2015

EU Succession Regulation

The EU Succession Regulation comes into force on 17 August 2015 for the estates of persons who die on or after that date.

Agreed in 2012, the regulation states that the jurisdiction and succession law applying to an individual's entire estate is determined by his last place of habitual residence, although it also gives expatriates an overriding right to elect for their estate to be governed by the law of their own country.

It is principally intended to resolve succession disputes caused by the large volume of migration between EU member states – although it is recognised that there are still unanswered questions about which jurisdiction's law will apply. However it also has implications for nationals of the three member states that have opted out – Ireland, Denmark and the UK – and for non-EU nationals, such as Swiss citizens.

According to Swiss law firm Baer & Karrer, the regulation contains ambiguities and uncertainties regarding jurisdiction and applicable law that make estate planning uncertain for some Swiss residents and nationals.

Those affected include Swiss nationals whose last habitual residence was in an EU member state, and Swiss residents of any nationality who leave assets in an EU member state. Also affected are nationals of EU countries whose last habitual residence was in Switzerland and who elected for their own national law to determine succession.

Baer & Karrer points out that there is a conflict between the EU regulation and Swiss law that could lead to problems. The regulation does not define 'last habitual residence', but it requires to take into account the length of time spent by the deceased in various countries. Swiss law, however, defines it as the last place where the deceased was living with the intent to remain there permanently. As a result, says the firm, both Switzerland and an EU state might claim jurisdiction over the estate and apply their own national inheritance law, unless a valid choice of law in favour of the EU state law was made. 'It is thus to be expected that the different definitions of residence under the Regulation and Swiss conflict of law rules will lead to conflicts', it says.

The regulation also contains an exception from the habitual residence rule if the deceased, at the time of death, was 'manifestly closer connected' with a state other than the state of the last habitual residence. In such cases, the law of that other state applies. So, if a French national moves to Germany and dies there shortly after, French law is likely to apply. This exception was introduced to stop EU nationals moving to another jurisdiction just before their death in order to defeat the forced heirship rules of his or her native country. However, by doing so it has also introduced significant uncertainty.

However, the more general problem with the EU regulation is that the right of expatriates to choose the applicable law of succession is not absolute. 'It is not yet clear whether all EU member states will accept a choice of a law that does not provide for forced heirship rights', says Baer & Karrer.

The coming into force of the regulation next week should prompt careful estate planning by everyone with ties to the EU by reasons of nationality, habitual residence or simply by owning assets in an EU member state, says the firm.

'Existing and future last wills and inheritance contracts need to be reviewed with regard to their current as well as to their future effectiveness within the EU', says the firm. 'If a person falls or could fall within the scope of the regulation, a choice of law in favour of that testator's national law may be considered.'