Shifting forced heirship

Monday, 01 October 2012
Foreign real estate and the European Succession Regulation.

Earlier this year, on 17 August, the European Succession Regulation came into force. It will apply to estates of decedents dying after 16 August 2015. All EU member states except Ireland, the UK and Denmark will apply the regulation.

Interestingly, during the 12 years of its legislative preparation, little focus was placed on foreign real estate, even though the treatment of real estate may be the issue with the most relevance for owners outside the participating member states. At present, it is common for French or Germans who want to reduce their children’s forced shares to acquire real estate in the UK or in the US. The domestic courts in England and Wales and the US apply domestic succession rules that do not provide for a forced share for grown-up children, and the courts and notaries in France and Germany accept the applicability of the foreign situs rules limiting the scope of civilian forced heirship provisions. The EU Succession Regulation will end this practice.

“The EU succession rules bring good news for foreign owners of real estate”

Where German succession law applies this may not cause much of a problem, because under German law forced heirs have only a monetary claim against the estate. If the testator owned an apartment in London, for example, in future its value will have to be taken into account when calculating the forced heirs’ claims. This has no direct effect on the apartment in London. However, some European succession laws, for example those of France and Italy, allow forced heirs to claim a seat in the community of heirs. As a consequence, the forced heirs will become co-owners of all assets of the worldwide estate, including the apartment in London. Obviously, this is only the French or Italian view, not shared in England and Wales, where the forced heir will find it hard to enforce this position. If there are valuable assets on the Continent, the forced heir may choose to blockade the community of heirs with any decision relating to assets on the Continent unless the other co-heirs agree to compensate them for the forced share of the London apartment that the forced heir cannot access. However, if the foreign real estate is the only valuable asset, the forced heir will lose out.

It would be incorrect and incomplete to create the impression that the new rules will always expand the scope of forced heirship claims. This is only true for real estate outside the participating EU member states if the succession rules of one of these member states apply. The EU succession rules bring good news for foreign owners of real estate in a participating member state: in future they may be in the position to exclude civil-law forced heirship rules for real estate in civil-law jurisdictions. Under the EU Succession Regulation, in principle the succession laws of the country where the decedent was last habitually resident apply to their worldwide estate. If, for example, a US citizen domiciled and habitually resident in the state of New York owns real estate in France, from a European perspective New York law should apply to the worldwide estate, including the French real estate. The principal connecting factor of habitual residence leads to the applicability of the full set of legal rules, including New York conflict of law rules: under New York law, inheritance of real estate is always governed by the situs law. This renvoi to French succession rules, including French forced heirship rules, will be accepted under the EU Succession Regulation. However, the new rules allow the choice of law of the succession laws of a testator’s home jurisdiction. In the case of a choice of law, only the internal laws of the chosen jurisdiction, in this case New York, will be applied, excluding French forced heirship rules. Under the foreign court theory, this view will be shared by courts in many jurisdictions.

For this reason, foreign owners of real estate in the participating EU member states may wish to consider changing or supplementing their wills and testaments.

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Dr Daniel Lehmann

Dr Daniel Lehmann TEP is a Partner at RölfsPartner in Munich.

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STEP Journal

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