On 14 October, the Commission adopted a proposal for a Regulation on jurisdiction, applicable law, recognition and enforcement of decisions and authentic instruments in matters of succession and the creation of a European Certificate of Succession. Certainly, this is not a mere coincidence that the European Commission adopts this proposal a few days after the Irish referendum. It is well known that the Commission was planning to present it last March but it has not done so fearing a negative impact on the second Irish referendum.
Presently, there is no Community instrument on succession. The substantive law as well as rules of private international law, jurisdiction and applicable law, vary significantly from one Member State to another. The EU Member States have different legal traditions, which the Commission quite often neglects to respect, particularly the common law system.
Under the EC Treaty measures concerning family law with cross-border implications shall be adopted by the Council acting unanimously after consulting the European Parliament. However, the Commission has stressed that the majority of EU Member States consider the law of succession as a matter distinct from family law therefore it has decided not to apply this exception to the draft Regulation. Consequently, the proposal is subject to the co-decision procedure with QMV required at the Council.
According to the Commission the draft proposal is necessary for the proper function of the internal market as it intends to eliminate the obstacles to the free movement of persons which arise from the EU Member States’ different rules governing international successions. It is important to recall that the Government in its reply to the 2005 Commission Green Paper on succession and wills said that the Commission has not provided adequate evidence to justify legislation.
The draft Regulation would apply to successions to the estates of deceased persons covering all forms of transfer of property as a result of death. It lays down common rules that member states would have to use to determine which national law should apply in successions with cross-border implications, where the deceased has assets in more than one member state. The Commission proposed the application of a single criterion, that of the deceased's habitual place of residence at the time of his/her death, for determining both the jurisdiction of the authorities and the law applicable to a cross-border succession. However, the UK courts have been applying the common law test of domicile at the time of death to determine the applicable law and jurisdiction. Moreover, there is no formal definition of ‘habitual residence' which would cause legal uncertainty for individuals.
The draft regulation provides for the competence of courts of the Member States where the deceased had their last habitual residence to rule on all elements of the succession. The proposal uses a broad concept of courts including the jurisdiction of non-judicial authorities where they exercise a jurisdictional role, including notaries. The Government has found such provision "very unlikely to be acceptable.”
According to the Government the court of the Member State where an immovable property is situated should have jurisdiction over that property. Under the draft proposal the courts of the Member State where a property is located would have jurisdiction where the law of that Member State requires it in order that substantive law relating to the transmission of the property is taken into account. The draft regulation would strictly limit such jurisdiction to the aspects of substantive law relating to the transmission of the property.
The Commission also proposed harmonised rules governing conflict of laws. Under the draft proposal, a testator who lives abroad and has therefore exercised his right to free movement within the EU would be allowed to choose the law of his/her country of nationality to apply to the entirety of his/her succession. But the general rule would be the law applicable to the succession as a whole is that of the State in which the deceased had his/her habitual residence at the time of his/her death. The law would cover all of the property involved in the succession, irrespective of its nature or location.
However, under the current UK’s private international law rules of succession different national laws may apply to deceased’s estate depending on the location of their assets. The UK courts have been applying the common law test of domicile at the time of death which is not the same as the term habitual residence, accordingly, if the UK decides to opt into the Regulation, there would be changes to the existing legal system. There would be, particularly, more legal uncertainty as there is no formal definition of the term habitual residence. For instances, British people who temporarily reside in Spain and have their assets in the UK might have their assets subject to the Spanish succession laws even if they were planning to return or consider the UK as their real home.
Moreover, under the UK’s rules immovable property is always subject to the local succession law. The government is unwilling to change the rule under which the law of the country where the immovable property is situated is also the law applicable to the succession to the immovable property. Under the draft regulation the law applicable to the succession would be no obstacle to the application of the Member State’s law where the property is located but solely “for the purposes of acceptance or waiver of the succession or a legacy, it stipulates formalities subsequent to those laid down in the law applicable to the succession.” It seems that the draft proposal might have the effect of changing the UK conflict-of-laws rule which subjects immovable property to a different law from that applicable to movable property.
It is a fundamental principle of English law the ‘principle of testamentary freedom’ under which individuals have freedom to choose how to allocate their assets after their death as well as to make gifts during their life. Civil law countries, in the other hand, limit the testator choice to whom and how assets would be allocated. Part of the estate of a deceased is therefore distributed according to law to the heirs – the so called reserved heirship. Whereas the UK defines the estate as the property of the deceased at the date of death, several Member States include gifts made by the deceased during his/her life. Civil law countries provide for protection against testators dissipating assets to prevent their heirs from getting at them hence transactions made by individuals during their lifetime might be overridden and brought back into the estate to guarantee that there are sufficient funds to be allocated to the heirs. This process is the so called ‘clawback’.
The UK courts do not recognize or enforce clawback claims which are based on a foreign law of succession. Thus, for the UK a Community measure must not intervene on the validity of inter vivos dispositions. According to the Commission the rights and properties created or transferred other than by means of succession to the estates of deceased persons are excluded from the Regulation. But it would be the law on succession determined pursuant to this Regulation which would specify if inter vivos dispositions may lead to any obligation to account for gifts when determining the shares of heirs or legatees. Hence, the validity of lifetime gifts to a family member or trust will depend on the law in the state in which a deceased had his/her habitually resident. Consequently, under the draft proposal, the UK courts would be forced to recognise clawback as regards cross-border successions. Foreign courts could therefore invalidate lifetime gifts which are valid under the UK law. In this way, individuals as well as charities may be obliged to return gifts made by UK nationals who died whilst residing in a Member State which applies clawback laws. According to the Government “it would be "totally unacceptable" if the law applicable to the succession undermined perfectly valid lifetime gifts, including trusts, or interfered with the operation of testamentary trusts.”
Under English law, heirs do not directly acquire the rights of the deceased upon his/her death but the deceased’s assets are passed to their personal representative or an administrator appointed by the court who will deal with outstanding liabilities, such as payment of the inheritance tax, before distributing the estate of the deceased to his or her beneficiaries. Hence, if an heir is allowed to directly acquire the deceased’s property the system to collect taxes would be undermined.
Moreover, the status and competence of an administrator appointed abroad is not automatically recognised under English law. In an attempt to take into account the English legal system, the draft regulation provides that “The law applicable to the succession shall be no obstacle to the application of the law of the Member State in which the property is located where it: subjects the administration and liquidation of the succession to the appointment of an administrator or executor of the will via an authority located in this Member State.”
The draft regulation includes provisions on mutual recognition and enforcement. It provides that all the decisions given pursuant to this Regulation must be recognised in the other Member States without any special procedure being required which means recognition and enforcement of court judgments, deeds and wills. This might mean that a judgment given in one Member State in a succession case would have to be automatically recognised as the basis for the amendment of property registers in another Member State without formal proceedings. Moreover, this raises the question of how the UK would deal with the acts of notaries, since it does not have a notarial tradition.
Furthermore, the draft Regulation provides for the recognition of authentic instruments in succession matters. The Commission also proposed the creation of a European Certificate of Succession enabling the capacity of an heir and the powers administrator or executor of a succession to be proven throughout the EU, without further documents or translations required. All EU Member States should therefore recognise automatically the European Certificate of Succession as regard to the capacity of the heirs, legatees, and powers of the executors of wills or third-party administrators. The Certificate would enable the immediate recognition of an heir’s entitlement to the deceased assets which are located in other Member States. Such certificate would be issue by the competent authority which has jurisdiction to settle the succession.
The Government has pointed out in its reply to the Commission’s Green paper that such certificate would not be effective to entitle an heir possession of property in UK as it is required a grant of representation in favour of an executor so that he can administer and distribute the estate. According to the Government the certificate would have different functions in different systems which would be "confusing and cumbersome". The certificate would allow for the transcription or entry of the inherited acquisition in the public registers of the Member State in which the property is located. This raises concerns over the registration of foreign legal concepts, such as usufructs. According to the Commission the use of the European Certificate of Succession would not be obligatory.
The current proposal is not compatible with the common law system, in fact, it would have substantial impact on the UK’s legal traditions. The UK may opt out from the proposed Regulation. It remains to be seen whether the government decides to participate in the proposal.
