The EU's Regulation on Succession - European Union Committee Contents


CHAPTER 2: Issues Arising in Cross-Border Successions

The reach of the law of succession

19.  The law of succession is complex, particularly because it concerns the transfer of property rights. Property rights are complex when compared, for example, to contractual rights. Property rights frequently involve third parties and consequently states run systems for the registration of such rights in order to give them publicity. The property rights, especially those attaching to land, found in different legal systems are extraordinarily different. The property law of the UK tends to be more complex than in most other Member States. It often concerns a bundle of rights or interests in property as arises, for example, when property is held by trustees for a beneficiary with a life interest. In most other Member States there is more commonly absolute ownership of property. Land and succession rules tell an immense amount about the society in which they are found and in many ways constitute the most distinguishing feature of any given legal system. This inherent complexity makes establishing common rules across the Member States in the area of succession very difficult, and changing the law of succession might have unforeseen side effects.

20.  The law of succession also interacts with other aspects of domestic law. The transfer of property on death gives rise to liability to pay tax and the collection of tax arising from the death is linked to the administration of the succession. In the UK, for example, payment of Inheritance Tax is the responsibility of the personal representatives,[10] who have to satisfy HM Revenue and Customs that it has been paid or accounted for before they are appointed to administer the succession. The administration of a succession also involves dealing with creditors, which can involve the law of insolvency if the deceased was insolvent at the time of death.

The applicable law

21.  Within this context of complexity a fundamental issue is the determination of which law applies to a cross-border succession. Determination of the applicable law can make a crucial difference, not only to how the succession must be administered but even to such basic questions as what constitutes the estate of the deceased and who is entitled to get what. This is the case whether or not the deceased made a will. Box 1 compares three broad principles of the French law of succession and that of the separate UK jurisdictions[11] in order to illustrate the fundamental differences that can arise.

BOX 1

The contrast of succession law in France and the UK

France:


(a)  The heirs inherit their share of the property of the deceased directly on death and assume responsibility for the debts of the deceased and the tax on inheritance.


(b)  The value of the estate to be taken into account is not just the property owned by the deceased at the time of death but also gifts made during his or her lifetime.

(c)  A fixed proportion of the estate (of at least one half) is inherited by the child or children of the deceased, irrespective of any wishes of the testator as expressed in a will. This is known as a "forced inheritance".

United Kingdom:


(a)  The property of the deceased passes initially to personal representatives who administer the estate by collecting it in, paying creditors and taxes and then passing the balance to the heirs.


(b)  The estate available for distribution to heirs comprises only property owned by the deceased at the time of death.

(c)  After payment of creditors and taxes the estate is distributed in accordance with the wishes of the deceased as expressed in a will, or according to set statutory rules if there is not one. In Scotland a surviving spouse or child can choose to inherit a fixed proportion of at least one third of the moveable property[12] (divided equally if there are two or more children) in place of their entitlement under a will.

22.  The legal systems of Member States all lay down tests to determine which law is to be applied to a cross-border succession. They involve establishing a connection ensuring that the law to be applied is relevant either to the property involved or the people interested in the succession. Member States use different connecting factors which can sometimes result in a conflict as to which law should be applied.

23.  There are four main connecting factors currently in use: the nationality, habitual residence and domicile of the deceased, and the location of the deceased's property. For example, German courts apply the law of the nationality of the deceased to deal with a succession. French courts apply, in respect of moveable property, the law of the state where the deceased was habitually resident at the time of death. For immoveable property (essentially land) they apply the law of the place where the property is situated. The courts of the United Kingdom apply the law of England and Wales, Scotland or Northern Ireland, as the case may be, to the moveable property of those dying domiciled (as opposed to habitually resident) in these jurisdictions. Like France, immoveable property is governed by the law of the place where it is situated.

24.  There is a further layer of complexity and academic debate. This is the doctrine of renvoi. This arises when the law of state A indicates that the law of state B should apply. The question then is whether it is simply the internal substantive domestic law of state B which should apply,[13] or also that part of the law of state B which concerns the resolution of cases which engage conflicting laws of two or more states (known as "private international law"). If the private international law of state B applies, the result could be different from that if only the substantive internal domestic law applies, because the private international law of state B could effectively send the matter back to the law of state A.[14]

25.  The complexity arising from the application of different connecting factors by different legal systems is compounded by the fact that those connecting factors can themselves be uncertain. Nationality is reasonably certain, although not entirely so as some people have dual nationality, and some Member States, such as the United Kingdom, have more than one system of law. However, a national of one Member State may have been settled for many years with a family, and own most, or even all, of their property in another Member State. In such circumstances, the test of nationality may lead to the application of a law which is neither convenient nor appropriate.

26.  The concepts of habitual residence and domicile are less certain than nationality but impose a more consistent connection between the succession and the law to be applied to it. They are not only different from each other but can have a different meaning depending on the jurisdiction in which they are being used. In broad terms habitual residence connotes the place, based on past experience, where an individual usually resides. Domicile is a more stringent test and takes into account, to a greater extent than the test of habitual residence, the intention of the person concerned as to his or her permanent home. The concept of domicile as it applies in England and Wales is outlined in Box 2. The distinction can become critical where a person is seconded to another Member State to work. In those circumstances the domicile is more likely to remain that of the home Member State whilst the habitual residence is more likely to be that of the Member State of secondment.

BOX 2

Domicile under the law of England and Wales

Ordinarily, a person's domicile is the place where they have their permanent home to which, if absent, they intend to return. Such absence may be long term. This is known as the domicile of choice.


Every person acquires at birth a domicile of origin which is generally the domicile of their father. This can revive if a domicile of choice is abandoned without a new one being acquired.

A dependant generally has the same domicile as the person on whom they are dependent.

27.  It is, of course, possible to determine with the greatest degree of certainty the jurisdiction in which land is situated. But an estate normally comprises both land and other property, in which case another connecting factor will need to be applied to the other property, raising the prospect of one law applying to the land and another applying to that other property.

28.  Box 3 illustrates how even a simple cross-border succession can give rise to results that may come as a surprise to the layman.

BOX 3

A simple cross-border succession

A British national dies domiciled in France, owning a house in France, a house in England and other assets in both countries. As the test of domicile applied by English law is more stringent that the test of habitual residence applied by French law the net effect would be the same under the law of France and the law of England and Wales. The house in France and all the moveable assets (both in France and England) would be governed by the French law of succession; the house in England by that of England and Wales.


In such circumstances the testator is likely to be advised to make separate wills under the law of each jurisdiction. The property governed by French law would be subject to the French forced inheritance rules.

29.  There was general agreement among our witnesses that the complexity of cross-border successions does give rise, in practice, to difficulties. The complex and sometimes even conflicting legal rules make it more difficult and expensive to plan a succession, to administer it or resolve any dispute. A cross-border succession, even one that is not contentious, is likely to require the involvement of specialist lawyers from more than one Member State. A person may not appreciate which law is going to apply to their succession. Anyone domiciled in the UK who owns land in another Member State needs to know the law of that Member State governing the succession of that land.

30.  Furthermore the complexity and uncertainty of cross-border succession make it more likely that disputes will arise in the first place dragging those concerned into expensive litigation.

31.  Richard Frimston, a solicitor practising in the field, a member of the Law Society's International Committee, gave an example from his own experience how even a relatively simple cross-border succession could give rise to added expense (QQ 53 and 87). This is outlined in Box 4.

BOX 4

An example of the additional expense involved in a cross-border succession

A UK citizen died living in Germany but owning a UK building society account. Under English law he was domiciled in Germany and therefore German law applied. Although the basic rule of German law was that English law should apply, the doctrine of renvoi allowed the German authorities to apply German law. A conflict of applicable law was therefore avoided. The German authorities, applying German laws, issued a certificate that the UK citizen "died a British citizen under British law" and named the heir. But this certificate was not acceptable to the building society to unlock the account and expert legal services in the United Kingdom were needed to obtain authority from the English court for the account to be released, despite the fact that the German certificate contained all the necessary information.


Testator's choice of applicable law

32.  One possible way of alleviating the complexity and expense concerning the law that applies to a cross-border succession is to allow a person to choose which law should be applied to his or her succession. At present this possibility is very restricted. Choice is not permitted under the law of most Member States, including all the jurisdictions of the UK. One reason to limit the choice of applicable law is to ensure an appropriate connection between the succession and the law to be applied to it, albeit that different Member States take different views as to what is the most appropriate connecting factor. For those Member States which, like France, impose a forced inheritance, there is another reason to restrict this choice. This is to prevent a testator evading the forced inheritance rules by choosing a law, such as that of England and Wales, which does not include forced inheritance.

Jurisdiction

33.  Cross-border succession also gives rise to the problem of deciding which courts or other authorities should have the power to deal with the succession. In every Member State succession is subject to the oversight of a public authority. In the UK jurisdictions this is done by the court (whether or not there is any dispute over the succession). In the majority of other Member States this function is mostly carried out by a notary whose decisions are recorded in formal documents having the status of authentic instruments, with courts only becoming involved if it is necessary to resolve a dispute.

34.  The question of jurisdiction is separate from the issue of the applicable law. It is possible, for example, for a UK court to deal with a disputed succession by applying French law. In cases where a court of one Member State applies the law of another to determine a dispute there is inevitably the added expense and inconvenience of establishing, normally by expert evidence, the substantive content of the law to be applied. It is also inevitably the case that courts and other authorities are more efficient and effective when applying law with which they are familiar.

35.  The laws of the Member States each include tests for deciding whether their courts and authorities should assume jurisdiction, seeking the appropriate connection between the succession and their courts or authorities dealing with it. Like the connecting factors in respect of the applicable law, the connecting factors used to determine jurisdiction in the various Member States differ and can conflict, with the result that more than one Member State may have jurisdiction to deal with the matter by its own law. A party to a dispute may perceive an advantage in using the court or authority of a particular Member State and try to steer the dispute to that jurisdiction even if it is not, objectively, the most suitable.

Recognition and enforcement

36.  There is yet a further issue. A decision of a court or other authority made in one Member State in the field of succession is not, in general, automatically recognised and enforced by the courts of another. The difference between recognition and enforcement is outlined in Box 5.

BOX 5

Recognition and enforcement

Enforcement of a judgment entails taking steps against a person in order to give the judgment effect, for example by the recovery of money from that person in satisfaction of a judgment.


Recognition of a judgment happens when a court of one Member State takes a judgment of another into account in reaching a decision on a matter before it. For example a defendant in a dispute in Member State A may want to resist a claim on the grounds that judgment in the same dispute has been given in Member State B in their favour. This can only succeed if the court in Member State A recognises the judgment of the court of Member State B.

37.  Recognition and enforcement of decisions are easier to achieve where there is trust, on the part of the court or other authority in the Member State where the recognition or enforcement is sought, in the procedures and decisions of the courts or authorities where the decision is originally taken. Making recognition and enforcement of decisions given in other Member States easier reduces the expense involved in dealing with cross-border successions but may call for safeguards to prevent abuse.

The scale of the problems associated with cross-border successions

38.  Statistics which illustrate the scale of the problem are difficult to obtain. The Commission has attempted to provide some in its impact assessment[15] although we did not find them particularly helpful. This impact assessment indicates that an estimated 29 million EU citizens are currently living outside the borders of the EU. This is about 6% of the 2006 EU population. About the same number of EU Member State inhabitants are non-nationals, of which the majority are citizens of another Member State. The Commission expects there to be an upward trend in mobility as more and more EU citizens take advantage of the internal market and the mobility it affords, although it accepts that many citizens who work or live in another state do so only temporarily and return to their state of origin. The evidence of the scale of citizens buying property in a Member State other than that of their nationality is thin.

39.  The Commission's impact assessment also seeks to quantify the added cost of cross-border successions.[16] It estimates that 4.5 million people die each year in the EU and that 1 in 10 of the consequent successions involves an international dimension. It attributes an average value of €274,000 to cross-border estates, giving rise to average legal costs of 3% of the value of the estates. This results in an estimate of the costs concerned of €3.699 billion, to which it adds further costs of the same order of magnitude on account of the extra delay in dealing with international successions. As legal professionals estimate that the costs of dealing with cross-border cases are twice or three times as high as in national cases the Commission puts forward the estimate of €4 billion as the extra legal costs resulting from the international dimension of such successions. The Commission does not appear to distinguish between cross-border successions confined to the EU and those involving a third country.

40.  Jonathan Faull, Director-General, DG Justice, Freedom and Security, provided an estimate of 8 million Europeans living in a Member State other than the one in which they were born (QQ 97-98). This appears to be a conservative estimate compared with that found in the Commission's impact assessment. However he accepted that it was difficult to find precise data in this field and that the Commission had only provided its best possible estimate.

41.  The Government, in their partial impact assessment published as part of the consultation document,[17] indicate that the quantification of numbers, costs and benefits has not been possible. They do, however, indicate that there are 2.2 million UK nationals living in other Member States.

42.  Professor Matthews, a solicitor practising in the field and Visiting Professor of Law at King's College London, did not accept the Commission's estimate, on the basis that it assumed that a certain number of cross-border successions would cause a problem when there is no empirical evidence that this is the right number (Q 11). Although very little was known about the statistics in this area because they were not collected, it was the case that cross-border succession did give rise to greater complexity (Q 1). He specifically warned of the danger that changing the law in a general way could have the effect of pushing the costs of solving the problems of cross- border successions onto the general population whose successions do not, as in the majority of cases, involve cross-border elements. He also warned of substituting one set of complications for an existing set (Q 39, p 5).

43.  Richard Frimston pointed to his own experience showing that cross-border succession arose in a significant number of cases. In general terms he considered that the Commission's proposal would make a significant impact in addressing the problems of cross-border successions, particularly the severe problems that arise when assets in a succession are governed by two sets of law or by none (QQ 47-50). He saw the proposal as providing a rough and ready solution for those he termed "ordinary folk" without very valuable estates (Q 53). The experience of Andrew Francis, a barrister practising in this field and author on the law of succession, was also that there were a number of estates containing assets outside of the UK. He welcomed the prospect of simplification of the law of cross-border succession (p 67).

44.  The law of succession involves dealing with complex property rights that vary considerably between Member States. Where there is a cross-border element in the succession, and in particular where the deceased owned property in more than one country, that law becomes even more complex with the inevitable consequence that those involved with cross-border successions are encumbered with greater expense and inconvenience.

45.  Whilst simplification of the law on cross-border successions, if it could be achieved, would be likely to bring real practical benefits, there is a lack of evidence of the number of cross-border successions and also the extent to which the complexity and expense of dealing with the issues actually impairs mobility and the exercise of free movement rights within the EU. This suggests that the EU should be cautious in seeking to legislate in this complex area. Particular care is needed to ensure that any legislation intended to simplify the law does not have the unintended consequence in practice of replacing one type of complexity with another.


10   A personal representative is a person appointed to administer a succession. In Scotland the equivalent to personal representatives are called executors-nominative or executors-dative. In this report references to UK personal representatives include such executors. Back

11   England and Wales, Scotland, and Northern Ireland have separate laws of succession. Back

12   Essentially all property other than land. Back

13   In the case of succession that would be matters such as the administration of the estate and who is entitled to what property. Back

14   See the example found in Box 4. The Commission proposes that the doctrine of renvoi should not apply. Back

15   SEC (2009) 411. Back

16   On the basis of an external study commissioned by it from EPEC. Back

17   http://www.justice.gov.uk/consultations/ec-succession-wills.htm Back


 
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