Are the estate planning structures that have long been used by British buyers of French property now redundant as a result of the new EU Succession Regulation? Not necessarily, says Matthew Cameron
How the new EU Succession Regulation has affected your estate planning options
Anyone buying a house in France will hopefully know the importance of considering the implications of inheritance planning, to ensure that, as far as possible, their estate in France will pass in accordance with their intentions. The rules of French inheritance law and tax have long differed from the position in the UK, and many people have found themselves in extremely difficult circumstances in the past through not having given such matters sufficient attention.
Since August 2015, a new layer of legislation has also come into force, as regular readers will be well aware. The EU Succession Regulation (known as ‘Brussels IV’) now applies in all EU countries, save for Ireland, Denmark and the UK, in cases of cross-border succession matters.
The aim of the regulation is to allow people to apply the inheritance law rules of the country where they are resident before death to all of their estate in other countries of the EU, or to choose to select the law of their nationality should they prefer.
An immediate presumption from this might well be that there is no need now to consider any of the ‘traditional’ estate planning structures that Brits have employed when buying property in France. In this we may include structures such as a change of matrimonial regime to adopt a universal community regime, or the inclusion of a tontine clause in the property purchase deed.
Both of these options have proved popular before now when a couple would have wanted the survivor of them to inherit the whole of the French property absolutely, in preference to any interest passing to children as would otherwise happen under French law.
Now, it is generally going to be possible for a couple to ensure that right of survivorship through the new regulation, by declaring that the inheritance rules of England and Wales should apply to their estate in France (or indeed elsewhere in Europe). Inevitably, though, it is not quite so simple.
The mention above of the laws of England and Wales would presuppose that there is a different treatment for the law of Scotland, or Ireland, and that is indeed so: inheritance law rules in Scotland are different, for example, from those in England and Wales, and if a British national lives in Scotland then Scottish law would apply.
The new regulation, developed through recognition of the fact that European citizens were becoming increasingly mobile, spreading their estates across several jurisdictions, and allowing one set of inheritance rules to govern the whole of an estate would facilitate its administration on their death.
Another result of increased mobility is the increase in cross-border relationships. If two people from different countries marry, then choosing to apply the law of their nationality to their estates may inevitably give rise to complications in the long run.
It is also important to note that in instances where the law of England and Wales can be applied, this may nevertheless give rise to some unintended consequences. The process of administering an estate in England requires that a deceased person’s assets pass to executors at the moment of death.
Those executors are charged with the task of paying any inheritance tax or other debts that may be due, and then distributing the proceeds among the beneficiaries named in the will. In the absence of a will, this stage is fulfilled by administrators, who would effectively carry out the same duties.
Whether the person dealing with the administration of the estate is an executor under a will or an administrator on an intestacy (which occurs when the deceased did not leave a will), one point remains constant: under English law, that person is a trustee of the deceased’s estate.
France does not recognise trusts. At least, while it acknowledges they exist, they are generally treated with scepticism, on the basis that they must be structures developed for tax avoidance rather than anything else.
There is a concern at the moment that naming an executor in an English will could give rise to substantial tax problems following the death. Those potential problems are sure to be resolved at some point in the future. Yet since such a resolution would almost inevitably require a judgement from the European Court of Justice, it is a brave commentator who would say that the problem would be resolved any time soon.
While Brussels IV is a hugely important legislative step for the EU, there are still a number of points that remain to be addressed. It may be beneficial but is arguably not yet to be treated as a panacea.
ESTATE PLANNING STRUCTURES
One point that is clear from the EU Succession Regulation, though, is that it does not override other estate planning structures.
If a married couple want to ensure that the survivor of them will inherit the French house absolutely, then declaring that the French property will be subject to a French matrimonial regime of universal community of assets is just as viable now as it was before the regulation came into force.
And where previously a couple might have included a tontine clause in the purchase deed to the house, that option still remains available now (provided they have not yet completed the purchase, as a tontine clause cannot be added afterwards).
While those same results should normally be available to a person by applying Brussels IV, there may still be instances where that might not necessarily work perfectly. In the face of such doubts, some of the ‘old’ structures do at least bring with them certainty as to the result. This is something that is attractive to lots of people looking to plan for the succession of their estates on death.
In any event, it is prudent to give detailed thought to the devolution of one’s estate, to consider what consequences may arise in France and abroad, and to bear in mind the potential inheritance tax position across the different jurisdictions. Expert advice should therefore be valuable.
Matthew Cameron is a partner at Ashtons Legal ashtonslegal.co.uk