ES­TATE PLAN­NING

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

Living France - - CONTENTS -

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.

ALL CHANGE?

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.

POS­SI­BLE CON­SE­QUENCES

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

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