Article 65 of the Treaty of Rome prompts governments to take measures to improve judicial cooperation in civil matters with cross-border implications. The green paper is an attempt to start the process on succession issues.
Each EU country has its own rules relating to the transfer and succession to property and a second set of rules to deal with situations where a person owns property in more than one country or has connections to more than one country in order to determine which particular rules should apply. They do not always work. They create complications and involve expense and therefore slow down the proper functioning of the internal market. The first step was a report with a Franco-German emphasis, although contributions from other countries were invited. These later identified two problems: that the Napoleonic civil code, with minor variations in various countries, was not the only method of promoting succession; and that even where the civil code prevailed, countries were very possessive of their own systems.
It is vital to bear in mind that it is not just us and them, but us and those and us and these, and so on. The major divide, however, is between the civil law approach and that of the common law. Both principal systems, where there is no will, incorporate provisions for spouses and children to inherit the estate in varying proportions. In many countries, including the UK, same-sex partners will now be included in the class of those benefiting. The common law, however, allows the freedom of testamentary disposition, whereas Continental countries tend to restrict this to a proportion of the estate. The Continent entrenches the family’s rights, while the UK requires the disinherited family to go to court if they are to claim a share. Spouses most often succeed. Children, who are independent and adult, may well not. We in the UK do not pass the deceased’s liabilities onto the heirs. On the Continent, if the heirs take the property, they also take the debts – which may well exceed the assets. We have executors and administrators, whereas there the family steps directly into the deceased’s shoes.
Although the harmonisation of internal succession laws is not currently proposed, the assumption that there were broad similarities anyway was found to be incorrect. When seeking a method of easing the conflict of laws question, it had to be borne in mind that a wholly different system of law might be imposed on assets held in another country. Simplicity, therefore, did not necessarily avoid complication, it simply moved it on a stage.
In 1965, cross-border ownership was limited. The last 40 years have seen much greater movement of people and greater ownership of properties away from buyers’ countries of origin. Whereas in the past this was a problem largely for the wealthy, who could employ lawyers to extricate them from their entanglements, now there are millions of Europeans in this position, and it is not simply a matter of holiday homes, but investments and commercial undertakings. There are very many people whose origins are different from their endings. To determine which law will apply to their estates may involve more than two countries vying for priority. Some countries treat land differently from other assets, others treat all property in the same manner. The means to a decision may be based on domicile, although this means different things in different countries and with different nationalities (people may well have more than one) and residences, of which there are innumerable types. The current favoured position is to allow choice when making a will, but to rely on habitual residence for intestacy, and for wills if no choice is made.
There is, however, no agreed definition on habitual residence and simplification will not work unless there is one. For the person who is born, grows up and dies in the same country (and this will still be the majority), this will not cause a problem. For those with holiday or retirement homes, or those who work abroad for lengthy periods of time, the position is not so simple. To have choice, however, is important. If when making a will you make the decision that the law applicable to the making of the will will also apply where you die, whenever you die that choice will be conclusive. There will be restrictions on your choice, possibly to your place of residence or your nationality, and you will not be able to pick a law out of the air because it may have some tax-saving implications. Why, therefore, not make an English will, declare that will to be the relevant law for succession and retire to France in confidence? French notaires, lawyers and judges, it is true, will have to grapple with the implications of the English system, including the imposition of trusts in relation to property in France. There may be some resistance.
If the same Englishman had forgotten to make a will, or had made no choice in his will, the French rules would apply, since he would have been resident in France for a number of years and would no doubt come within the definition of ‘habitually resident’ (whatever that is), and his English will will at least in part be overridden. The problems do not go all one way, and in the reverse situation English judges, probate registry and land registry will have to contend with the concepts of usufruct (the right to use and derive profit from a piece of property belonging to another, provided the property itself remains undiminished and uninjured in any way) and the implications of forced heirship entrenching the family’s rights.
But what is the estate to which the heirs will succeed? In this country it is what the deceased owned at death. There are very limited occasions where lifetime gifts are taken into account (other than for tax purposes) and they require the intervention of the court. In France and on the Continent, if the heirs do not think that they have obtained enough by way of inheritance they can go back and reclaim from donees for upwards of 30 years what has previously been given away. This would not be tolerated by donees here, who would not sleep easily at night for fear of the heir’s knock. If there was sand on Dover beach, this is where the line would be drawn.
There cannot, therefore, be a complete importation of another country’s system because of the anomalies that it would produce. Lifetime gifts are a major example and there will be others. The old conflict rules will, of course, still apply wherever a non-EU country is involved. The system of inheritance is very intimate to each country. There is little prospect of traditions being given up and therefore any reform has to work within them and acknowledge them. There are limited advantages to bringing in the concepts of choice or habitual residence to avoid the complex conflict issues that are now so problematic, but unlike most ventures, this is not one in which it is le premier pas qui coute.
Murray Hallam is a principal and private client specialist at Withers