U.S. will and European assets

U.S. will and European assets

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In this article I will talk about cross-border successions between the U.S. and Europe. I will introduce the definition of cross-border successions and discuss some issues that are typical of these types of inheritance cases.

I will then present the main aspects of the new European Union (EU) Regulation number 650 of 4 July 2012, which was created specifically to address cross-border succession issues and the direct impact and opportunities this law creates for U.S. citizens and U.S. residents. To further illustrate the matter I will describe a few examples of typical scenarios.

It is important to note that an in-depth discussion of cross-border succession would take volumes to cover thoroughly. In this article I am going to focus only on essential aspects that are of interest to U.S. citizens and European citizens living in the U.S. as permanent residents.

The primary aspect to consider in a cross-border case is that the succession might present a conflict between the laws or the jurisdictions of two or more countries. Conflicts might arise due to the geographic location of the estate, heirs, legatees or executors, or due to the law chosen by the testator to govern the will, if there is a will. Intestate succession can pose another set of conflicts.

All countries have domestic laws and conflict rules. Conflict of laws rules (also called private international law) are procedural rules to determine which legal system and which jurisdiction apply to a given case in the event of a conflict. In some countries the application of conflict rules leads to a succession scission, where the succession regarding a portion of the estate is governed by one domestic law and another portion of estate, typically if located in another territory, shall be governed in accordance to the law of said territory.

Some of the most typical questions in this scenario are as follows:

Can a U.S. will address all assets, also those located in Europe? Can a U.S. citizen relocated to Europe use a U.S. will governed by the U.S. law for his or her succession? What if part of the estate is located in a country where reserved shares are established in favor of family members; shall a U.S. citizen comply with said reserved shares rules? What jurisdiction applies if there is a dispute and heirs, the deceased or assets are located partially in the U.S. and partially in one or more European Member States? How can a U.S. person claim inheritance with respect to assets located in Europe? What country is entitled to claim inheritance taxes, how shall the liable subject be identified, and which taxable basis, rates, allowances etc. will apply?

We have a virtually endless list of questions when it comes to matters of cross-border successions. These questions  had often been left without a definite answer due to the profound diversity of U.S. and European domestic and conflict inheritance laws.

These situations and questions are far from being rare, especially considering the demography of the United States, strongly based on international immigration, and the fact that since the late 1960s dual citizenship is no longer forbidden.

To further complicate a U.S. – European cross-border succession is the fact that the same questions are relevant when we look at cross-border successions solely within the European Union where each Member State has its own inheritance law and the number of potential cross-border inheritance cases in Europe has been conservatively estimated between 360,000 and 450,000 per year, considering exclusively cross-border cases of real estate ownership, for a total estate value of 156 billion euros.

The main intent of the EU Regulation 650/2012 is to harmonize Member State inheritance legislations. However, it also includes provisions to address cross-border successions involving non-European subjects as well as Europeans with assets in third States. Therefore, these provisions have a substantial impact on estate plans and inheritance claims for U.S. citizens who own assets and/or live in Europe, as well as for European citizens who are U.S. permanent residents.

One of the main purposes of the Regulation 650/2012 is to make it less problematic to predict how cross-border successions will be treated and to facilitate succession planning and mobility across countries, by identifying the applicable law and the competent court.

An important aspect this Regulation is that, even though it entered into force on 16 August 2012, it shall only apply to the succession of persons who die on or after 17 August 2015. This delay is aimed at giving European Member States the time to exchange information and define practical aspects and protocols to make the Regulation provisions fully operative.

Another important aspect is that the Regulation shall be entirely and directly applicable in all the European Member States, except for the UK, Ireland and Denmark, who opted out for Family and Justice affairs. The Regulation adopts several fundamental principles; I am going to focus on those more pertinent to the scope of this article.

1) Habitual residence: The default applicable law is the one of the country where the deceased had his or her residence at the time of the death. The habitual residence is the place the deceased had the strongest connection to in terms of affection, emotions, interests etc., not necessarily identified with the tax residence nor the location of the deceased’s permanent home. This provision is rather new to the legislation of most Member States, where typically the national law is the one applicable to the succession. However, the connection to the habitual residence appears rather practical, since it usually corresponds to the place where the hereditary assets are situated. On the basis of this connection, local authorities can handle the succession by adopting the local law, thus carrying it out more efficiently. Also, considering contemporary immigration flows, it seems appropriate to use the adoption of a connection to the territory to facilitate the integration of foreigners with local society and to minimize the risk of conflict between foreign rules and local public policy.

2) Party autonomy: The testator has the right to choose his or her national law to govern the entire succession, as an alternative to the habitual residence principle. In the case of multiple nationalities, the testator can choose which national law to adopt. The selection however needs to be done in a testamentary form, for example in a will.

3) Unity of succession: The succession shall be treated as a whole, rather than adopting the succession scission model. As a consequence, the relevant law, by default or choice, shall govern the entire succession including movable and immovable assets regardless of their location.

4) Universal application: The law specified by the Regulation, whether by residence or choice, shall apply whether or not it is the one of a Member State, in a universal way. When the law specified by the Regulation is that of a Member State, or when the deceased has expressly designated his or her national law to govern the succession, the reference is made to the domestic law.

5) European Certificate of Succession: Any interested party shall be able to apply for and obtain a Certificate of Succession in any Member State, as a standard form certificate designed to enable heirs, legatees, executors or administrators to prove their legal status and/or rights and/or powers in all Member States. The Certificate shall have the same validity and enforceability in all EU Member States, with the exception of the UK, Ireland, and Denmark. The Certificate is a valid document for the recording of succession property in the relevant registers.

6) Coincidence of law and jurisdiction: Succession law and jurisdiction shall coincide every time that this is possible so that the court applies its own law in a more efficient way.

Along with a rather wide range of harmonization provisions, the Regulation also takes into consideration the possibility that some Member States’ laws, or third States’ laws, might provide for domestic fundamental principles in conflict with the legal scenario pursued by the Regulation itself. According to the Regulation, the perusal of its whole intent and scope shall take into consideration the Member State’s fundamental values and policies. In particular, the Regulation sets out a public policy protection clause. The application of a provision of the law of any State specified by the Regulation may be refused by a legislative system if such application is “manifestly incompatible” with the public policy of said system.

The public policy clause may be opposed only in truly exceptional cases of manifest incompatibility. A key question is whether and to what extent the reserved portions of an estate, provided by certain legal systems, falls under the definition of public policy. In some Member States the domestic succession law protects certain subjects (e.g., spouse, children, parents) by reserving them specified shares of the estate while in other Member States the domestic law does not provide any specific protection in favor of any family member. Despite the fact that often the provisions regarding reserved portions are considered as indefeasible only in disputes concerning purely domestic successions, the issue remains open as to whether the applicability of a law which disregards the reserved portions provided by the local law would be considered in conflict with the local public policy.

According to some legal commentators, this means that mere disparities between the law governing the succession and the local law in the amount of reserved portions are unlikely to be regarded as incompatible with the public policy of the forum for the purposes of the Regulations.

However, there will likely be disputes over this aspect in cases involving a substantial estate, where a small discrepancy in terms of reserved share rates might represent a substantial difference in terms of financial value of distributed shares.

Therefore, there will likely be several cases where the differences in the protection of family members might justify the recourse to the public policy exception, especially considering that within the European Union there are domestic laws that grant substantial protection and domestic laws that do not grant any.

Surely, discriminations for birth, gender, nationality or religion are likely to be considered as contrary to public policy in all European countries. However, the way the public policy provision is set out suggests that it is necessary to adopt a cautious approach to its application.

I will now illustrate two typical scenarios where the above is applicable.

Case 1: U.S. citizen with property in Europe.

A U.S. citizen living in the U.S. or in Italy owns a property in Italy. The U.S. conflict rules say that the Italian inheritance law shall govern the succession of the Italian property. If the U.S. citizen wants the U.S. law to apply to the succession, including to the Italian property, and specifically states so in a will (even a U.S. will), the Italian authorities shall comply with the deceased’s wishes. The U.S. will can be used in Italy as far as it is formally valid according to the U.S. laws and does not conflict with Italian public policies.

Case 2: European citizen living in the U.S.

A European citizen (other than UK, Ireland and Denmark) living in the U.S. as a permanent and habitual resident owns a property (and or other assets) in the U.S. and/or in Europe. If he/she does not leave a will, the U.S. laws shall automatically apply to the succession, with possible reference back to the European legislation with respect to any portion of the estate located in Europe. Or the European citizen can state in a will the desire for the U.S. law to apply to the entire estate, also the European portion.

By Nick Metta, Italian lawyer and associate member of the Bucks County Bar Association (Pennsylvania, USA), focusing on International estate planning and cross-border successions.

Sources and Related Information

  • U.S.-EU Cross Border Succession rules presented to American Bar Association
  • EU Regulation no. 650 of 4 July 2012
  • Comments on EU Regulation 650/2012 by Directorate General For Internal Policies – Policy Department C: Citizens’ Rights And Constitutional Affairs – Legal Affairs
  • Corrigendum to EU Regulation No 650/2012 (14 December 2012)
  • Corrigendum to EU Regulation No 650/2012 (2 March 2013)
  • Author’s profile
  • Contact the Author
  • Seminar on Cross-Border Italian Successions and Estate Planning – 2 March 2013: Video – Ask for the script – Questions and Answers on Italian International Successions