Although it is an EU regulation, the European Succession Regulation can be of great benefit to Canadian citizens who have EU connections in their estate planning.
In short, the regulation applies to all EU member states, with the exception of Ireland and Denmark, which have opted out.
One of the aims of the regulation is harmonization—only one law should govern succession upon death. Monarchy succession in the European Union was seen as an unmanageable matter, with many member states adopting different and conflicting rules. Simplicity, uniformity and certainty are other goals that the list seeks to achieve.
How the regulation helps Canadians with estate planning
The general rule under the regulation is that the law of the deceased’s “last habitual residence” should govern the succession. However, if a person has a different nationality than their last habitual residence, they have the option of choosing the law of their nationality to apply to their succession.
The ability to choose the law is useful to Canadian citizens who own property in or are habitually resident in an EU member state. The regulation allows them, at their will, to make a declaration to choose the law of the Canadian jurisdiction with which they have the closest connection to regulate the succession in their estates.
See my previous blogUpdate on the European Succession Regulation – What every Canadian with EU connections needs to know’, dated June 12, 2018.
And also “New EU rules for cross-border succession now apply from 17 August 2015Posted September 1, 2015.
Most EU member states are governed by civil law and have mandatory property succession rules upon death that require payment of a certain percentage of the estate to children, called “forced inheritance”, and the principle of freedom of bequest does not apply.
For example, you cannot simply leave all of your assets to your spouse. This is problematic for many Canadians because often, in the first place, the surviving spouse is the sole or primary beneficiary.
Since the inception of the Regulation, which came into force on August 17, 2015, and which now celebrates its eighth anniversary, we have been involved in several will schemes involving EU Member States where we have included a Declaration of Choice of Law to regulate property inheritance in the EU Member State.
Recent challenges to regulation and choice of law
However, some recent developments have created uncertainty regarding the application of the regulation, and the extent to which it can be relied upon for effective selection of law.
Under Article 35 of the regulation, any EU member state can refuse to allow a choice of law if it conflicts with its public policy.
It is fair to say that it has always been a matter of professional discourse and some debate since the regulation came into force, in what circumstances Article 35 could be invoked, and whether the ability to choose a law that had the effect of overthrowing and forced inheritance rules would be respected and allowed, or curtailed One way or another by the Member States on the basis of public policy.
In a decision of the German Federal Court of Justice in IV ZR 110/21 of 29 June 2022, the Court held that the choice of English law made by a British citizen who was resident in Germany was ineffective. The deceased had completely excluded his son, who was a German citizen and resident, from the inheritance by his will, which was permitted by English law due to the principle of freedom of will.
A fact unique to this case is that the deceased had been living in Germany for more than 50 years. The court ruled that English law did not apply, as depriving a son of his compulsory share of the estate under German law would be contrary to public policy.
The court also concluded that when choosing a law, it would apply unless there was a sufficient local link to Germany. What appears to be relevant to the court’s decision is that the long-deceased’s habitual residence was in Germany, that his son was a German citizen and habitually resident in Germany, and that the assets of the estate were in Germany.
Another challenge to this regulation is the result of the amendment made in France in November 2021 to the French Civil Code, which could undermine the choice of law if it has the effect of depriving a child of his or her compulsory share under French law. If the deceased or any of his or her children were citizens or residents of a member state of the European Union and the applicable law governing inheritance does not protect the compulsory share of the child under French law, the child may be compensated from any property owned in France.
Understandably, the French rules were introduced to prevent inequality resulting from wills that follow Sharia law that disproportionately benefit male heirs to female heirs. However, this change has a much broader impact. It will be interesting to see if an application will be made to the European Court of Justice to challenge the French amendments, and if an application is made, what its outcome will be.
Given these recent developments, it is only important to seek quality professional advice in navigating the increasingly choppy waters that involve regulation and estate planning for Canadians and others with EU connections.
The comments made in this article are intended to be general in nature, limited to the law of Ontario, Canada, and are not intended to provide legal or tax advice regarding any individual case. Before taking any action relating to your individual situation, you should seek legal advice to ensure it is appropriate for your personal circumstances.
The content of this article is intended to provide a general guide to the subject. It is advised to take the advice of specialists in such circumstances.