Will overturned by Royal Court of Justice
von Peter Scheller
It does not happen very often that a Court decision over inheritance law gets high profile publicity. However, the recent verdict of Her Majesty’s Court of Appeal regarding Heather Ilott’s share of inheritance attracted public attention on a large scale. You may wonder why this decision became matter of public interest.
The question is easy to answer; Anglo-Saxon legal conception of inheritance law is based on the idea that the testator is free in choosing his heirs or beneficiaries. The Court’s decision shows that this freedom is not unlimited. A short description of the ruling you can find here. The public attention is high because any interference in an individual’s rights to make a free will is regarded rightly with suspicion by the British public.
However, British citizens and citizens from other countries with Anglos-Saxon jurisdictions including the USA should be aware of the fact that legal limitations of making a free will are much higher in other countries. Most restrictive are Southern European countries such as France, Spain, Portugal and Italy. In these countries it is virtually impossible to disinherit a family member within the direct blood-line such as children or grandchildren. In some of these countries children have more un-retractable rights than the surviving spouse. Less strict are countries in northern or central Europe. In Germany for example every testator has the right to make a free testament (will). However, German inheritance law provides spouses and family members in the direct blood-line with certain protective rights. If a testator disinherit a spouse or a family member he or she is entitled to half of his or her regular legal share of the estate. The beneficiaries of the estate have to pay this compulsory portion in cash. Other legal provisions may also surprise foreigners as they surprise the vast majority of Germans. If a couple has no children or grandchildren the decedent’s parents are entitled to a compulsory portion even if the will is only in favour of the surviving spouse.
Why should British people or citizens of the Anglo-American world be aware of foreign inheritance laws? There are certain scenarios when British citizens or those of other countries might be confronted with foreign law:
- A British citizen or citizen of another country is living abroad.
- A British citizen or citizen of another country has a second citizenship.
- A British citizen or citizen of another country is married to a foreign spouse.
- A British citizen or citizen of another country has heirs who have a different citizenship.
- A British citizen or citizen of another country has heirs who lives abroad.
- A British citizen or citizen of another country owns property abroad especially real estate.
In scenarios like these heirs or beneficiaries can easily be confronted with foreign inheritance law.
Example: For thirty years a German citizen lives with his English wife in London. The couple has a house on the Cote d’Azur in France. The husband also has a house in Hamburg which he inherited from his parents. In England the husband has a deposit account with shares and cash. The couple has a daughter. From his first marriage the husband also has a son who lives in Germany. The husband has never seen his son because he was divorced before the birth of the son and immigrated to England shortly after. In his will he nominates his wife and his daughter as exclusive beneficiaries of his entire estate.
When the husband dies his widow and daughter are confronted with three different inheritance laws. First of all English law will be applicable since the husband might be deemed as having an English domicile (after living in England for 30 years). This requires English administration proceedings. French inheritance law has to be followed as far as the house on the Cote d’Azur is concerned. This means that all legal formalities in France have to be observed. The executer of the will has to arrange for a French notary who will execute necessary formalities. There is also the risk for mother and daughter that the German son may claim his legal share of the French estate in front of a French court. Since the husband was a German citizen his entire estate will be inherited under German law. This means that the son can claim half of his regular legal share which is 1/4th of the entire estate inclusive French and German houses as well as the shares and cash held in the British bank. He is entitled to 1/8th of the entire estate in cash.
The example shows the complicated situation of the widow and her daughter. They have to observe legal provisions of three different states and these laws are incompatible with each other. This consequently results in very complicated legal questions. In addition legal disputes with the German son might be fought in in front of courts in three different countries.
Note: Without careful estate planning situations like the above mentioned could easily result in legal catastrophes.
(1) The above mentioned transborder successions have also tax implications. They follow different rules and may lead to unpleasant double taxation scenarios. We will cover this aspect in a later article.
(2) Estate administration and inheritance law is complicated enough if only the law of one country is applicable. Transborder successions often result in total legal turmoil. Therefore the European Union tried to simplify things. Regulation (EU) No 650/2012 allows the testator to choose applicable law if relations between EU- member states are concerned. As a basic rule the law of the state is applicable to a succession as a whole where the deceased has his habitual abode. In general this will be the last main residence of the decedent. A person has also the right to choose for the succession as a whole the law of the state whose nationality he possesses. This mean that every person has the choice between the law of the country of his citizenship or his last known main residence. The law of two different countries cannot be applicable which simplifies things significantly.
If the person wants to choose the state of citizenship he or she has to make a will or a legally similar binding document in which he or she expressively states the applicable law.
The new rules apply from 17 August 2015 on. Individuals without any will or other legally binding document might consider making a will. Furthermore, existing wills may need to be amended.
Unfortunately the new Regulation is not applicable to Denmark, Ireland and Great Britain. However British or Irish citizens should choose British or Irish law in their wills. This might reduce legal complications in the future.
The regulation does not cover successions involving non EU-member states.
(3) There is also a scenario which is ignored in most cases. Individuals move abroad to work in another country. Issues like income tax and social security liabilities are always analysed. Inheritance law and inheritance tax is regularly ignored. However, there may occur legal or tax problems if the person living and working abroad deceases. Situations where this person will be the heir or beneficiary after their parents or other elderly family members are much more likely, also there is a high possibility that unwanted legal and tax implicationsmay may arise.
Conclusion: Transborder succession scenarios require careful planning in order to avoid unwanted legal or tax implications and unnecessary financial risks.
Author: Peter Scheller, German Tax Adviser – Master of International Taxation
- Great Britain
- Heather Ilott
- inheritance law
- Regulation (EU) 650/2012
- Royal Court of Justice
- USA. Switzerland