News and Insights
28 September 2016
You may want to review your inheritance arrangements.
If you own land in the EU – for example a holiday home - you should be aware of the new Regulation 650 / 2012 which came into force on the 17th August 2015 otherwise known as Brussels IV.
Unofficially referred to as “Brussels IV”, it means you no longer have to comply with the inheritance rules of the state where your land is located. Jersey law will be assumed to apply instead. As Advocate Christopher Scholefield of Viberts explains, it is worth reviewing your current arrangements because any advice you may have received when you made them is now out of date.
Many Jersey people own land in France. The prices are very tempting and, faced with the high cost of housing in Jersey, it has offered many the chance to get on a housing ladder.
Like Jersey, France is a forced heirship jurisdiction. Unlike Jersey, France’s rules of inheritance favour the children of the land owner and offer less protection to the spouse or civil partner. Short of setting up a company to convert the asset held into shares, French law had to apply because of the fact that the land was located in France.
A major upheaval
That rule has now gone. Across 25 member states of the EU (but not in the UK, Ireland or Denmark, which opted out) the new Regulation assumes the laws and courts to regulate inheritance to EU sited assets will be those of the owner’s “habitual residence”. It even allows the owner instead to select the law of his or her nationality, if that is preferred.
So if you habitually reside in Jersey, Jersey law will now govern the fate of your French land, and the French rules as to who must get what no longer apply. There could one day become more land outside the Island subject to Jersey’s inheritance laws than the 45 square miles available here. This change matters to Jersey residents who have invested in any of the 25 states, for example in France, Portugal or Poland.
It’s easier to understand the thinking behind this new Regulation if you consider the muddle prevalent in the EU until now. Its highly mobile citizens could find their affairs subject to one or more sets of (potentially conflicting) rules after death, determined variously by:
- the location of the asset in question – if it was land;
- their citizenship;
- their habitual residence;
- the place with which they were manifestly most closely connected;
- their last place of residence; or
- where they felt themselves to be “at home”.
Now the log jam of 450,000 cross border successions each year has been broken by the new default position that the legal system and courts with authority over an individual’s whole estate, be it movable or immovable (i.e. including land and buildings) are those of his place of “habitual residence”.
The concept of habitual residence is not defined, but in most cases, and especially for second home owners, it will be a matter of common sense. They are habitually resident in Jersey but have assets in France, or Portugal or Poland etc.
Those with assets in the EU who also become habitually resident there (for example by retiring to live in what was originally bought as a holiday home) may opt out of the last habitual residence test and choose instead to subject their inheritance to the law of their nationality, whether or not they are a national of an EU member state. If you hold a Jersey Passport (strictly, a British passport issued in Jersey) you can opt for Jersey law to apply.
Some are even saying that, since the habitual residence test could just possibly become a source of disagreement, if you have a Jersey passport and want to be 100% certain Jersey law applies across the board then you should make a Jersey will including a declaration that you have opted for the nationality test and use that will to distribute your EU and local assets. If foreign land is included it would be prudent to have your notary there confirm that the will identifies it in terms consistent with the methodology used by the foreign land registry.
It’s typical of the mismatch of ideas in this field that Jersey law does not refer to issues such as habitual residence or nationality to determine whose rules govern a person’s estate. We still apply the notion of domicile – broadly put, where one feels genuinely at home – to establish which law governs how an individual’s movables are inherited. We still apply the test of where the land is to establish which law governs how immovables are inherited. It was this sort of mismatch that kept the UK and Ireland from adopting the Regulation. That is why you cannot subject any land you may own in the UK to Jersey succession law. Even so, this does not stop the habitually Jersey resident or Jersey passport holders from using this EU Regulation to select the laws of the Island of Jersey, which of course is not part of the EU, to apply to the inheritance of their estate located within the 25 states.
Should a person change their state of residence but die shortly thereafter, the habitual residence test is set aside in favour of the law of the place with which the deceased was “manifestly closer connected”. Apparently this refinement exists to discourage the terminally ill from wheeling their death beds over the border into states whose inheritance rules they find more congenial. Many countries set great store by their forced heirship rules. Their courts may be expected to scrutinise carefully the arrangements of citizens who may appear have taken up residence in England or Jersey in order to get round them, even if they survive the move by some time, or die unexpectedly.
Remember: the Jersey law that applies is not just Jersey’s law of wills; Jersey’s rules governing intestate succession (without a will) now also apply to foreign assets.
If an attempt is made to create a Jersey law will trust over foreign land, eyebrows will be raised. Since you can’t create a will trust that applies directly to Jersey land, it is unlikely a foreign court will allow your will to arrange something within its jurisdiction that could not have been done at home. For all that, the Trusts (Jersey) Law says nothing to prohibit Jersey law trusts applying to foreign land.
The Regulation does not apply to questions of tax. If the place of habitual residence or nationality offers a saving on death duties against those of the state where the asset is located, that state can claim the difference.
So what do you do next?
First of all you need to consider your current arrangements for your assets in the participating states. Were they what you wanted or were they imposed upon you by the law of the land? If they were so imposed, you may wish to consult your Jersey advisor and see if Jersey law allows you to change things for the better.
Conversely, since Jersey law is now assumed to apply to your assets abroad does that upset your plans or the advice you received at the time? Might the change to Jersey law mean someone now stands to get a windfall or to miss out?
The aim should be:
- to secure what you want to achieve after your death;
- to assess your need for confidentiality in case, as in Jersey, your will may eventually be entered into a foreign register of land ownership, and;
- to streamline your arrangements so as to make your affairs as simple to sort out as possible.
If you own property abroad and you would like to know what your options are, Viberts can advise on your specific requirements.