Brexit is a mystery, perhaps even more so now than ever. No-deal Brexit, a prolonged article 50 period, or no Brexit at all seem to be possible, and all of them present their own legal challenges and uncertainties.
When considering the potential effects of Brexit on legacies, there are some potential pitfalls that should be taken into account.
Back to basics – UK/EU succession
When uncertain, it is often advisable to go back to basics. What do we know about UK/EU cross-border succession?
The EU’s Regulation (EU) 650/212, known as ‘Brussels IV’, or the ‘European Succession Regulation’, (ESR), came into force on 16 August 2015.
The UK ‘opted out’ of the ESR, the effect of which is twofold:
The ESR is neither directly applicable nor directly effective in the UK; and
European Court of Justice (ECJ) rulings on the ESR do not have, even now, supremacy over inconsistent provisions of UK national law.
In other words, the UK is, already pre-Brexit, apparently ‘immune’ from the effects of the ESR. So, why should we care about Brexit in this area of practice?
Brexit should mean nothing for legacies arising out of a will which falls in the general scope of UK/EU cross-border successions.
Complications of universal application
However, the ESR has been written so as to have universal application.
This means that, if the rules of the ESR are applicable to a specific matter, they will be universally applicable and enforceable, and not just limited to those who are part of a European Member State[1].
Universal application allows British nationals to exploit the ESR to elect for national law to apply to property situated in an EU country[2].
It also means that if a UK national is habitually resident in an EU country, and no election for applicable law is made in his/her will, the domestic laws of that country, including its forced heirship rules, will apply to his/her whole succession, irrespective of where the assets are located.
In either case, the ESR will apply, directly or indirectly, to the succession of a UK individual with assets, or generally connections, with an EU Member State. This will remain the case after Brexit, which has the potential to create complications in already delicate scenarios.
Case study
Consider this example:
John, a British national, lives in England. He is retired, and spends a considerable amount of time in Italy, where he has a small property. He decides to leave his Italian property to a UK charity in his UK will.
One of his children, who lives in Italy, challenges his father’s will – claiming that John’s habitual residence was in Italy. Under the ESR, Italian courts ought to have exclusive jurisdiction on John’s whole succession, on the assumption that John’s will does not contain an election of (national) English law.
What would be the consequences for this case post-Brexit?
The concept of habitual residence is not defined in the ESR and therefore will rest, in an EU context, on the specific interpretation of the ECJ. It currently appears that past (ie pre-Brexit) ECJ rulings will be given some form of recognition and validity in the English law system of precedents.
If, in the future, the ECJ agrees on a past concept of habitual residence will it indirectly have an impact on a UK defendant?
Which law applies to the succession first, and the legacy after, is of paramount relevance, as it will determine a number of matters, including when the transfer of the gifted asset takes effect, who has the power to deal with it and, in certain jurisdictions even to the core concept of ‘legacy’.
Now, let’s assume that the object of the legacy is not a house but a valuable painting.
Even if the charity is successful in the defence of the claim, how will it be able to transfer the painting from Italy to the UK, in a post-Brexit world without freedom of movement of goods?
Conclusions
Unfortunately, as in all things Brexit, the only certainty is uncertainty. The very simple example given above shows that nothing can be considered in a vacuum.
What is clear, however, is that cross-border estates are complex, within or without Europe, and careful planning, implementation and execution, are essential to start off on the right footing.
This article was written by Alessia Paoletto, partner in Withers’ Private Client & Tax team.
[1] Art. 20 of ESR: ‘Any law specified by this Regulation shall be applied whether or not it is the law of a Member State’.
[2] In succession matters, ‘national’ law would mean the laws of England and Wales, Scotland or Northern Ireland respectively, as each of these countries has its own, different, succession regime.
