The free movement of persons between the Member States is one of the fundamental rights guaranteed to EU citizens. This movement of people makes it more likely that a person’s estate and heirs are spread out over several Member States. Since national rules on succession and inheritance vary considerably between one Member State and another, the implementation of both testate and intestate cross-border successions proved to be quite complex.
In order to determine which law was to be applied to regulate the deceased’s estate, one had to depend on the conflict of law rules of the various countries. For instance, in Malta, one would have had to look at the domicile of the deceased in case of movable property, while in the case of immovable property one would have had to look at where the property was situated (lex situs).
A major step to minimize these complications and facilitate cross-border successions was the adoption of Regulation No. 650/2012 on jurisdiction, applicable law, recognition and enforcement of decisions and acceptance and enforcement of authentic instruments in matters of succession and on the creation of a European Certificate of Succession (more commonly known as Brussels IV, and hereinafter referred to as the “Regulation”). The rules are directly applicable to the succession of persons who died on or after the 17th of August 2015. As Denmark, Ireland and the United Kingdom have not opted into the Regulation, succession procedures handled by the authorities of these countries will continue to be governed by their national rules. In Malta, the Regulation was made part of the Malta Civil Code through Act XVI of 2015.
The Regulation provides uniform rules to address issues regarding appropriate jurisdiction, applicable law, recognition and enforcement of decisions, and acceptance and enforcement of authentic instruments for cross-border inheritance. Therefore, its ultimate aim was to establish one court and one law to regulate the entire estate of the deceased, irrespective of where the assets lie or the residence of the beneficiaries. The introduction of the Regulation does not, however, alter the substantive national rules relating to successions. Indeed, issues relating to the reserved portion, laws relating to maintenance and family issues, and any tax issues related to inheritance continue to be governed by national rules.
The most significant contribution made by the Regulation was the establishment of one single criterion in order to determine the jurisdiction and the law applicable to cross-border successions, namely the last habitual residence of the deceased. Therefore, the Courts of the Member State in which the citizen had his/ her last habitual residence will have jurisdiction to deal with all proceedings relating to the succession (such as the opening of secret wills or renunciation of the inheritance), and the law of that Member State will apply. Accordingly, factors such as domicile or the location of the deceased’s immovable property are no longer the primary connecting factors for cross-border successions.
Unfortunately, the Regulation does not provide an exact definition of the term “last habitual residence”. However, one can infer such meaning from certain provisions found in the Regulation. Article 23 provides that “[I]n order to determine the habitual residence, the authority dealing with the succession should make an overall assessment of the circumstances of the life of the deceased during the years preceding his death and at the time of his death, taking account of all relevant factual elements, in particular the duration and regularity of the deceased’s presence in the State concerned and the conditions and reasons for that presence. The habitual residence thus determined should reveal a close and stable connection with the State concerned…”
The only way that the testator may deviate from the rule of last habitual residence is for him/her to choose the law of his/her nationality as the determining factor in the succession. Therefore, the choice of law is restricted to the law of nationality of the deceased and this governs the entire estate. If the individual does not provide for the choice of law in his will, the law of the country of his last habitual residence will automatically apply.
The Regulation also creates the European Certificate of Succession, a document which enables heirs, legatees, executors of wills and administrators of the estate to prove their status and exercise their rights or power in other Member States. Once issued, the European Certificate of Succession is recognized in all EU countries without any special procedure being required. Third parties, who in good faith, rely on its contents are generally protected if these contents later prove to be inaccurate.
As previously mentioned, the Regulation does not apply to tax issues relating to inheritance, and therefore national rules must be applied. If Malta was the last place of habitual residence or the testator chose Maltese law to regulate his estate due to his nationality, then Maltese taxation mechanisms come into force. There is no inheritance tax charged in Malta on the transmission of property causa mortis. However, in the event of death, the beneficiary is liable to 5% transfer tax on the value of the immovable property, as at time of death. There are a number of exemptions to this transfer tax provided certain criteria are satisfied. Hence, should the testator opt for the Maltese jurisdiction to apply to his succession, any property held in Malta would not be subject to any succession tax, but would be subject to transfer duty as explained above.
The EU Regulation has, therefore, substantially improved and facilitated cross-border successions. However, the importance of succession planning must not be underestimated. Choosing the applicable law, between that of the last habitual residence or that of nationality, is of crucial importance when having a particular goal in mind, as the choice will ultimately determine how the estate will be regulated, disposed of and taxed.