New succession rules to simplify settlement – if applied correctly!

14 June 2012

Following Parliament’s approval on March 13, 2012, the European Rules of Succession were likewise approved by the EU Council of the Ministries of Justice on June 8, 2012. The rules should simplify the settlement of international successions within the EU when they go into effect in 2015 in those countries which are a party to the agreement. Great Britain and Denmark will not be signing on for the time being.

 

First of all, those issues that are not governed by the Rules must be defined. Internal material succession law will not be affected in participating countries. In the case of Spain, it should also be determined whether or not the common law of the Civil Code or, as the case may be, any of the other Autonomous Community forum rights apply in view of the major differences between these sets of regulations. The Rules will not affect the fiscal aspects of international successions which have been – and shall continue to be – one of the crucial issues in succession and wealth legal advising. This is especially true from the Spanish point of view as, readers may recall, Europe is currently considering a taxation system for assets located in Spain and bequeathed to non-residents. Current rules place non-residents at a serious disadvantage compared to residents. There is currently an infringement proceeding still pending against Spain in this regard. The status quo means that inheritances in Spain for non-residents are quite heavily taxed. In addition, the new double tax convention between Spain and Germany, which will go into effect on January 1, 2013, will make no changes in that regard as the convention overlooks tax aspects in successions.

The principal issue is currently the determination of whether or not the law applies to the full amount of the inheritance which shall be governed by the law of the last place of residence of the deceased, except for those cases in which the deceased had previously subject the taxation to their nation’s laws. Said regulations are welcome, however in view of the tendency nowadays towards constant mobility and multiple residences. A fair amount of legal uncertainty is involved since the question of the last habitual residence can trigger legal consequences of enormous importance. In the cases involving individuals moving between various jurisdictions where there is any doubt, it would appear that the question of applicable law is open to debate between the heirs. To that end, it would be best if there was an official record of the deceased’s choice of governing law for the succession, in addition to clearly and unequivocally drafted wills. This is of the utmost importance considering that the right of the rightful heirs – with all of the differentiations between jurisdictions – is governed by the law that applies to the entire succession.

The considerable simplification entails, furthermore, the introduction of a single certificate of succession which is intended to unify the various national regulations and forms, as has occurred with birth and death certificates. Such a standardized certificate would mean, at the very least, the elimination of The Hague Apostille requirement, as well as expensive translations involved in cross-border legal traffic.

From the point of view of Spain, we should trust that, even though it continues to be subject to scrutiny, the standardized European certificate of succession will help overcome the policies of the General Directorate of Registries and Notaries which generally refuses to accept foreign titles for the modification of property registry entries in favor or heirs, thus obligating the latter to make costly and time-consuming notarized declarations of acceptance of the inheritance.

The new Succession Regulations will most likely entail the simplification of the processing and settlement of cross-border successions and inheritances, as long as the regulations are applied correctly. At the same time, it entails new potential for conflict which will require specialized advising to reduce legal uncertainty. The truly important pending reform, the simplification of the tax rules for cross-border successions, has yet to be resolved. Nevertheless, this is an important and noteworthy step.

For now, from the practical point of view, it is advisable that individuals make a choice as regards the governing law for their wills and revise any previous wills to include the choice.

For further information, please contact  Phillip Kirchheim: pkirchheim@mmmm.es