Increased globalisation has resulted in many Irish families with various members living in different countries across the globe, as well as Irish individuals with assets located overseas, which can complicate inheritances.

Each country has its own rules on succession. Ireland generally has testamentary freedom i.e. a testator can dispose of their estate to whomever they wish, provided proper provision is made for the surviving spouse, if any. Whereas most other mainland European countries have fixed inheritance regimes i.e. the inheritance of each family member is set by the law of the state, known as “forced heirship”.

Often, forced heirship results in children having superior rights over their surviving parent/the deceased’s second spouse, which not only can give rise to a deceased’s wishes being defeated but, often results in family conflicts, increased professional fees and unexpected tax charges. Thus, while globalistaion has made relocation easier and international investment much more accessible, when it comes to succession, difficulties can arise that need to be carefully managed to avoid unnecessary and sometimes significant costs. This articles relates to succession in an EU context, separate issues may arise outside of the EU.

Succession and ‘Brussels IV’

Approximately one succession in ten opened in the EU has an international element. The ownership of foreign assets has usually meant uncertainty, delays and added costs in the complex administration of a deceased’s estate due to the varying domestic succession rules of each EU country. Thus, an attempt was made to harmonise succession law throughout the EU and the EU Regulation on Succession Law (Regulation 650/2012), known as ‘Brussels IV’, commenced on 17 August 2015. The aim of Brussels IV was to iron out the difficulties caused by the intricacy of varying legislation across different EU countries that frequently had very different roots, and to provide a simplified framework for people who have private or financial interests in at least two countries, in an attempt to reduce the risk of arguments, stress, professional costs and taxes, in the administration of international estates.

Brussels IV provides that, in the countries that ascribed to the regulation, the deceased’s succession will be governed by the law of the country in which the deceased was ‘habitually resident' at the date of his or her death (unless the deceased was ‘manifestly more closely connected’ with another state, in which case the law of this latter state would apply instead). However, Ireland, along with the UK and Denmark, has opted out of Brussels IV, and thus Brussels IV will affect Ireland differently to the Brussels IV “signatory states” (i.e. Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, Finland, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Spain, Slovakia, Slovenia and Sweden). However, all is not lost as Brussels IV will affect assets situate in signatory states. Thus, Brussels IV remains significant in the context of Irish individuals who have assets situate in any of the signatory states, or who are living in any of those states at the date of their death.

Ireland and Brussels IV

The application of Brussels IV in relation to an individual’s residency can be overridden by an express election for the law of the individual's nationality to apply. Thus, while the ‘opt out’ by Ireland prevents the law of a signatory state affecting Irish successions, it does not stop Irish testators from electing that Irish law will apply to the succession of assets in the signatory states. This election should enable Irish individuals to plan their succession with complete certainty over the applicable law that will govern their estate.

Such an election should enable Irish testators to leave their EU situate assets (other than assets in Denmark) to their spouse/civil partner, which will allow them to take advantage of the full capital acquisitions tax exemption on transfer to spouses/civil partners. Thus, while the regulation does not affect the inheritance tax regimes in member states, it may nevertheless affect the tax payable (both domestic and foreign) on an inheritance insofar as the person(s) who receives the assets can now be managed.

Brussels IV does not deal with assets passing by survivorship, which are still dealt with under the domestic law of the state in which the assets are situate.

Application of Brussels IV

The best way to illustrate how Brussels IV could affect Irish individuals is by way of example:

• An Irish-domiciled individual, who lives in Ireland, but has foreign property, makes an election

An Irish individual, who has a house in France, dies in Ireland. The individual had made an election under his will that Brussels IV is to apply on the basis of his nationality (i.e. Irish). Thus, Irish law should govern the succession of his entire estate. France will follow the Brussels IV regulation and apply Irish law. Ireland, will seek to apply French law to the property; however, despite Ireland’s opting out, Brussels IV stops this, and Ireland will be prevented from applying French law. Therefore, Irish law must be applied to the entire estate, including the property in France.

• An Irish-domiciled individual, who lives in Ireland, but has foreign property, does not make an election

An Irish individual, who has a house in France, dies in Ireland. No election is made under her will. Thus, the law of the “habitual residence” applies. Ireland will apply French law to the asset, and as the individual has not made the election for Brussels IV to apply the regulation will not prevent this. Thus, the property would be subject to the forced heirship rules in France.

Summary

In order to take full advantage of the potentially considerable benefits of Brussels IV. Any Irish citizen with assets in, or residing in, the EU (other than Demark and the UK) may wish to amend their will to elect that Brussels IV apply on the basis of their nationality (i.e. Irish) to their entire estate, so that Irish law should govern their succession. Thus, all of their EU situate assets (other than assets in Denmark) should pass on their death without the application of forced heirship. 

For more information please contact

Tara Keaney

Assistant Manager, Tax and Legal 

tkeaney@deloitte.ie

+35314172516