New EU regulation on inheritance

1)    The EU Regulation 650/2012 regarding inheritance. Are Britons affected?

British migration to Spain has resulted in Spain being home to one of the largest British-born populations outside of the United Kingdom. Migration from the UK to Spain has increased rapidly since the late 1990s and the British population of Spain in 2006 was estimated to be about 761,000 (more than twenty-five times the population of Gibraltar). Of these, according to the BBC, about 21.5% are over the age of 65.

In Andalusia, The national Institute of Statistics found 63,472 UK subjects to be resident, although the figure is probably much, much higher.

One succession in ten opened in the European Union has an international element and this proportion is increasing all the time. In order to adapt the rules to this situation and to iron out the difficulties caused by the complex nature of the existing legislation, the EU Regulation 650/2012 on international successions was adopted on the 4^th July 2012. It provides a simplified framework for people who have private and financial interests in at least two countries, both within and outside the European Union.

The Regulation, although it came into force in 2012, will only apply to successions opened from 17 August 2015. For the moment, the United Kingdom, Ireland and Denmark have chosen not to take part, citizens from these countries living in Spanish territory will be affected, as Spain has taken part in the Regulation. This is important as many British expatriates have received the mistaken impression that they are not affected by the Regulation.

Although the Regulation applies to all aspects of a succession (the place it was opened, devolution, liquidation, division and administration), it explicitly excludes everything related to donations, life insurance contracts, tontines, trusts, matrimonial property regimes, maintenance obligations, the nature of rights in rem and taxation.

2)    How are Britain´s and Spain´s laws of succession different from each other? Which is more advantageous? How can a British subject best protect his or her wishes for the estate?

The EU Regulation is designed, fundamentally, to make sure that:

a)    EU citizens know which country´s law will govern their succession.

b)    EU citizens have more choice over which law governs their succession.

These aspects are extremely important, due to basic differences between Spanish and English law.

Spanish Law restricts the freedom to leave your property to anyone you please. The testator must leave two thirds of their estate to their children.

In most cases, people have no problem leaving their estate to their children. However, this is not always the case. Examples of some difficult situations that could arise for a British subject whose succession is governed by Spanish Law:

a)    If the children are extremely well off and the testator wishes to leave his estate to someone else.

b)    If you want to leave your estate to a friend or charity.

c)    If you want to cut off one or more of the children or leave your estate to your children in a proportion that Spanish law does not allow for.

d)    If you want to leave your property to your spouse. An example would be the situation of a second wife who owns no share in the property and does not have a good relationship with the children.

The surviving spouse does not automatically inherit. The testator can only use one-third of the estate to benefit the spouse and even then only by will. However, the spouse will have a usufruct over the property.

However, there are regional exceptions. In Aragon, for example, it is one half of the estate that goes to the children, not two thirds.

Current System

Current legislation (article 9 of the Spanish Civil Code), applicable up to the 17^th of August 2015, would force a foreign resident´s inheritance to be treated according to the law of his or her nationality. This happens even if the foreign property owner holds an official residence permit. For example, a British man or woman who has lived in Spain for thirty years would have to make their will according to British law. This is good if your country allows for the free disposal of assets, as is the case in England and Wales or in the United States. Other countries do not allow for the free disposal of assets, as is the case in Scotland, Germany or, most importantly Spain.

This option only applies when the foreign resident has a foreign or Spanish will, as estates not governed by a will have Spanish legislation automatically applied to them. This an excellent argument for making a Spanish will disposing of your assets in Spain according to your wishes.

3)    Its system for choosing the applicable jurisdiction, law and for recognizing foreign judgments

 The Regulation nº 650/2012 introduces several novelties that could be of interest to the ex-pat community.

The European regulation simplifies the rules and gives each citizen the possibility to choose the legislation he/she wishes to be applied when the time comes. The regulation offers three options:

1.    The principle: application of the law of the State in which the deceased will have his/her habitual residence at the time of death, even if this is the law of a State that is not a member of the European Union. A single law will govern the whole succession.

2.    The exception: when, exceptionally, the circumstances present a situation whereby, at the time of death, the deceased had manifestly closer connections with another state, the prevailing law will be that of this state.

3.    The option: possibility to choose the law of one of the states whose nationality one possesses.

So, a British national, resident in Spain, would find that Spanish law would govern his inheritance, unless he has explicitly stated otherwise in his will.

4)    The European Certificate of Succession

The regulation also simplifies procedures with which heirs are confronted in order to receive possession of property in the estate and it coordinates the legal systems with regards to the administration and liquidation of the estate. Fully recognised in all the Member States, the European Certificate of Succession (ECS) will enable interested parties to assert their status as heir or administrator of a succession without any other formalities in all EU countries.

5)    Jurisdiction

Similarly, the new Regulation allows the courts of the country of habitual residence to judge with regards to the inheritance, except when the parties concerned agree to that the courts of the country whose law has been chosen should be competent.

6)    Our recommendation on what non-Spanish EU citizens living in Spain ought to do before the 17^th of August 2015 (entry into force of the new EU Regulation).

 UK residents have until the 17^th of August 2015 to adjust to this Regulation. This timeframe will allow couples to assess their situation and to choose the law that will apply to their succession. Time is of the essence because checking one’s status, studying what is appropriate, fixing estate arrangements, adapting one’s marriage contract, strengthening it with a will, etc., all require reflection and time to accomplish the necessary formalities. Again, the regulation will apply from the 17 of August 2015 and although, for the moment, the United Kingdom, Ireland and Denmark have chosen not to take part, citizens from these countries living in Spanish territory will be affected, as Spain is affected by the Regulation.

In conclusion, it highly advisable that foreign residents make a will designating their national law, if they hope to have the same freedom to leave their assets to whomever they like that they would have in their home country. Good estate planning allows the inheritance process to progress more smoothly, avoiding unnecessary costs and delays and minimizing the chances of a will being contested.

A few of the services which Lexland offers with regards to Inheritance are:

• Processing the actions of a will
• Drafting or modifying a will or declaration of heirs
• Inheritance Tax
• Identifying and measuring claims
• Conflict resolution with regards to Disputed Wills
• Donations
• International Inheritance
• Inheritance and divorce
• Wills, Taxation and Business
• Inheritance and mortgage