Home or away?

The sun is shining (intermittently).
The summer holidays
are nearly upon us. Colleagues
and clients are packing their suitcases to spend a couple
of weeks on the shores of
the Mediterranean or on
a road trip around America. Many will be heading to their own holiday homes, some fortunate enough to be able to spend the whole summer there while the kids are out of school.

But while many dream of having their own place in the sun, a holiday home in Europe can bring with it traps for the unwary, as I have witnessed first-hand over the last few weeks.

There is much talk in
the press at the moment
about the European Union.
The referendum is a hot topic and one we will hear more
and more about in the coming months. But a far more imminent EU matter has had hardly any press coverage, despite the significant impact
it could have on many Britons.

Forced heirship

The 2011 census revealed that nearly 250,000 Britons have a holiday home abroad. Many of those holiday homes are in EU member states, with Spain and France being two of the most popular countries. These are both countries with forced heirship rules which dictate that certain beneficiaries, such as children, must inherit part of an estate, even if the deceased is survived by, for example, their spouse. This concept sits uncomfortably with those of
us in the UK who are used to having complete testamentary freedom, and can come as a surprise.

The mismatch in succession law and private international
law throughout the world can make the administration of a multi-jurisdictional estate complicated, time-consuming, and expensive. A game of legal ping-pong can ensue, during which the jurisdictions involved try to work out which jurisdiction will deal with the succession of which parts of the estate.

In August 2015 the EU Succession Regulation, which aims to harmonise succession law throughout the EU, comes into force. A single law – the
law of a person’s habitual residence at the time of death – will govern the succession of their EU estate. Or, if a testator would prefer, they can elect for the law of their country of nationality to apply instead.

Except it is not so simple in the UK. Some might say that
we already have one foot out
of the EU door, as we have not signed up to the regulation. Why? The predominant reason is that the regulation contains an obligation for one member state to apply clawback provisions to lifetime gifts in
the law of another state. Such provisions are commonplace in several EU countries and involve lifetime gifts being clawed back in order to satisfy forced heirship rules on death.

Assets abroad

The regulation still affects Britons with property in other EU member states, or with another connection to an EU member state. Even though
the UK has not signed up to
the regulation, British passport holders can still make an express election in their will
for UK law to apply to the succession of their assets
in other EU member states.

And, many may have
already made an implied election without even realising it. If a will makes express
reference to the legislation
of a jurisdiction (which most do), the testator is likely to
have impliedly elected for
the law of that jurisdiction to govern the succession to their estate. The problem is that making an election is not always the best approach, not least because of the unexpected tax consequences that might arise.

The challenge for us is getting the word out to clients. Many are already unaware that careful thought needs to be given to assets abroad, and I am yet to meet a client who has heard that the rules are changing in a matter of weeks and that they need to review their will if they have any connection to an EU member state.

So, if you learn of a client jetting off to their holiday home, pass on the word that reviewing their will should be added to their pre-holiday to do list. SJ

Kate Johnson is a solicitor at Wedlake Bell