EU estate-planning uncertainty

What Canadians with EU connections need to know

Notwithstanding that it is a European Union regulation, the European Succession Regulation can be of great assistance to Canadian citizens who have EU connections in their estate planning.

In brief, the Regulation applies to all European Union member states, with the exception of Ireland and Denmark, both of which opted out.

One of the goals of the Regulation is harmonization – that only one law should govern succession on death. Succession to property in the EU was considered to be unmanageable, with so many member states with different and conflicting rules. Simplicity, uniformity, and certainty are further goals the Regulation seeks to achieve.

How the Regulation helps Canadians in their estate planning

The general rule under the Regulation is that the law of the deceased’s “last habitual residence” should govern succession. However, if a person has a nationality different from their place of last habitual residence, they have the option to choose the law of their nationality to apply to their succession.

The ability to make a choice of law is helpful for Canadian citizens who own property in, or who are habitually resident, in an EU member state. The Regulation allows them in their will to make a declaration to choose the law of the Canadian jurisdiction with which they have the closest connection to govern succession to their property.

See my prior blog “Update on the European Succession Regulation – What Every Canadian with EU Connections Needs to Know,” of June 12, 2018.

And also “New EU Rules for Cross-Border Succession Now Apply from August 17, 2015,” published on September 1, 2015.

Most EU member states are governed by civil law and have mandatory rules for succession to property on death, which requires a certain percentage of the estate be paid to children, called “forced heirship,” and the principle of testamentary freedom does not apply.

As an example, you cannot simply leave all of your assets to your spouse. This is problematic for many Canadians because often, in the first instance, a surviving spouse will be the sole or primary beneficiary.

Since the inception of the Regulation, which came into effect August 17, 2015, and which has now just celebrated its eighth anniversary, we have been involved in many will plans involving EU member states where we have included a declaration to make a choice of law to govern succession to property in the EU member state.

Recent challenges to the regulation and choice of law

However, some recent developments have created uncertainty with regard to the application of the Regulation, and how far it can be relied on in making an effective choice of law.

Under Article 35 of the Regulation, an EU member state can refuse to allow a choice of law if it would be incompatible with its public policy.

It is fair to say that it has always been a matter of professional discourse and some controversy since the Regulation came into effect in which circumstances Article 35 might be resorted to, and whether the ability to make a choice of law that had the effect of ousting forced heirship rules would be respected and allowed, or somehow curtailed by member states on the basis of public policy.

In the decision of the German Federal Court of Justice in IV ZR 110/21 of June 29, 2022, the court held that a choice of English law made by a British citizen who was resident in Germany was ineffective. The deceased completely excluded his son, who was a German citizen and resident, from inheriting under his will, which is allowable under English law given the principle of testamentary freedom.

In the unique facts of this case, the deceased had lived in Germany for more than 50 years. The court ruled that English law did not apply, as it would be against public policy to deprive the son of his compulsory share of the estate under German law.

The Court also concluded that where a choice of law is made, it would apply unless there was a sufficient domestic connection to Germany. Relevant to the court’s decision appears to be the longstanding habitual residence of the deceased in Germany, as well as that his son was a German citizen and habitually resident in Germany, and that the assets of the estate were located in Germany.

A further challenge to the Regulation is a result of an amendment made in France in November 2021 to the French Civil Code, which can undermine a choice of law if it has the effect of depriving a child of their compulsory share under French law. If a deceased or any of his or her children are citizens or resident in an EU member state and the applicable law that governs succession does not protect the child’s compulsory share under French law, the child can be compensated from any property held in France.

It is understood that the French rules were introduced to prevent inequality resulting from wills following Sharia law, which benefit male heirs disproportionately to female heirs. However, this change has a much broader impact. It will be interesting to see whether an application will be made to the European Court of Justice to challenge the French amendments, and if one is made, its outcome.

Given these recent developments, it is only more important to seek good professional advice in navigating the increasingly choppy waters involving the Regulation and estate planning for Canadians and others with EU connections.

Margaret O’Sullivan is Managing Partner of the Toronto-based trusts and estates law firm O’Sullivan Estate Lawyers. She practices exclusively in the areas of estate planning, estate litigation, advising executors, trustees and beneficiaries, and administration of trusts and estates. This article originally appeared in the O’Sullivan Estate Lawyers blog. Used with permission.

Notes and Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. It is not intended to provide specific personalized advice on any individual situation, including, without limitation, investment, financial, legal, accounting or tax advice. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your particular circumstances.