Europe's new succession rules may affect Canadian estate planning

Margaret O'Sullivan explains what it is advisors need to know

When a person dies leaving assets in more than one country, conflict of laws rules (also known as private international law, or PIL, rules) step in to help determine which law should govern succession of the estate. These rules are often tricky and confusing to navigate. The European Union has taken steps to achieve more clarity and certainty on these issues, and it will have an impact on certain Canadians and their estate planning.

The European Union Regulation (EU) No. 650/2012 (the "Succession Regulation") will be fully operational in all EU member states on August 17, 2015 (save for Denmark, the U.K., and Ireland, which exercised their right to not "opt in").

Choice of laws available

Instead of codifying a harmonized set of succession laws to be followed in all EU states, the Succession Regulation provides unified choice of law rules to determine which jurisdiction's own internal laws will apply to a deceased's worldwide estate, so that (in theory) only one state's laws apply to the entire worldwide estate (both personal property and real estate). It will apply to estates of individuals dying on or after August 17, 2015-whether testate or intestate.

Generally, under the Succession Regulation a deceased person's last habitual residence will determine which jurisdiction's internal laws apply. There is an exception to the "last habitual residence" rule, however, if the deceased was "manifestly more closely connected" to another jurisdiction through his/her vital interests, such as personal presence, family and, to a lesser extent, business and economic interests. For example, if a French citizen with assets located in France moves to Germany and dies very shortly after moving, arguably French law will most likely apply to the succession of the deceased's estate.

Deciding on law of nationality to apply

An interesting feature of the Succession Regulation -- and one of particular note to Canadians -- is that you can choose in your will to apply the law of your nationality if it is different from your place of habitual residence. If you have dual or multiple nationalities, you can choose any one of them to apply to your estate, even if it is not an EU member state.

Some of the likely scenarios in which the Succession Regulation may apply to Canadians include:
  • Canadian nationals resident in an EU member state.
  • Canadian nationals resident in Canada with assets in a EU member state.
  • Canadian nationals resident in a non-EU member state (e.g., the U.K.) with assets in a EU member state.
For example, a Canadian (and Ontario) resident with a vacation property located in Spain can from this point forward state in his/her will that Ontario law is to apply to the estate in Spain, including Spanish real estate. If the declaration is done correctly, Ontario rules will apply to the Spanish real estate on a person's death if he/she dies after August 17, 2015. This is a significant change, as before, Spanish law had to be applied to Spanish land. Spain's internal laws incorporate "forced heirship" laws, which an Ontario resident may wish to avoid with respect to his/her Spanish property. Forced heirship laws -- present in a number of member states -- often provide a mandatory scheme of distribution among spouses and children.

Consider also a Canadian national who is habitually resident in France (another EU member state) and he/she has not chosen his/her national law to apply to his/her estate. Local law (e.g., French law) will apply to his/her worldwide assets including assets outside of France. If there is real estate located in Ontario, the property falls under our PIL rules and is subject to Ontario law, but it can be brought into account in the French administration.

With respect to the property, the applicable law determined by habitual residence brings into play France's forced heirship rules, which may be an unintended or unanticipated occurrence. However, under the new rules, the Canadian (say, living in Ontario) can choose his/her law of nationality prior to death, which would be Ontario's internal law.

Consider post-2015 rules

In the Canadian context, when drafting a new will for someone with ties to EU member states, it's wise to consider not only existing rules, but also the post-August 17, 2015, rules. A Canadian resident owning real property in an EU member state has the opportunity to access provisions of the Succession Regulation in future, once fully in force.

In sum, these new European rules are a positive development in estate planning and administration, including for those Canadians who increasingly have ties to many jurisdictions.

Courtesy Fundata Canada Inc. © 2014. Margaret O'Sullivan is the principal of the Toronto-based trusts and estates law firm O'Sullivan Estate Lawyers. This article is not intended as personalized advice.