In an era of globalisation, ultra-mobility and the international diversification of wealth, there are a huge number of wealthy families with an international profile which can attract multijurisdictional risks to unplanned successions. It is not uncommon for members of the same family not to live in the same jurisdiction, or to have different nationalities, or for the family’s wealth to be spread across several countries. Generally, they have investments or commercial interests outside their country of origin, and second homes and property abroad.
Within the European Union, for a long time this sort of situation generated legal headaches for families when they come to sort out their successions. Every country applied its laws according to its own criteria, such as domicile, residence, nationality, and the location of fixed and moveable assets, which brought about sometimes insoluble conflicts of jurisdiction, and in some cases even double or even multiple taxation.
Matters have become considerably simpler since 17 August 2015, when the EU Succession Regulation (ESR) came into force; this enabled EU member states (with the exception of the United Kingdom, Ireland and Denmark) to harmonise how they deal with successions. However, the ESR does not override domestic legal systems or member states’ taxation regimes, which, as far as inheritance tax levels are concerned, are sovereign matters.
The advantage of the ESR is that it deals with two crucial aspects of succession: the relevant authority settling a succession and the law that applies to a succession. The single deciding criterion thus becomes the last usual residence of the testator. Once this has been established, the law of that jurisdiction applies to the whole succession, encompassing all of the deceased’s estate, regardless of how it is classified and where it is situated, including whether this is in an ESR member state or in a third country.
Identifying the last usual place of residence, which is not strictly set out in the ESR, is the result of an assessment of where the deceased focused their life, their activities and their social relationships in the years leading up to and including their death. This therefore means establishing close and consistent links maintained by the deceased with that country.
In actual fact, the ESR establishes professio juris – this permits a testator to write a will for their entire succession based on the law of the country of their nationality, rather than the law of the country in which they usually reside.
While this simplification is a positive development, the principle of treating international successions as a unit is limited to the twenty-five European countries that have signed up to the ESR. According to the Paris Chamber of Notaries, some 450,000 families are affected by an international succession every year in the European Union, i.e. one in ten successions.
However, once a succession shows a connection to a third country or that the deceased’s last usual place of residence cannot be definitively established, conflicts of jurisdiction and applicable law may arise and lead to uncertainties or even unintended consequences for the heirs of a testator who had not planned their succession with all the necessary precautions.
Lawyers and notaries play a key role in helping families deal with the legal hurdles involved in an international succession. Moreover, it is precisely in an effort to avert the proliferation of succession conflicts between Switzerland and its European neighbours that in 2018 the Swiss Federal Council started consultations on revising the Swiss Federal Act on Private International Law (Loi fédérale sur le droit international privé/Bundesgesetz über das Internationale Privatrecht) with a view to incorporating the key aspects of the ESR into it. This is good news for the families of Swiss citizens living in one of the twenty-five signatory countries, as well as for nationals of those countries who are domiciled in Switzerland.
Nicolas von Wartburg
Co-Head of Wealth Planning