Cross Border Estates Notes on Wills, and Estates, with assets in 2, or more, countries.

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Cross Border Estates Notes on Wills, and Estates, with assets in 2, or more, countries. 2003: All rights reserved to Thursfields and Gill Steel -This edition 23/3/2003 bcde Probate Tax & Trusts Department
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Cross Border Estates Notes on Wills, and Estates, with assets in 2, or more, countries. 2003: All rights reserved to Thursfields and Gill Steel -This edition 23/3/2003 bcde Probate Tax & Trusts Department Please remember that legal, and taxation, matters are complex particularly those with a foreign element and you should not take any action, or inaction, just from reading one of Thursfields' Client Guides. You should discuss this with us first. This Client Guide reflects Thursfields understanding of the law as at the date of this Guide. Thursfields acknowledge the assistance of Gill Steel (an independent Solicitor) in the preparation of this Client Guide. Visit our Web Site at thursfields.com 2003: All rights reserved to Thursfields and Gill Steel -This edition 23/3/2003 Page 2 Cross Border Estates Table of Contents Page Number 1 CROSS BORDER ESTATES - A MODERN PROBLEM? TERMINOLOGY CONNECTING FACTORS SCHISMATIC OR UNITARIAN SYSTEM OF SUCCESSION CONFLICT OF SUCCESSION LAWS RENVOI FORCED HEIRSHIP INTERNATIONAL CONVENTIONS THE HAGUE CONVENTION XI ON CONFLICT OF LAWS RELATING TO THE FORM OF TESTAMENTARY DISPOSITIONS - OCT WASHINGTON CONVENTION ON INTERNATIONAL WILLS TRUSTS - THE HAGUE CONVENTION ON THE LAW APPLICABLE TO TRUSTS AND ON THEIR RECOGNITION - JULY OTHER CONVENTIONS WHICH LAW WILL GOVERN THE DEVOLUTION OF VARIOUS PARTS OF THE ESTATE? WHAT IS THE COMPETING CONNECTING FACTORS AFFECTING THE ESTATE? WHEN IS ENGLISH LAW THE RELEVANT LAW? WHEN IS FOREIGN LAW RELEVANT? MATRIMONIAL PROPERTY REGIMES FRANCE REGIME LEGAL ASSETS OF THE COMMUNAUTE SPAIN SOCIEDAD DE GANANCIALES SEPARACION DE BIENES DO THE LAWS OF SUCCESSION IN THE VARIOUS JURISDICTIONS MATCH THE PROVISIONS OF THE WILL (IF THERE IS ONE)? WHO ADMINISTERS THE' ESTATE? WHAT TYPE OF ASSETS AND LIABILITIES ARE WE DEALING WITH? WHERE ARE THEY SITUATED? : All rights reserved to Thursfields and Gill Steel -This edition 23/3/2003 Page 3 EXAMPLE EXAMPLE OUR GENERAL RULES FOR ESTABLISHING THE SITUS OF ASSETS ARE: COMPANY SHARES AND SECURITIES AN INTEREST IN LAND CHATTELS THE GOODWILL OF A BUSINESS A PERSON'S INTEREST IN THE ESTATE OF A DECEASED PERSON THE LOCATION OF AN INTEREST UNDER A TRUST WHO ARE THE BENEFICIARIES? WHAT ARE THE BENEFICIARIES' RIGHTS? WILL WE NEED TO SEEK LOCAL (LEGAL OR OTHER PROFESSIONAL) HELP? IS THERE ONLY AN ENGLISH WILL? THE FOREIGN COUNTRY IS AFFECTED BY THE COLONIAL PROBATES ACT THE PROCEDURE THURSFIELDS WILL NEED TO FOLLOW (IN THE UK) IS THERE A FOREIGN WILL AS WELL? WHAT ARE THE TAXATION IMPLICATIONS? WHEN TAX IS PAYABLE AND BY WHOM? CAN DOUBLE TAXATION BE AVOIDED? YOUR FINAL CHECKLIST : All rights reserved to Thursfields and Gill Steel -This edition 23/3/2003 Page 4 Cross Border Estates Notes on Wills, and Estates, with assets in 2 or more countries 1 Cross Border Estates - a modern problem? In these days of foreign travel it is now much more common for Clients to have assets in more than one country. This may be just a bank account (a moveable asset) but it could be a property (an immovable asset), even if this is just a time share . What do you need to know about this? And what do you need to then do about this? This Client Guide is to draw some matters to your attention. It cannot, and is not intended to, go into detail about every country's legal system and how they inter-relate with the UK's legal system. 2 Terminology One of the aspects of dealing with estates containing a foreign twist is not just the alien nature of the laws that may apply but also the difficulty in communicating with the officials involved. We all cannot simply expect our lawyers abroad to know all we know about our UK legal system and to interpret the standard jargon of our world in the same way that we do. We all must make every effort to communicate in plain, clear words and if possible consider whether it would pay to have our communications translated at first at least until it is established whether it will be possible to communicate in a particular language with which all involved is comfortable. 3 Connecting factors Each country not only has it own internal legal system but also its own private international law. Each jurisdiction has a different means of connecting persons to their specific legal system: Domicile - which is in England the country that a person treats as his permanent home to which he has the closest legal attachment. A person cannot be without a domicile and cannot have two at once. It has a particular significance for (UK) Inheritance Tax (IHT) too. Some other countries, such as France, also talk about domicile as being the connecting factor but it is not meant in the same way as in England. In France it is a residence test. Generally, residence for more than 6 months of the year creates a French domicile. Habitual Residence - is the place or country in which a person has his home. Habitual residence is necessary in order to establish domicile. This is the effective connecting factor for France and also for Belgium and Denmark. Nationality - means allegiance to a sovereign state coupled with the right to look to that state for protection whilst in a foreign state (this may be called citizenship). It may be acquired by birth or naturalisation. Spain, Portugal. Germany, Austria, the Netherlands and Italy use nationality as their connecting factor. From this it will be apparent that in a particular case a variety of succession laws can apply to one person's estate as it is possible to be domiciled in one country, habitually resident in another at the time of death and a national of a third! Checkpoints What is your domicile; habitual residence and nationality? To which jurisdiction(s) are you connected? 4 Schismatic or unitarian system of succession Some countries adopt a schismatic system of succession, which means that they have one system for dealing with succession to movable property (i.e. personal (chattels) effects, bank accounts and the like) and another system for dealing with immovable property (i.e. land and things attached to land such as buildings). The UK does this as does France and Belgium. Other countries adopt a unitarian approach in that they have only one system of succession dealing with all property. So not only do we need to know which factor connects a person to a particular jurisdiction's succession law it will make a difference whether a particular country in which the deceased held assets operates a schismatic or a unitarian approach and how that particular country defines what is a movable and what is an immovable item. 2003: All rights reserved to Thursfields and Gill Steel -This edition 23/3/2003 Page 5 Checkpoints What sort of assets have you got? Are they movable or immovable? Where are they located? 5 Conflict of Succession Laws If you die domiciled, habitually resident in and a national of England but owning immovable property in a foreign jurisdiction which adopts a schismatic approach to succession which would treat the law of the location in which the immovable asset is located as the appropriate law of succession then if it has a forced heirship system any rules applying to the rest of the deceased's estate would not apply to that particular property. Alternatively, Spain adopts a different approach and would say that English law would apply to the whole estate (but is there such a thing as English law?) Understanding this terminology and its application can avoid error and speed up progress for the beneficiaries of your estate. 6 Renvoi This is the doctrine whereby the courts of one country in certain circumstances apply the law of another country in resolving a legal dispute. A problem arises in private international law when one country's rule as to conflict of law refers a case back to the law of a foreign country, and the law of that country refers the case either back to the law of the first country (remission) or to the law of a third country (transmission). Single renvoi - A judge in State W is referred by his own choice of law rules to the law of State X. The choice of law rules of State X's private international law refers the issues back to the law of State W. The judge in State W accepts the remission and applies the internal law of State W. Renvoi to the second degree - If State X's choice of law rules refers the issue on to the law of State Y then the State W judge could accept this transmission as requiring him to apply the internal law of State Y. Double/total renvoi - English law adopts this third option. An English judge, when referred by choice of law rules to the law of State X, can pretend that he is a judge in State X and apply whatever the law such a judge would apply if he were hearing the case. 7 Forced Heirship This is the system whereby the deceased may not freely dispose of part of his estate but instead specific heirs are entitled to a share in the estate under the law. Forced heirship can cause (unexpected) havoc. In France and Spain, a civil code specifies certain proportions of your estate pass to particular relatives irrespective of the provisions in any Will. Your best laid plans (for your Will) will change if you buy a property abroad, leave money in a foreign bank account to spend on holiday. Thursfields need to be told of your investment(s) abroad otherwise there can be a lot of disappointments. If a foreigner tries to avoid his nationality laws by buying English immovable and movable assets his beneficiary under a forced heirship jurisdiction may be able to take action in other jurisdictions that recognise, nationality law as the connecting factor against the persons who have inherited the English assets. Forced heirship rules permit a clawback of dissipated assets so it would not be a good idea for the actual recipient of the assets, which are the subject of such a claim, to invest in the forced heirship country within the period during which clawback claims can be made. There are very wide differences in the time period during which the clawback claim can be made in different jurisdictions but in France, the clawback period can be as long as 30 years and there is no statutory notice period system as with an English estate. 2003: All rights reserved to Thursfields and Gill Steel -This edition 23/3/2003 Page 6 8 International Conventions Where the succession laws of a number of countries could apply to all or part of the deceased's estate and these laws are in conflict, in which jurisdiction the action is commenced will determine the outcome. The law under which the Will is executed could make a difference where acting quickly is important. For a Will to be effective in another country it will need to be proved in the country of origin which could delay matters. We are familiar with the requirements for a Will to be valid in England (it must be in writing and signed by or on behalf of the testator in the presence of 2 witnesses who themselves also sign and are present at the same time as the Will is signed or affirmed). There are 2 main conventions on the validity of Wills 8.1 The Hague Convention XI on Conflict of Laws relating to the form of testamentary dispositions - Oct 1961 This was brought into effect in the UK by the Wills Act It applies to Austria, Belgium, Croatia, Denmark, Finland, France, Germany, Greece, Japan, Luxembourg the Netherlands, Norway, Portugal, Slovenia, Spain, Sweden, Switzerland, and the UK. It has been signed by Italy and acceded to be Australia, Estonia, Ireland, Israel, Poland and Turkey. This convention provides that a Will is valid if it is executed in accordance with the internal law in force in any one of the following jurisdictions: the place where the Will was executed the place where the testator had his domicile either at the time the Will was made or at the time of his death the place where the testator was habitually resident either at the time the Will was made or at the time of his death the state of which the testator was a national at the time he made the Will or at the time of his death with respect to provisions of a Will relating to immovable property, the place where such property is situated 8.2 Washington Convention on International Wills 1973 This convention provides that a Will is to be considered as valid as to form in all contracting states regardless of where it was made, the location of the assets or the nationality, domicile or residence of the testator provided: it is signed and acknowledged in the presence of 2 witnesses and authenticated by a third person qualified to make such authentication in the country concerned, who makes an attestation in the prescribed form to the effect that the (1) document is the Will of the testator (2) Will is signed in the required manner and (3) testator understood the contents of the Will The Convention has been signed by Iran, Sierra Leone, the USA, Laos, Holy See, Belgium, Ecuador, the UK, France, the USSR and Czechoslovakia. It has been ratified by Ecuador, Belgium and France. Acceded to by Niger, Portugal, Canada (Manitoba and Newfoundland) Libyan, Arab, Jamahlriha, Yugoslavia, Cyprus, Italy, Slovenia and Bosnia-Herzegovina. 8.3 Trusts - The Hague Convention on the law applicable to trusts and on their recognition - July 1985 The Convention applies to trusts regardless of the date on which they were created, but by Article 4 it does not apply to 'preliminary issues relating to the validity of wills or other acts by virtue of which assets are transferred to the trustee'. It is therefore necessary to obtain a grant of representation before a trust in a Will can be enforced. The convention was incorporated into the law of the UK by the Recognition of Trusts Act It will therefore apply in most conflict of law cases whether or not the other country whose law is in conflict with ours has signed or ratified the Convention. 2003: All rights reserved to Thursfields and Gill Steel -This edition 23/3/2003 Page 7 The Convention does not introduce the trust concept into the internal law of non-trust (law) States but does make non-trust (law) States recognise trusts and it establishes common g private international law rules on the law applicable to trusts. This is necessary as it is increasingly common for a testator in our country to die owning property in a non trust (law) State and make a fairly standard common law Will leaving all their estate on fixed or discretionary trusts. 8.4 Other Conventions For the succession to and administration of estates there have been two separate conventions but neither have been particularly successful. The UK Law Commission when asked to consider the Hague Administration of Estates convention concluded that its complexities made it impractical and not worthwhile implementing. 9 Which Law will govern the devolution of various parts of the estate? What is the competing connecting factors affecting the Estate? The competing connecting factors in different legal systems are: Domicile Habitual residence Nationality Lex Situs (the law of the place where an asset is actually sited) It is not uncommon for a testator to die domiciled in State A (e.g. Ireland); habitually resident in State B (e.g. France) but a national of State C (e.g. Spain) with immovable property in State D (e.g. England). Four different laws of succession could then apply to the assets in the estate. The estate becomes complex because of the entanglement of the different jurisdictions that are themselves autonomous and not designed to interweave sensibly. Nor do the different advisers in each of the jurisdictions understand the rights and interests of the different parties, which the law of the different jurisdictions might provide for. Often it is the court in the forum in which property is situated which will ascertain the relevant connecting factor for succession to the assets in that location. One court in one forum may say nationality is the connecting factor while another will hold that habitual residence is the correct one. The question of which forum has jurisdiction to determine the dispute and to what extent such judgments may be recognised in, other jurisdictions is crucial. For example, English private international law might regard a question as one to be determined according to the law of France, but French private international law may regard that same question as one to be determined according to the law of England or some other country. In such a situation, we look to our private international law to decide whether our courts should refer the question simply to the internal law of France and determine it in accordance with that law; or, whether they should take account of the private international law of France, so applying some version of the doctrine of renvoi and allow themselves to be referred onwards to the internal law of some other place. Many jurisdictions differentiate between the legal and taxation treatment of movable and immovable assets. It is therefore important to know the domicile, habitual residence and nationality of the client; the location of his assets and their nature. From there, the practitioner will have to apply the relevant private international law which may be in conflict. The adviser needs to be clear for whom he is acting and what his duties are in relation to any particular set of assets or estate. He may then need to negotiate with his counterparts in other jurisdictions to further the position of the clients for whom he acts or to protect the assets of which he had control. As a last resort. if negotiation cannot reach a successful outcome, then proceedings may need to be brought in different jurisdictions. It is possible for the testator to choose the law which he wishes to govern questions of construction in his Will. Under the law in England and Wales, an English practitioner drawing up a Will for a person domiciled in England and Wales would normally include an express declaration that it is to be construed in accordance with English law if the Will covers foreign movables. 2003: All rights reserved to Thursfields and Gill Steel -This edition 23/3/2003 Page 8 Thursfields do not recommend you to have too many Wills. Two will usually suffice (unless the client has substantial immovable assets in several countries):- one Will should be confined to property located in that country the other Will, in the country of the testator's domicile, should then relate to property situated everywhere else. 9.1 When is English Law the Relevant Law? When the client dies domiciled in England and Wales: English law applies to movables wherever situated unless situated in a country that does not recognise domicile but habitual residence or nationality instead and the client was not habitually resident in England and Wales nor an English national. Immovables will be governed by English law if the asset is situated in England and Wales or if the country in which the property is situated applies a succession law based on habitual residence or nationality and the client is a habitually resident in England and Wales or an English national. When the client does not die domiciled in England and Wales: English law applies to immovables situated in England and Wales The law of the client's last domicile will govern movables unless a foreign jurisdiction resolves a dispute by applying the law of the testator's nationality or habitual residence that is different from his domicile. 9.2 When is Foreign Law relevant? To establish what a client's estate comprises of may depend upon a foreign law's treatment of different types of property such as:- Matrimonial property - is it a communal property regime? The existence of a joint tenancy over property and whether a foreign jurisdiction recognises this. The existence of a trust and whether a foreign jurisdiction recognises trusts. The personal status of the client, for example if adult, is s/he married, divorced etc and if a child, is s/he adopted or legitimate in accordance with the foreign law. If the
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