It may not be a big blip yet on wealth managers’ radar screens, but an attempt by the European Union (called 'Brussels IV') to standardise rules to govern the way people pass on their wealth to others is likely to cause a good deal of debate and litigation.

The United Kingdom has opted out of 'Brussels IV,' the European Union's attempt to standardise succession laws. A substantial part of the EU is included, however, and the relevant regulation – which has its own problems – comes into force in August.

Citizens of countries that belong to the European Union have been able to enjoy free movement inside the EU for many years, following the sun, job opportunities and loved ones wherever they like. The ease of such freedom of movement has not been matched, however, by the expensive, varied and complicated succession planning issues that arise upon death or when gifts are given.

Entirely different succession laws exist across the world and not just within the EU. Since there are around 450,000 “cross-border deaths” that occur every year, the EU law thinks that it is time to intervene. Brussels IV is meant to standardise the law of succession across the EU. This is of concern to lawyers, bankers and other practitioners who have to advise clients who have an international side to their succession plans, whether they are those of nationality or foreign assets.

The first point of note is that the legislation will, when it comes into force, only apply to states that have decided to be subject to Brussels IV. This includes all of the EU members except Denmark, Ireland and the United Kingdom. (The UK has opted out because of its objections to the rules of other member states in relation to lifetime gifts.) Brussels IV is a regulation – i.e. a piece of EU legislation that the EU drops into the laws of all its countries with no vote by national assemblies. It dates from 2012, but will not apply until 17 August 2015.

Jurisdiction and applicable law

The main mission of Brussels IV is to make sure that the court of a single jurisdiction will apply a single law to the entire estate of the individual. The aim is to provide total clarity and reduce the opportunity for conflict.

The default position and most important criterion is that the law of the state in which the deceased was “habitually resident” applies to succession of assets across the Brussels IV zone;

This default position can be overturned if there is a jurisdiction to which the deceased was “manifestly” more closely connected;

Or, the deceased can elect to apply the law of his nationality to all the assets across the Brussels IV zone and, if he has more than one nationality, he may choose the law of any one of them. Such a selection should occur in the deceased’s will or a similar document.

As long as the law that governs succession falls within one of these categories, it does not need to be that of an EU member state. This means that assets held in a participating state could pass in accordance with the law of another jurisdiction entirely.

A European certificate of succession

Those who are administering an estate will be able to apply for a “European certificate of succession,” which is intended to replace the standard post-death legal instruments across the EU; effectively it will become a standard European grant of probate. It will set out the key details of the deceased, the estate and the beneficiaries and should be able to be used to transfer and dispose of assets across the EU. The premise behind it is to stop the need for multiple grants across Europe, which should save time and money.

The left-overs

As the UK, Ireland and Denmark are not parties to Brussels IV, the effect of the regulation is uncertain. However, it is clear that residents in any of these countries with assets in a participating Brussels IV state will be affected. So a UK-based client, who is a French citizen with money in Italy, can rely on English law if he wishes.

By the same token, a citizen of an EU country with real estate in the UK will not be able to apply the law of his country over English law, unless the courts agree.

What does “habitual residence” mean? Brussels IV does not say and there is not much guidance from other EU laws, so this may become a problem.

Brussels IV also does not cover the legal effect of the matrimonial property regimes which exist in mainland Europe.

Anyone with links to the UK, Ireland and Denmark will not be able to benefit from the European certificate of succession unless it replaces the grant of probate, which is unlikely. However, will it provide enough information to not need an affidavit of foreign law accompanying it.

It is possible for a Brussels IV state to refuse to apply the law of another state, if such an action would be incompatible with public policy.

The issue of forced heirship

If the UK is considered a “member state” for the purposes of Brussels IV, it could be possible for any citizen of an EU country being habitually resident in the UK to overturn the forced heirship laws on the continent. However, if the UK is considered a “third-party state” then only British subjects are likely to be able to ignore the forced heirship rules on their property in the Brussels IV zone. It will be interesting to see what happens here. If Brussels IV becomes a tool to overturn forced heirship, it will not be surprising to see Brussels IV states making use of the “public policy” veto to refuse to apply the law other states.

* James Ward can be reached on +44 (0)20 7725 8056 or at james.ward@seddons.co.uk