In a Union where persons and capital are increasingly mobile and free movement forms a basic right, succession laws of the various Member States have not done a good job of keeping apace. The regulation of the estate of a person who may have had multiple cross border EU investments and nationalities has been fraught with complexity, multiple probates, conflict of law issues and administrative costs. An additional problem was agreeing on an EU succession lexicon of reference – for example, "domicile" in the UK and Cyprus, refers to a vague concept of where the heart belongs, whereas many EU states refer to residence, the place where an individual spends a specified number of days per year; while others will defer to nationality or citizenship. The ensuing problem was deciding which state's succession laws would apply with domicile, nationality, residence or asset source (usually immoveable property) contenders each vying for jurisdiction.
The EU Succession Regulation 650/2012 or "Brussels IV" as it is commonly called, was enacted to address and rectify, to the extent possible, this situation. Brussels IV entered into force on 17 August 2015 and applies to the estates of individuals who die on or after this date. The Regulation streamlines the law of succession across the EU, simplifying cross border inheritances where multiple succession laws apply, and resolves hitherto complex EU conflict of law issues. Brussels IV applies in all EU Member States, excluding Ireland, the UK and Denmark, who have chosen not to opt in. Although it does not apply in these opt-out states, their nationals residing in other EU states may, under certain circumstances, make use of Brussels IV.
Post Brussels IV, EU citizens residing or domiciled in Cyprus have a number of interesting options to consider when making an election of a jurisdiction whose law will apply to their estate, involving not only overt but also covert, indirect or exempted aspects of the Regulation such as tax and trusts.
In a nutshell
Brussels IV sets out the process for determining which country's succession law will apply, which will be either:
- By express election, whereby an individual expressly elects to apply the law of their nationality to all their EU assets. If the individual has multiple nationalities, they may elect which nationality to apply. The election must be made by express declaration in their will or codicil; or
- If an individual makes no express election, the default position is that the law of the state in which the deceased was "habitually resident" at death is the governing law for the distribution of the deceased's estate unless the individual was "manifestly more closely connected" with another state, in which case the law of that other state would apply. Whether an individual is "habitually resident" in or "manifestly more closely connected" to a specific state will be a question to be determined every time on the facts.
To facilitate the succession, there is a new form of probate, a European Certificate of Succession, which provides authoritative reference for the recognition of the heirs in cross-border successions. This avoids multiple probates and grants authority across the EU to persons dealing with the estate such as heirs, executors and administrators.
Brussels IV does not cover tax, gifts, trusts, common matrimonial property or joint property that passes by survivorship. That said, all these matters and especially taxation are indirectly affected and should be considered by testators before they make an election. The tax angle relates mostly to the choice of beneficiaries who stand to inherit, where varying thresholds of tax may apply in different states, depending on the degree of kinship, particularly where forced heirship states are elected in which there is less possibility to alter devolution percentages. If a testator elects France, for example, a sibling benefits from only a €15,932 tax free threshold with taxation as high as 45 per cent on higher bands, while third parties, to the permissible portion of devolution they may be entitled to benefit from, may be taxed at up to 60 per cent. Where an election is available, the tax consequences of each contender jurisdiction should be investigated, in conjunction with the degree of kinship of "available" heirs to maximise the after-tax position of each such heir.
It is noteworthy that Cyprus applies no estate or inheritance taxes whatsoever.
Wills in Cyprus
In Cyprus, the regulation of the devolution of a person's estate on death, whether by will or on intestacy, and the execution of wills and administration of estates are dealt with under Cyprus Law by the Wills and Succession Law, Cap. 195 and the Administration of Estates Law, Cap 189 respectively. The question of domicile is an important one to establish since Cap 195 expressly regulates the succession to the estate of all persons domiciled in Cyprus and the succession to the immoveable property of all persons not domiciled in Cyprus. This essentially means that Cap 195 is applicable to cases of succession of moveable property of a person who at the time of his death had his domicile in Cyprus, and to cases of succession to immoveable property situated in Cyprus of any person irrespective of whether at the time of his death his domicile was in Cyprus.
Many legal systems, including that of Cyprus, impose restrictions on the freedom of the testator to dispose of his estate so that such estate devolves to the greater part, to members of the testator's family. The disposable portion of the estate refers to that part of the moveable and immoveable property of a person which he can dispose of freely by will. In Cyprus, where a person dies leaving a spouse and a child or a spouse and a descendant of a child, or no spouse but a child or a descendant of a child, the disposable portion of the estate cannot exceed one quarter of the net value of the estate. Where the deceased leaves a spouse or a father or a mother, but no child or descendant of a child, the disposable portion extends to one half of the net value of his estate. Where the deceased leaves neither spouse, nor child nor descendant of a child, nor a father nor a mother, the disposable portion shall be the whole of the estate. Where the testator purports to dispose by will of a part of his estate in excess of the disposable portion, such disposition shall be reduced and abated proportionally so as to be limited to the disposable portion.
The surviving spouse is entitled to a share in the statutory portion (the part of the estate which a person may not dispose of freely by will), and in the undisposed portion if any, (after any debts and liabilities of the estate have been discharged), as follows, where the deceased leaves behind, apart from the spouse:
- A child or descendant of a child, such share is equal to the share of each child;
- No child nor descendant thereof, but any ancestor or descendant thereof within the third degree of kindred to the deceased, such share shall be the one-half of the statutory portion and of the undisposed portion;
- No child nor descendant thereof, nor any ancestor or descendant thereof within the third degree of kindred to the deceased, but any ancestor or descendant thereof of the fourth degree of kindred to the deceased, such share shall be the three-fourths of the statutory portion and of the undisposed portion;
- No child nor descendant thereof nor any ancestor or descendant thereof within the fourth degree of kindred to the deceased, such share shall be the whole statutory portion and the whole undisposed portion.
Exemption from forced heirship rules
On 7 July 2015, section 42 of the Wills and Succession Law, Cap 195, which afforded an exemption from the Cyprus forced heirship rules to persons of British or Commonwealth origin, was abolished. The subsequent implementation of Brussels IV, however, means that despite this abolition of the right to testamentary freedom, citizens of an EU member states, including British citizens, who habitually reside but are not domiciled in Cyprus, may elect which law shall apply to their wills at the time of their death. They may elect the law of their domicile of origin, or the Cyprus law, as their place of habitual residence. British citizens living in Cyprus who already have a Cyprus will may execute and deposit with the Cyprus courts a codicil to their will, in which they may expressly elect that their estate (including Cyprus assets) be governed by English Law. This will dis-apply the Cyprus forced heirship provisions but will also disqualify them from the benefit of the Cyprus nil inheritance tax which they may otherwise have been entitled to. It is interesting to note that Brussels IV does not apply to trusts so a Cyprus trust formed under Cap 193 of the Cyprus Laws or a Cyprus International Trust formed under Law 69(I) of 1992 as amended, may provide an effective route for accessing the double benefit of circumvention of forced heirship and nil inheritance tax simultaneously.
By providing a streamlined procedure to elect jurisdiction and applicable succession law, Brussels IV constitutes an important advancement in the regulation of cross-border succession in an increasingly integrated Union. Persons who have an EU nationality, domicile or habitually reside in an EU state, should give careful consideration to how the Regulation impacts their existing or projected estate planning and review current arrangements so as to realise their testamentary wishes and maximise the devolution of inheritance. Advice from all relevant jurisdictions should be sought.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.