Author: Nechay Anna, lawyer, certified trust and inheritance specialist, partner of Voropaev & Partners Law Firm.
In a globally interconnected world and in the conditions of the trend of increasing migration, many people have ties to foreign countries through the availability of housing or other real estate for vacation, conducting business from abroad, educating children abroad, getting married, acquiring second citizenship or its change, availability of bank accounts and investments in securities of foreign issuers and other property. When a person dies, his property passes to his heirs in the order of inheritance. The presence of the above-mentioned ties of the deceased person with foreign countries leads to “cross-border inheritance” (cross-border estate). And in such cases and in the absence of proper inheritance planning, the order of inheritance is determined by those states with which the testator had a certain relationship at the time of death.
Variety of legal regulation of cross-border inheritance
Cross-border inheritance – it is the sphere of legal relations that contain a foreign element or a connection with another state or states. Such legal relations are governed by the norms of international private (or conflict of law) law. Each state in the world has its own rules of private international law, which have developed depending on historical, political and cultural characteristics, as a result of which such rules have more differences among themselves than similarities, and usually do not offer a single fair solution in resolving conflict issues.
In matters of regulating the order of cross-border inheritance, all countries of the world according to the legal system can be conditionally divided into 3 groups, namely:
- Countries of common law (common law), which include such states as Great Britain, states that apply the law of England, Canada (except the province of Quebec), the United States of America (except the state of Louisiana) and others A key factor in determining the application of one’s own national rules to succession issues in common law jurisdictions is domicile, the concept and understanding of which is distinct from the concept of residence, as will be discussed below. The inheritance process is divided into two stages, namely the management (disposal) of the inherited property and the direct inheritance by the heirs. The management or disposition of the inherited property is carried out by executors or managers who are specified in the will of the testator or appointed by the court. Such executors (administrators) are entrusted with the duty of finding and establishing property that will constitute the inheritance for the payment of any debts, taxes or other obligations of the testator. If the inheritance property is sufficient to pay the obligations of the testator, the executors (administrators) are not obliged by law to find and establish any other property left after the death of the testator. The heirs inherit the assets of the deceased only after the management (disposition) of the inheritance is completed, which passes to them without debts. Most legal systems of common law are characterized by complete freedom of disposal of inherited property and the absence of the concept of forced inheritance regime or the presence of a mandatory share in the inheritance. However, there are exceptions (for example, Ireland).
- Countries of civil law (civil law), which include most of the countries of the European Union, Switzerland, Japan, China, Ukraine and many others. When deciding the application of their own rules of inheritance, such countries mainly proceed from the habitual residence (habitual residence) or the place of residence (residence). The deceased’s assets pass directly to his heirs after death. Implementation of inheritance rights is carried out through a notary public or a court. The heirs are responsible for the obligations of the testator with all their property, and not only within the limits of the inherited property. Civil law systems are characterized by the right to a mandatory share in inheritance for close relatives: children, parents, spouses or partners. In some countries, in particular in France, the right to a compulsory share in the inheritance goes beyond the inheritance left after death and also extends to gifts made to the deceased during his lifetime. In such systems, the heirs of the compulsory share have the right to inherit a fixed portion of all gifts and property of the deceased.
- Countries with a religion-based legal system such as Sharia (Saudi Arabia, Egypt, Iraq, Iran, Indonesia, Malaysia, Maldives, etc.) and Hindu Law (India). In legal systems based on religion, particularly Sharia law, a Shariah scholar is appointed after the testator’s death to advise on the distribution of property. Before the distribution of property to the heirs, the court determines the procedure for repayment of the testator’s debt. The distribution of the property constituting the inheritance directly depends on the religion of the deceased. According to Sharia law, heirs must be Muslims, inheritance by persons of other religions is not allowed. At the same time, it is possible to bequeath property to heirs of another religion in several countries with Sharia law, but not more than 1/3 of the inherited property. Men – male heirs inherit twice as much inheritance than women. In general, Sharia law can be considered as a form of forced inheritance.
There are also countries that have several systems. For example, the United Arab Emirates, which has both a civil law system and Sharia law. Another example – they are countries that combine some characteristics of both civil and common law, although their functioning at a fundamental level actually characterizes them as civil law systems rather than a third category. Such countries are quite often classified as countries of the Nordic legal system (Nordic legal system) and they are Finland, Denmark, Iceland, Norway and Sweden.
In addition to their own rules established by states on issues of cross-border inheritance, there are a small number of international treaties in the field of inheritance, which provide for unified (agreed) norms of private international law between states in accordance with the realities of cross-border traffic and the diversity of national norms of private international law.
Deserving special attention is the Inheritance Regulation (EU) 650/2012 [1], which entered into force on August 17, 2015 and is effective in many member states of the European Union. The EU Succession Regulation completely changed the landscape of private international law and introduced uniform rules in all member states. The implications of the Succession Provision are still being discovered and explored. However, as judicial practice already shows, the application of the rules established by the Succession Regulation is ambiguous, since each EU member state considers the Succession Regulation through the prism of its previous rules of private international law.
Also, different countries have a different approach to who can be an heir and have the right to receive an inheritance. Some countries restrict the right of illegitimate and/or adopted children to receive inheritance (Sharia law countries), some, on the contrary, recognize the right to inheritance of all children, including those who have not been recognized as a father, if blood relationship can be proven (France). The different approach of countries to the definition of marriage, partnership or similar relations, the diversity of the definition of the property of the spouses, depending on which country’s law will be applied to the inheritance, can either grant the right to the inheritance of the spouse/partner or, on the contrary, deprive such a right.
The inevitable result of this wide variety of approaches to the substantive law of succession in different legal systems is that upon the death of a person connected to one or more jurisdictions (whether through citizenship, domicile and/or habitual or permanent place of residence; or due to the ownership of assets in different jurisdictions), questions arise regarding the application of the law of one or another country to determine the process and procedure for the transfer of the deceased’s property to his heirs and who can be an heir depending on the requirements of the applicable law. Depending on which country’s law will be applied, the heirs can either receive more than they expected, or, on the contrary, be deprived of the right to inheritance.
Factors affecting the determination of applicable succession law
- Domicil, habitual residence and national status
In most cases, the decisive factor for determining the country whose inheritance law will be applied to the inheritance is the domicile, habitual residence or national status of the testator. And each legal system has its own procedure for determining these factors.
In general legal systems, domicile – it is an important connecting factor of many issues of personal law. Despite its importance, it is a vaguely defined and vague concept, it is often difficult to definitively determine a person’s domicile at any particular time. Domicile, as a concept, largely has a “mental” aspect. In other words, domicile indicates a person’s intention to be or remain associated with a certain country. It can be seen as a sense of belonging to a certain place. While the general concept is universally recognized in common law countries, the specific rules vary between them and between jurisdictions within them.
Habitual residence is a binding factor used by most civil law countries, as well as in international treaties in the field of inheritance and in the EU Inheritance Regulation. Habitual residence has some features in common with domicile, namely, a long-term connection with a particular country or jurisdiction that is more than the perhaps temporary connection that may be represented by mere residence. The main difference between domicile and habitual residence is the mental element inherent in domicile. Habitual residence, on the other hand, reflects a certain set of factual circumstances that are easier to identify and verify, but which may contradict a person’s own assessment of their relationship.
Nationality – it is a binding factor for the application of inheritance law, in particular, in the countries of South America and Japan. Nationality should be interpreted in the sense of legal relations between a person and an internationally recognized state as a whole, and not in the sense of any ethnic or regional affiliation within the state, in fact citizenship.
- Location of inherited property
The next important factor is the location (country) of the inherited property. In which country the property is located, this country will determine the country whose law should be applied to the order of inheritance (own or another country depending on the domicile, usual place of residence, nationality or religion of the testator).
While immovable property, as a rule, cannot raise any questions about the location of its location, the location of movable property, and especially intangible property, can be determined differently in different countries. Usually, the location of the property, the ownership of which is subject to registration, is considered to be the country of registration of such right (for example, registered securities, corporate rights, cars). Bank accounts are movable property, but it is important to understand in which financial institution they are registered. A separate issue with determining the location and order of inheritance of digital assets of the deceased (crypto-assets, funds in “wallets” on PayPal, Amazon platforms, etc.). Due to the lack of proper regulation of the inheritance of digital assets, in the absence of instructions or instructions from the testator in a will or other inheritance document for access to such assets, it is often impossible to register the ownership of digital assets after the death of the owner.
Let’s consider the situation using an example:
The citizen of Ukraine left due to the war and lives permanently in the UAE, does not plan to return. In addition to other property in Ukraine, he has a bank account in Switzerland and made a will in Switzerland. In the event of his death, Switzerland will consider the law of his country of residence as the applicable law of succession, i.e. the UAE. If a citizen of Ukraine is not a Muslim, and therefore has the right to dispose of his assets in case of death, then a will in Switzerland regarding the disposal of assets in a bank account will be recognized and executed in Switzerland. However, if the account holder is a Muslim, the Swiss court will most likely recognize Sharia law as the law of inheritance applicable in this case. Therefore, a Swiss will from such an account holder may not be of much value if it does not comply with UAE law.
Conclusion
Therefore, taking into account the complexity, diversity and complexity of cross-border inheritance, there is no single universal algorithm of actions that would be applied in every case when inheriting property located abroad. The only recommendation would be to contact lawyers or inheritance specialists, which are currently available in almost every country, if there is a need to resolve the issue of inheritance of property abroad. They will help not only with the technical implementation of inheritance, but also with the definition of inheritance strategy and tactics.
The list of such specialists is maintained by the Society of trust and estate practitioners at the link https:/ /www.step.org/directory/members
Get acquainted with the generalized rules of inheritance in countries – EU members can visit https://e-justice.europa.eu/517/EN /inheritance
In every case of cross-border inheritance, it is important to find out all the facts, in particular:
- whether the deceased has children from all previous and existing relationships;
- location of each asset;
- all historical and existing connections with other jurisdictions (regarding property, as well as residence, changes in citizenship, etc.);
- domicile, place of residence, citizenship of all key participants of the inheritance according to the legislation of the states that may be related to the inheritance;
- inheritance law and taxation that will apply in all relevant jurisdictions
[1] Regulation (EU) No. 650/2012 of the European Parliament and the Council of July 4, 2012 on jurisdiction, applicable law, recognition and enforcement of decisions, adoption and enforcement of authentic documents in inheritance cases and on the creation of a European certificate of succession (in the text of the article – Inheritance Provisions)