Ask many estate planners in the U.S. about Brussels IV, and you are apt to get the response “Brussels for what?” While in effect since 2015, it is more unknown than known. In most circumstances, Brussels IV will not impact estate planning in the U.S. But if a U.S. citizen owns assets situated in the European Union (“EU”), Brussels IV can provide substantial benefits and should always be considered by the estate planner.
Brussels IV is the common name used to refer to Regulation (EU) No. 650/2012 of the European Parliament and the Council of the European Union. It is an extensive provision enacted in 2012 that is intended to address the substantial differences in laws of succession that apply among various EU member states. For instance, the different members of the EU have different forced heirship provisions. A decedent residing in one state with property in another may find forced heirship applying to the property in one country even though that concept is not applied, or is applied with different rules and property divisions, in his or her country of residence. A key aspect is that it provides a default mechanism for determining which laws will apply to the succession of a decedent’s assets in the EU and to allow one EU nation’s laws to apply to the succession of all of a decedent’s EU property. The default provision under Brussels IV is that the law applicable to the succession of a decedent’s property as a whole will be the country in which the deceased has his or her habitual residence at the time of death.
So what does this have to do with U.S. citizens? U.S. citizens with property in an EU country (especially real property and other physical property, but not necessarily limited to that) may find that such property is subject to forced heirship that defeats the intent of the owner and may create U.S. transfer tax issues. For example, if the owner desires to leave all assets to a surviving spouse, or to have a standard A/B trust division between a marital gift and a family trust to use unified credit, the assets in the EU country may have to pass to in part to children under a forced heirship regime. This can defeat both the desired disposition and result in estate taxes that could have been avoided through a larger marital deduction gift.
What Brussels IV allows is that a national of any country, even one outside of the EU, can elect to apply the succession law of his own nationality to property situated in the EU. Thus a U.S. citizen can elect to apply the law of a U.S. state to the succession of his or her property in the EU, even if the EU country in which the property is located has forced heirship laws that would force dispositions of some or all property to spouses and/or other family members in fixed shares. Therefore, estate planners with clients holding EU assets should give serious consideration to electing to apply U.S. state law to avoid EU forced heirship laws, and also avoid uncertainties about which country’s succession laws apply to which properties.
The election to apply U.S. state law goes beyond mere forced heirship planning. It can smooth the entire estate administration process, since the election of law of the national will result in having that law apply to all of these succession issues: (a) the causes, time and place of the opening of the succession; (b) the determination of the beneficiaries, of their respective shares and of the obligations which may be imposed on them by the deceased, and the determination of other succession rights, including the succession rights of the surviving spouse or partner; (c) the capacity to inherit; (d) disinheritance and disqualification by conduct; (e) the transfer to the heirs and, as the case may be, to the legatees of the assets, rights and obligations forming part of the estate, including the conditions and effects of the acceptance or waiver of the succession or of a legacy; (f) the powers of the heirs, the executors of the wills and other administrators of the estate, in particular as regards the sale of property and the payment of creditors; (g) liability for the debts under the succession; (h) the disposable part of the estate, the reserved shares and other restrictions on the disposal of property upon death as well as claims which persons close to the deceased may have against the estate or the heirs; (i) any obligation to restore or account for gifts, advancements or legacies when determining the shares of the different beneficiaries; and (j) the sharing-out of the estate.
The election is made via putting a provision to that effect in a testamentary document (usually a Last Will), although the election can be implied. There are provisions that deal with which state’s law (within the U.S.) can be elected, which is generally resolved by U.S. conflict of law provisions.
There are some provisos. First, there are a few EU member states that have elected out of Brussels IV. Therefore, a review and determination are needed in planning that the EU member state that holds the property has not elected out. Second, presently France has enacted domestic legislation that under some circumstances may override Brussels IV and allow its domestic succession law to nonetheless apply. Whether that law will be allowed to override Brussels IV will likely be an issue litigated in the EU at some point. Third, Brussels IV does not affect the taxing jurisdiction of the EU member states. Lastly, there is some uncertainty about how this interfaces with marital law. Therefore, a planner should consider consulting with local counsel to confirm Brussels IV will apply, and what local tax and other consequences and issues may arise.
Planners may also want to consider a boilerplate provision in their estate planning documents making the election to apply U.S. succession law (after discussion with their clients) as most U.S. nationals would likely want to apply the U.S. succession law in lieu of the EU member state law. Having such a provision will also cover the situation of the acquisition of EU property after the estate planning documents have been prepared.
