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Under English law, a testator has testamentary freedom. This means that a person making a Will is entitled to leave their estate to whomever they want. It is a fundamental right and one often confirmed in judgments by the courts in cases of dispute.
It may be a surprise to learn that other jurisdictions provide rules on how an estate should be distributed, often known as "forced heirship". One such example is France. French law sets out how a testator's estate should be passed down. In particular, the children of a deceased are always entitled to a fixed portion of any assets subject to French forced heirship provisions. If assets are not left in the correct proportions it is possible for disappointed heirs to claim compensation from the estate.
The French forced heirship principles are highly restrictive. It is therefore really important, if you are based in the UK but own French property, that you understand whether these forced heirship rules apply to you.
Until recently the analysis was relatively straightforward. By relying on a piece of legislation known as the EU Succession Regulation 650/2012 (Brussels IV) any UK national could elect within their Will for UK law to apply to the succession of their estate on death. This enabled UK nationals with property interests in France to override local forced heirship and leave French property to whom they wished in accordance with English testamentary freedom. This ability to override French forced heirship provisions can have Inheritance Tax (IHT) advantages in some instances. For example, rather than following French forced heirship by giving an interest in French property to children on death, UK national clients may prefer to use a Brussels IV election to leave their interest in French property to a surviving spouse (if they have one), as that secures the spousal exemption and defers any charge to IHT.
Unfortunately, a recent change in the French Civil Code (specifically, Article 913 of the Code) now means that in some instances a Brussels IV election by a UK national is no longer effective. More specifically, if the testator or any of his/her children is also a national of any EU State or is habitually resident in any EU State at the time of the testator's death, then the deceased's children will still be entitled to claim compensation in respect of a portion of the French assets. In essence, where such ties to any EU State exist, French forced heirship rules apply and a Brussels IV election will not alter the outcome.
For the avoidance of doubt, the change to the French Civil Code does not have any relevance if the owner of French property and his/her children are all habitually resident in the UK and are UK nationals only (i.e. without dual nationality to any EU State) and that is likely to continue to be the case until death.
Drafting testamentary documents on a cross border basis is complicated and requires specialist input to avoid unanticipated outcomes. For those that are dual nationals or who live in the EU, it would be sensible to review matters. For more information and advice, please get in touch with a member of the Private Wealth team.
