cross border estates notes on wills, and estates, with ... · "cross border estates"...

© 2003: All rights reserved to Thursfields and Gill Steel -This edition 23/3/2003 C:\Documents and Settings\jmorgan\Desktop\Client Guides\Cross Border Estates.doc Last printed 24/10/2005 10:25 by J Morgan

Cross Border Estates

Notes on Wills, and Estates, with assets in 2, or more, countries.

bcde Probate Tax & Trusts Department

this Client Guide. Visit our Web Site at thursfields.com

Guides. You should discuss this with us first. This Client Guide reflects Thursfields understanding of the law as at the date of this Guide. Thursfields acknowledge the assistance of Gill Steel (an independent Solicitor) in the preparation of

Please remember that legal, and taxation, matters are complex particularly those with a foreignelement and you should not take any action, or inaction, just from reading one of Thursfields' Client



Cross Border Estates Table of Contents Page Number

1 CROSS BORDER ESTATES - A MODERN PROBLEM?...................................................................................5

2 TERMINOLOGY.....................................................................................................................................................5

3 CONNECTING FACTORS....................................................................................................................................5

4 SCHISMATIC OR UNITARIAN SYSTEM OF SUCCESSION.............................................................................5

5 CONFLICT OF SUCCESSION LAWS..................................................................................................................6

6 RENVOI..................................................................................................................................................................6

7 FORCED HEIRSHIP..............................................................................................................................................6

8 INTERNATIONAL CONVENTIONS......................................................................................................................7

8.1 THE HAGUE CONVENTION XI ON CONFLICT OF LAWS RELATING TO THE FORM OF TESTAMENTARY DISPOSITIONS - OCT 1961.............................................................................................7

8.2 WASHINGTON CONVENTION ON INTERNATIONAL WILLS 1973 ............................................................7

8.3 TRUSTS - THE HAGUE CONVENTION ON THE LAW APPLICABLE TO TRUSTS AND ON THEIR RECOGNITION - JULY 1985 ...........................................................................................................................7

8.4 OTHER CONVENTIONS..................................................................................................................................8

9 WHICH LAW WILL GOVERN THE DEVOLUTION OF VARIOUS PARTS OF THE ESTATE? WHAT IS THE COMPETING "CONNECTING FACTORS" AFFECTING THE ESTATE?.........................................................8

9.1 WHEN IS ENGLISH LAW THE RELEVANT LAW? ........................................................................................9

9.2 WHEN IS FOREIGN LAW RELEVANT? .........................................................................................................9

10 MATRIMONIAL PROPERTY REGIMES ............................................................................................................10

10.1 FRANCE ..........................................................................................................................................................10

10.1.1 REGIME LEGAL .........................................................................................................................................11

10.1.2 ASSETS OF THE COMMUNAUTE...........................................................................................................11

10.2 SPAIN...............................................................................................................................................................11

10.2.1 SOCIEDAD DE GANANCIALES ...............................................................................................................11

10.2.2 SEPARACION DE BIENES .......................................................................................................................11

11 DO THE LAWS OF SUCCESSION IN THE VARIOUS JURISDICTIONS MATCH THE PROVISIONS OF THE WILL (IF THERE IS ONE)? .................................................................................................................................11

11.1 WHO ADMINISTERS THE' ESTATE?...........................................................................................................11

11.2 WHAT TYPE OF ASSETS AND LIABILITIES ARE WE DEALING WITH? WHERE ARE THEY SITUATED?..........................................................................................................................................................................12


11.2.1 EXAMPLE 1 ................................................................................................................................................12

11.2.2 EXAMPLE 2 ................................................................................................................................................12

11.3 OUR GENERAL RULES FOR ESTABLISHING THE "SITUS" OF ASSETS ARE:.....................................13

11.3.1 COMPANY SHARES AND SECURITIES.................................................................................................13

11.3.2 AN INTEREST IN LAND.............................................................................................................................13

11.3.3 CHATTELS .................................................................................................................................................13

11.3.4 THE GOODWILL OF A BUSINESS...........................................................................................................13

11.3.5 A PERSON'S INTEREST IN THE ESTATE OF A DECEASED PERSON..............................................13

11.3.6 THE LOCATION OF AN INTEREST UNDER A TRUST..........................................................................13

11.4 WHO ARE THE BENEFICIARIES?................................................................................................................13

11.5 WHAT ARE THE BENEFICIARIES' RIGHTS?..............................................................................................14

12 WILL WE NEED TO SEEK LOCAL (LEGAL OR OTHER PROFESSIONAL) HELP?.....................................14

12.1 IS THERE ONLY AN ENGLISH WILL?..........................................................................................................15

12.2 THE FOREIGN COUNTRY IS AFFECTED BY THE COLONIAL PROBATES ACT ..................................15

12.3 THE PROCEDURE THURSFIELDS WILL NEED TO FOLLOW (IN THE UK)............................................16

12.4 IS THERE A FOREIGN WILL AS WELL?......................................................................................................17

13 WHAT ARE THE TAXATION IMPLICATIONS?.................................................................................................17

13.1 WHEN TAX IS PAYABLE AND BY WHOM?.................................................................................................17

13.2 CAN DOUBLE TAXATION BE AVOIDED? ...................................................................................................18

14 YOUR “FINAL” CHECKLIST ...............................................................................................................................20

"Cross Border Estates" Notes on Wills, and Estates, with assets in 2 or more countries

1 Cross Border Estates - a modern problem? In these days of foreign travel it is now much more common for Clients to have assets in more than one country. This may be just a bank account (a moveable asset) but it could be a property (an immovable asset), even if this is just a "time share". What do you need to know about this? And what do you need to then do about this? This Client Guide is to draw some matters to your attention. It cannot, and is not intended to, go into detail about every country's legal system and how they inter-relate with the UK's legal system. 2 Terminology One of the aspects of dealing with estates containing a foreign twist is not just the alien nature of the laws that may apply but also the difficulty in communicating with the officials involved. We all cannot simply expect our lawyers abroad to know all we know about our UK legal system and to interpret the standard jargon of our world in the same way that we do. We all must make every effort to communicate in plain, clear words and if possible consider whether it would pay to have our communications translated at first at least until it is established whether it will be possible to communicate in a particular language with which all involved is comfortable. 3 Connecting factors Each country not only has it own internal legal system but also its own private international law. Each jurisdiction has a different means of connecting persons to their specific legal system: • Domicile - which is in England the country that a person treats as his permanent home to which he has the

closest legal attachment. A person cannot be without a domicile and cannot have two at once. It has a particular significance for (UK) Inheritance Tax (IHT) too.

Some other countries, such as France, also talk about domicile as being the connecting factor but it is not meant in the same way as in England. In France it is a residence test. Generally, residence for more than 6 months of the year creates a French domicile.

• Habitual Residence - is the place or country in which a person has his home. Habitual residence is

necessary in order to establish domicile. This is the effective connecting factor for France and also for Belgium and Denmark.

• Nationality - means allegiance to a sovereign state coupled with the right to look to that state for protection

whilst in a foreign state (this may be called citizenship). It may be acquired by birth or naturalisation. Spain, Portugal. Germany, Austria, the Netherlands and Italy use nationality as their connecting factor.

From this it will be apparent that in a particular case a variety of succession laws can apply to one person's estate as it is possible to be domiciled in one country, habitually resident in another at the time of death and a national of a third! Checkpoints ♦ What is your domicile; habitual residence and nationality? ♦ To which jurisdiction(s) are you connected? 4 Schismatic or unitarian system of succession Some countries adopt a schismatic system of succession, which means that they have one system for dealing with succession to movable property (i.e. personal (chattels) effects, bank accounts and the like) and another system for dealing with immovable property (i.e. land and things attached to land such as buildings). The UK does this as does France and Belgium. Other countries adopt a unitarian approach in that they have only one system of succession dealing with all property. So not only do we need to know which factor connects a person to a particular jurisdiction's succession law it will make a difference whether a particular country in which the deceased held assets operates a schismatic or a unitarian approach and how that particular country defines what is a movable and what is an immovable item.



Checkpoints ♦ What sort of assets have you got? ♦ Are they movable or immovable? ♦ Where are they located? 5 Conflict of Succession Laws If you die domiciled, habitually resident in and a national of England but owning immovable property in a foreign jurisdiction which adopts a schismatic approach to succession which would treat the law of the location in which the immovable asset is located as the appropriate law of succession then if it has a forced heirship system any rules applying to the rest of the deceased's estate would not apply to that particular property. Alternatively, Spain adopts a different approach and would say that English law would apply to the whole estate (but is there such a thing as "English" law?) Understanding this terminology and its application can avoid error and speed up progress for the beneficiaries of your estate. 6 Renvoi This is the doctrine whereby the courts of one country in certain circumstances apply the law of another country in resolving a legal dispute. A problem arises in private international law when one country's rule as to conflict of law refers a case back to the law of a foreign country, and the law of that country refers the case either back to the law of the first country (remission) or to the law of a third country (transmission). • Single renvoi - A judge in State W is referred by his own choice of law rules to the law of State X. The

choice of law rules of State X's private international law refers the issues back to the law of State W. The judge in State W accepts the remission and applies the internal law of State W.

• Renvoi to the second degree - If State X's choice of law rules refers the issue on to the law of State Y then

the State W judge could accept this transmission as requiring him to apply the internal law of State Y. • Double/total renvoi - English law adopts this third option. An English judge, when referred by choice of

law rules to the law of State X, can pretend that he is a judge in State X and apply whatever the law such a judge would apply if he were hearing the case.

7 Forced Heirship This is the system whereby the deceased may not freely dispose of part of his estate but instead specific heirs are entitled to a share in the estate under the law. Forced heirship can cause (unexpected) havoc. In France and Spain, a civil code specifies certain proportions of your estate pass to particular relatives irrespective of the provisions in any Will. Your best laid plans (for your Will) will change if you buy a property abroad, leave money in a foreign bank account to spend on holiday. Thursfields need to be told of your investment(s) abroad otherwise there can be a lot of disappointments. If a foreigner tries to avoid his nationality laws by buying English immovable and movable assets his beneficiary under a forced heirship jurisdiction may be able to take action in other jurisdictions that recognise, nationality law as the connecting factor against the persons who have inherited the English assets. Forced heirship rules permit a clawback of dissipated assets so it would not be a good idea for the actual recipient of the assets, which are the subject of such a claim, to invest in the forced heirship country within the period during which clawback claims can be made. There are very wide differences in the time period during which the clawback claim can be made in different jurisdictions but in France, the clawback period can be as long as 30 years and there is no statutory notice period system as with an English estate.


8 International Conventions Where the succession laws of a number of countries could apply to all or part of the deceased's estate and these laws are in conflict, in which jurisdiction the action is commenced will determine the outcome. The law under which the Will is executed could make a difference where acting quickly is important. For a Will to be effective in another country it will need to be proved in the country of origin which could delay matters. We are familiar with the requirements for a Will to be valid in England (it must be in writing and signed by or on behalf of the testator in the presence of 2 witnesses who themselves also sign and are present at the same time as the Will is signed or affirmed). There are 2 main conventions on the validity of Wills 8.1 The Hague Convention XI on Conflict of Laws relating to the form of testamentary dispositions - Oct

1961 This was brought into effect in the UK by the Wills Act 1963. It applies to Austria, Belgium, Croatia, Denmark, Finland, France, Germany, Greece, Japan, Luxembourg the Netherlands, Norway, Portugal, Slovenia, Spain, Sweden, Switzerland, and the UK. It has been signed by Italy and acceded to be Australia, Estonia, Ireland, Israel, Poland and Turkey. This convention provides that a Will is valid if it is executed in accordance with the internal law in force in any one of the following jurisdictions: ♦ the place where the Will was executed ♦ the place where the testator had his domicile either at the time the Will was made or at the time of his

death ♦ the place where the testator was habitually resident either at the time the Will was made or at the time

of his death ♦ the state of which the testator was a national at the time he made the Will or at the time of his death ♦ with respect to provisions of a Will relating to immovable property, the place where such property is

situated 8.2 Washington Convention on International Wills 1973 This convention provides that a Will is to be considered as valid as to form in all contracting states regardless of where it was made, the location of the assets or the nationality, domicile or residence of the testator provided: ♦ it is signed and acknowledged in the presence of 2 witnesses and ♦ authenticated by a third person qualified to make such authentication in the country concerned, who

makes an attestation in the prescribed form to the effect that the (1) document is the Will of the testator (2) Will is signed in the required manner and (3) testator understood the contents of the Will The Convention has been signed by Iran, Sierra Leone, the USA, Laos, Holy See, Belgium, Ecuador, the UK, France, the USSR and Czechoslovakia. It has been ratified by Ecuador, Belgium and France. Acceded to by Niger, Portugal, Canada (Manitoba and Newfoundland) Libyan, Arab, Jamahlriha, Yugoslavia, Cyprus, Italy, Slovenia and Bosnia-Herzegovina. 8.3 Trusts - The Hague Convention on the law applicable to trusts and on their recognition - July 1985 The Convention applies to trusts regardless of the date on which they were created, but by Article 4 it does not apply to 'preliminary issues relating to the validity of wills or other acts by virtue of which assets are transferred to the trustee'. It is therefore necessary to obtain a grant of representation before a trust in a Will can be enforced. The convention was incorporated into the law of the UK by the Recognition of Trusts Act 1987. It will therefore apply in most conflict of law cases whether or not the other country whose law is in conflict with ours has signed or ratified the Convention.


The Convention does not introduce the trust concept into the internal law of non-trust (law) States but does make non-trust (law) States recognise trusts and it establishes common g private international law rules on the law applicable to trusts. This is necessary as it is increasingly common for a testator in our country to die owning property in a non trust (law) State and make a fairly standard common law Will leaving all their estate on fixed or discretionary trusts. 8.4 Other Conventions For the succession to and administration of estates there have been two separate conventions but neither have been particularly successful. The UK Law Commission when asked to consider the Hague Administration of Estates convention concluded that its complexities made it impractical and not worthwhile implementing. 9 Which Law will govern the devolution of various parts of the estate? What is the competing "connecting

factors" affecting the Estate? The competing connecting factors in different legal systems are: • Domicile • Habitual residence • Nationality • Lex Situs (the law of the place where an asset is actually sited) It is not uncommon for a testator to die domiciled in State A (e.g. Ireland); habitually resident in State B (e.g. France) but a national of State C (e.g. Spain) with immovable property in State D (e.g. England). Four different laws of succession could then apply to the assets in the estate. The estate becomes complex because of the entanglement of the different jurisdictions that are themselves autonomous and not designed to interweave sensibly. Nor do the different advisers in each of the jurisdictions understand the rights and interests of the different parties, which the law of the different jurisdictions might provide for. Often it is the court in the forum in which property is situated which will ascertain the relevant connecting factor for succession to the assets in that location. One court in one forum may say nationality is the connecting factor while another will hold that habitual residence is the correct one. The question of which forum has jurisdiction to determine the dispute and to what extent such judgments may be recognised in, other jurisdictions is crucial. For example, English private international law might regard a question as one to be determined according to the law of France, but French private international law may regard that same question as one to be determined according to the law of England or some other country. In such a situation, we look to our private international law to decide whether our courts should refer the question simply to the internal law of France and determine it in accordance with that law; or, whether they should take account of the private international law of France, so applying some version of the doctrine of renvoi and allow themselves to be referred onwards to the internal law of some other place. Many jurisdictions differentiate between the legal and taxation treatment of movable and immovable assets. It is therefore important to know the domicile, habitual residence and nationality of the client; the location of his assets and their nature. From there, the practitioner will have to apply the relevant private international law which may be in conflict. The adviser needs to be clear for whom he is acting and what his duties are in relation to any particular set of assets or estate. He may then need to negotiate with his counterparts in other jurisdictions to further the position of the clients for whom he acts or to protect the assets of which he had control. As a last resort. if negotiation cannot reach a successful outcome, then proceedings may need to be brought in different jurisdictions. It is possible for the testator to choose the law which he wishes to govern questions of construction in his Will. Under the law in England and Wales, an English practitioner drawing up a Will for a person domiciled in England and Wales would normally include an express declaration that it is to be construed in accordance with English law if the Will covers foreign movables.


Thursfields do not recommend you to have too many Wills. Two will usually suffice (unless the client has substantial immovable assets in several countries):- • one Will should be confined to property located in that country • the other Will, in the country of the testator's domicile, should then relate to property situated everywhere

else. 9.1 When is English Law the Relevant Law? When the client dies domiciled in England and Wales: • English law applies to movables wherever situated unless situated in a country that does not recognise

domicile but habitual residence or nationality instead and the client was not habitually resident in England and Wales nor an English national.

• Immovables will be governed by English law if the asset is situated in England and Wales or if the country in which the property is situated applies a succession law based on habitual residence or nationality and the client is a habitually resident in England and Wales or an English national.

When the client does not die domiciled in England and Wales: • English law applies to immovables situated in England and Wales • The law of the client's last domicile will govern movables unless a foreign jurisdiction resolves a dispute

by applying the law of the testator's nationality or habitual residence that is different from his domicile. 9.2 When is Foreign Law relevant? To establish what a client's estate comprises of may depend upon a foreign law's treatment of different types of property such as:- • Matrimonial property - is it a communal property regime? • The existence of a joint tenancy over property and whether a foreign jurisdiction recognises this. • The existence of a trust and whether a foreign jurisdiction recognises trusts. • The personal status of the client, for example if adult, is s/he married, divorced etc and if a child, is s/he

adopted or legitimate in accordance with the foreign law. If the client dies domiciled in England and Wales:- • Foreign immovables will be governed by the foreign jurisdiction unless the foreign law bases its laws of

succession on nationality or habitual residence. • Foreign movables situated in a country which has habitual residence or nationality as the connecting

factor or which applies its domicile rules to find the client NOT domiciled in England and Wales will be subject to the succession rules of his habitual residence, nationality or domicile.

If the client dies NOT domiciled in England and Wales:- • English immovables will be governed by English law, foreign immovables will be governed by the law of

the country in which they are situated or the law of the deceased's nationality or habitual residence in jurisdictions which apply these rules.

• The law of the client's last domicile will govern movables unless there is a dispute adjudicated upon in a foreign location that applies the law of the client's last nationality or habitual residence and this differs from the client's last domicile.

See the table on the next page.


Client dies domiciled in England and Wales

Client does NOT die domiciled in England and Wales

English movables English law applies

Governed by the law of the client's last domicile unless there is a dispute adjudicated upon in a foreign jurisdiction which applies the law of the client's last nationality or habitual residence and this differs from the client's last domicile

English immovables

English law applies English law applies

Foreign movables

English law applies unless situated in a country which does not recognise domicile but habitual residence or nationality and the client was not habitually resident in England, and Wales nor an English national.

Governed by the law of the client's last domicile unless there is a dispute adjudicated upon in a foreign jurisdiction which applies the law of the client's last nationality or habitual residence and this differs from the client's last domicile

Foreign immovables

Foreign jurisdiction where items situated will govern unless the foreign law refers its succession laws to nationality or habitual residence and the client is habitually resident in England and Wales or an English National

Governed by the law of the country in which they are situated or law of nationality or habitual residence in jurisdictions so applying these as connecting factors

10 Matrimonial property regimes This is the system of law that applies in civil code countries which provides for community of property in marriage. 10.1 France In France, for example, the surviving spouse comes low in the pecking order of forced heirs and this is because the country adopts a system of community of property which applies first to determine exactly what property of the deceased falls within his/her estate on death and which portion belongs outright to the surviving spouse. When two people marry in France they opt for a particular method of settling the financial implications of their marriage. If they give no intimation as to what matrimonial system they wish to have applied to their possessions they are deemed to have opted for the regime legal, meaning the system laid down in Art. 1400 of the Civil Code. If they want to depart from this they have to devise their own customised settlement or adopt one of the choices in the Civil Code.


10.1.1 Regime legal This system restricts the joint ownership principle to goods acquired by the spouses during the marriage. The jointly-held property forms a patrimoine (totality of the assets and liabilities of a person the term estate does not fit the bill, because the notion of patrimoine is also often used outside the context of wills and successions, e.g. le patrimoine genetique {Genetical inheritance}), called la communaute, which is composed of an assets side (l'actif de la communaute) and of liabilities side (le passif de la communaute). 10.1.2 Assets of the communaute It consists of all such goods as are acquired by the spouses, either together or separately, in the course of their marriage, and which are the fruits of their efforts, as well as the income derived from their separately-owned goods. Art 1401 Civil Code. Each of the spouse has the right to manage the jointly-held property by himself, and has the right over them, but will be accounted to the other spouse for any errors committed in the course of managing the property. Those actions which have been made without any misrepresentation can be relied upon against the spouse: Art 1421 Civil Code. However, where either of the spouses exercises a profession separately from the other, that spouse has the sole right to take all such measures of management as are necessary for the performance of his or her professional activity. The liabilities of the communaute consists of all those debts which each of the spouses has incurred, for whatever reasons, in the course of their marriage. These debts may be claimed against the jointly-held property by the creditors. But the income and salary of the spouses will only be, able to be confiscated by the creditors once all provision for subsistence and for the children's education have been fulfilled. 10.2 Spain In Spain, questions relating to matrimonial property must be dealt with prior to determining rights under the law of succession in order to ascertain the extent of the disposable estate. 10.2.1 Sociedad de gananciales Assets acquired during the subsistence of the marriage are deemed owned jointly (even if the escritura de compraventa [the conveyance deed] is signed in the name of only one). 10.2.2 Separacion de bienes In this way assets acquired in contemplation of marriage or during the subsistence of marriage are separately owned. There must be a prior agreement that the assets are to be separated during the subsistence of the marriage, in default of which sociedad de gananciales applies. There are regional variations in Spain e.g. Catalonia or Galicia. 11 Do the Laws of Succession in the Various Jurisdictions Match the Provisions of the Will (if there is one)?

11.1 Who administers the' estate? In England and Wales this is either the Executors (where a deceased made a Will) or the Administrators (where there is no Will) or, it could be the Trustees of a Settlement. We tend to also use the phrase Personal Representatives, or PR's, to include both Executors or Administrators. The common law grant of probate is unknown in many civil law jurisdictions. In France and Spain they have no system of executorship and do not permit the creation of trusts although, where a trust is made by a non-domiciled person who subsequently becomes domiciled and dies in France, a French Judge would probably validate the trust unless it was very obviously created to violate that country's forced heirship rules. In civil law countries.. the title passes to the heirs and it is therefore down to these beneficiaries to ensure a Notaire attends to the legal and fiscal formalities.


Where no planning has been done and the deceased dies with assets held in his name in different countries, then the probate process, or its equivalent, must be concluded in each country. Many countries will not accept the original probate where the deceased was not domiciled or habitually resident there, so, nothing can be achieved until the initial process in the home jurisdiction has been completed. This leaves assets in limbo. With restricted access to those assets, the surviving family may have little control over them and be in financial difficulty, particularly where they were relying on the income from the investments on which to live. Timely decisions about reinvestment or sale may not be made leading to a risk of potentially large losses. The process can take several years. Checkpoint ♦ Who is responsible for administering the estate? 11.2 What type of assets and liabilities are we dealing with? Where are they situated? Are they immovable or movable assets? Where are they situated? How will the home jurisdiction treat them? 11.2.1 Example 1 If the client is domiciled in England and Wales but has a property and contents in France, a bank account in France as well as his main residence and all other assets in the United Kingdom then: • The French civil code applicable to the succession of property in France, will apply to the house in

France irrespective of any Will in the UK. • English law will apply to the English property and all movable assets wherever located because French

private international law states that the law of the last domicile applies to the succession of these types of assets and English law also says domicile is the relevant jurisdiction for movable property.

11.2.2 Example 2 An Englishman is married with 2 young children. The family have an English house, a villa in Mallorca (bought in joint names of the spouses), a Spanish bank account and other English movable assets. On the advice of the Spanish estate agent they make Spanish Wills leaving the Spanish assets to each other. They subsequently made English Wills leaving their estates to each other with substituted gifts to the children. The man unexpectedly dies of a heart attack when his children are both under 18. • The share in the Mallorca villa owned by the deceased passes under Spanish law. The spouse's

interest is retained and unaffected. It is a movable property and both English and Spanish law will say Spanish law applies.

• The English Will may have revoked the Spanish one unless the usual revocation clause is amended. A later English Will containing a revocation clause will revoke earlier Wills worldwide.

• The money in the Spanish bank account is movable property. Under English law it would be dealt with according to the law of the country of the deceased's last domicile at the time of death. Under Spanish law (article 9.8) succession on death is in accordance with the law of the deceased's nationality at the time of death irrespective of the nature of the deceased's assets and the country in which they are situated. There is, however, no such thing as "British" law. So, Article 12.2 needs to be considered. This Article says that "renvoi to a foreign law shall be made to its material law, without taking into account the renvoi which its rules of conflict may make to any other law which shall not be Spanish law". This conflict of laws can result in a vicious circle. The practical point is that Spanish movables are unlikely to be released by persons holding them unless they are released in accordance with Spanish law, even if the deceased was of British nationality.

• Despite the existence of Wills providing exclusively for the surviving spouse with only substitutions in favour of the children the forced heirship rules (see later) in Spain will apply to part of the deceased's estate.

Generally speaking. all interests in land rank as immovables, and this is true of land held on trusts for sale and also of interests in the future proceeds of sale (unless these are partnership assets) but once the property is sold, such interests are movables.


A mortgage is immovable but the mortgage debt itself is movable (unless, the law of the jurisdiction says otherwise). For United Kingdom IHT purposes, debt, are normally situated where the debtor resides. It is common under civil law systems for the assets and liabilities of the deceased to pass automatically on death to the heirs, with some countries granting their heirs the option of rejecting their inheritance. In Spain the liabilities of a deceased fall on the beneficiaries as soon as they agree to accept the benefits; whereas, in England it is the duty of the executors to settle all liabilities. So, accepting a gift in Spain means taking on the liability for the debts - in particular any unpaid taxes - the client must be wary of accepting a Spanish inheritance without being sure of all the potential liabilities. 11.3 Our general rules for establishing the "Situs" of assets are: 11.3.1 Company Shares and Securities Fall into three basic categories • Registered shares and securities are situated where they are registered. Shares and securities which are

transferable upon more than one register are situated where they would normally be dealt with in the ordinary course of business.

• Government securities are situated at the place of registration. • Bearer shares and securities, whether registered or not are situated where the share certificate is

physically located. 11.3.2 An interest in land is situated where the land itself is situated. 11.3.3 Chattels are situated wherever they happen to be physically located at the relevant time. 11.3.4 The goodwill of a business is situated in the country where the premises to which the goodwill is attached are situated. 11.3.5 A person's interest in the estate of a deceased person when the estate has yet to be administered, is situated in the country where the executors or administrators can be compelled to administer the estate i.e. at their place of residence. Where there are no PR's, then the interest is situate at the place where the administration would normally take place or is situate at the domicile of the deceased. 11.3.6 The location of an interest under a trust is dependent upon whether, under the law governing the trust, the beneficiary has a beneficial interest in the trust property or, whether under that law he has merely a right of resort to a court in order to compel the trustees to discharge the task imposed upon them. If the beneficiary is given a beneficial interest in the trust property, then his interest under the trust is located in the country where the trust property is situated. If the beneficiary is given a right of action against the trustees then his interest under the trust is located where the action may be brought, this is usually the trustees' place of residence. Reversionary interests are usually situated where the interest can be enforced and so would be enforceable in the country in which the trustees are resident. 11.4 Who are the beneficiaries? Forced heirship can cause havoc. In civil code countries the code specifies certain proportions of your estate pass to particular relatives irrespective of the provisions in any Will. The best-laid plans when you buy a property abroad or make a Will in England without telling Thursfields of a later investment abroad, can create a lot of disappointment.


For example, in the case of a second marriage, when the children of the first marriage have received their interest separately in say a trust made during the lifetime of the testator and are therefore not provided for in his Will; the second family may discover that the people entitled to share in the estate under the forced heirship rules are not just themselves but also the children of the first marriage. So the later children are not entitled to receive the estate in the same proportions as the testator had intended them to do so. For example, in Spain, if the deceased is survived by a spouse and children, then any immovable Spanish assets will pass one third to the children equally; one third will pass as directed by the deceased in any Will and one third will effectively pass in to a life interest for the spouse with the reversion going to any children. Checkpoints ♦ Who are the beneficiaries of any Wills, English or foreign? ♦ Are they the only beneficiaries to consider or are there any forced heirs? ♦ Are there any people who might be able to raise a claim in the UK (or indeed under any applicable

foreign law) that would entitle them to be considered in the estate? 11.5 What are the beneficiaries' rights? If a foreigner tries to avoid his nationality laws by buying English immovable and movable assets his beneficiary under a forced heirship jurisdiction may be able to take action in other jurisdictions that recognise nationality law as the connecting factor against the persons who have inherited the English assets. Forced heirship rules permit a clawback of dissipated assets for example, in Spain, if the deceased, intentionally or unintentionally omits to provide for a compulsory heir then: (a) if the omission is unintentional (i) if all the compulsory heirs have been excluded, then the Will is a complete nullity (ii) if only some of the compulsory heirs have been excluded, then the gifts to all the other beneficiaries

who are not compulsory heirs are void, except in the case of a gift to a surviving spouse, which is reduced only by such amounts as shall be necessary to give effect to the gifts to compulsory heirs.

(b) if the omission is intentional then only such parts of the Will as are illegal are severed and the rest of the Will may remain unaltered.

It would not be a good idea for the actual recipient of the assets, which are the subject of such a claim, to invest in the forced heirship country within the period during which clawback claims can be made. There are very wide differences in the time period during which the clawback claim can be made in different jurisdictions but in France, the clawback period can be as long as thirty years and there is no statutory notice system as with an English estate. Checkpoints ♦ What are the beneficiaries' rights, be they chosen or forced heirs? ♦ Who am I acting for? The estate? Any particular beneficiaries? Is there likely to be a conflict of interest

if I continue to act for "all"? 12 Will we need to seek local (legal or other professional) help? Where there is an interaction between English law and a foreign jurisdiction because you have established that. for example, there is immovable property situated in another country that applies a forced heirship system; then it is inevitable that some liaison will be required with a lawyer in the other country; not least because you, and Thursfields, will need to know about the application not only of succession laws but also local taxes. The rates of tax payable and the due dates will be important. Unless the assets are in a country to which the Colonial Probates Act applies (Colonial Probates Act 1992, the Colonial Probates Protected States and Mandated Territories Act 1927 and various orders in council made thereunder in particular the Colonial Probates Acts of 1992 and 1927 and various orders in council in particular the Colonial Probate Act application order of 1965) or in Scotland or Northern Ireland, it will usually be necessary to extract the grant in England and Wales first and then send it, usually with a scaled and certified copy of the will and grant to a local practitioner for a fresh grant of representation to issue in that country.


Since each country's requirements are different a local lawyer will have to advise on the nature of the documentation to be supplied and it is important to enquire as to any foreign death duties or other taxes that have to paid before the grant is issued. For example, in France in particular taxes have to be paid within 6 months if the deceased was a French resident or within 12 months in relation to assets in France if the deceased was not a French resident. Penalties follow at the rate of 0.75% of the sum due for each month the tax is delayed. 12.1 Is there only an English Will? • Is the English Will valid in England and will the other country accept it as a valid Will? The Hague

Convention will be relevant here. • It will be necessary to obtain a death certificate as usual but have it translated, notarised and legalised

with an Apostille (if necessary). • Some countries, such as Spain, have a central Wills Registry and you would need to check that there

was no later or other Will in that system which might affect what your Will had to say. This is where a local lawyer can help to clarify whether or not there is such a system; where the registry is located and what information they need in order to supply the answer to your request. In Spain you would need to send the translated, notarised and legalised death certificate to the Wills Registry in Madrid to obtain a certificate that there is no Spanish Will later than the English Will or details of any Spanish Will.

• Inevitably Thursfields will need to obtain probate of the English Will in England and produce sealed and certified copies of the English Will and Probate, translated, notarised and legalised, to the authorities and the local lawyer in any relevant foreign jurisdiction.

• This will mean that it is necessary to value the assets and produce the valuation if required. Valuations can be notoriously difficult to obtain unless the country has a system of "rating" valuation, like Italy, where all the land is "officially" valued and transactions proceed for tax purposes on this value, rather than on the market value. A local lawyer can advise how assets, particularly land, would be valued.

• It may be necessary to prepare powers of attorney in the foreign language on behalf of the beneficiaries in favour of someone in the foreign country (usually the local lawyer) which must be notarised by an English Notary otherwise beneficiaries will personally have to travel to those countries which have a forced heirship system to sign their acceptance of the inheritance. Again, advice on whether this is the operational arrangements in the foreign country will be required from the local lawyer in that country.

• In some countries, such as Spain, the local notary (and the Property Registrar, if there is any immovable property) will probably require a notarised certificate as to the entitlement of beneficiaries under English law. Any such certificate must be in the foreign language and legalised with the Apostille. The Beneficiaries (or their attorneys) sign to accept their inheritance before your counterpart notary, pay inheritance tax and register as the owners of any immovable property in the foreign country's Property Registry.

• If the executors of the English Will are not the beneficiaries (e.g. so for example the Executors are Partners in Thursfields) the executors must often sign a Notarial Deed of Renunciation of the foreign estate before the beneficiaries are able to accept the inheritance.

12.2 The foreign country is affected by the Colonial Probates Act If a grant has been taken out in a country to which the Colonial Probates Acts apply, the expense and inconvenience of taking out a fresh grant to deal with assets in England and Wales can be avoided and the grant taken out in the corresponding country will simply be resealed by a probate registry in England and Wales thereby constituting. the grantee the legal personal representative of the deceased's estate in this country. The reciprocal arrangements enable grants issued in England and Wales to be resealed in the country concerned. Generally they are the old commonwealth countries and the acts apply not withstanding that most have obtained their independence. Dicey & Morris in "The Conflict of Laws" say that "….. where the deceased died domiciled out of England, the court will make a grant in the first Instance to the person ... entitled to administer the estate by the law of the domicile" There is an exception to this practice operated by the Probate Registry stemming from the case of Re Goenaga [1949]. Non-contentious Probate Rule 30 says that except with the leave of the district judge or registrar, a grant will not be accepted for resealing in England and Wales unless it was made to one of the following people:-


(A) The person trusted with the administration of the estate by the court having jurisdiction at the place where the deceased died domiciled

(B) The person beneficially entitled to the estate by the law of the place where the deceased died domiciled, if more than one, then to such as the district judge or registrar may direct

(C) In the case of a Will in the English or Welsh language and valid under the Wills Act 1963, the executor named in the will or whatever the language of the will the person named therein whose duties are sufficient to constitute him an executor according to the tenor of the will

Where a person dies domiciled outside England and Wales the most usual route adopted will be under A or B above. There will be few occasions where C is used and if it is then care is needed in case it results in the wrong people being authorised in England to administer the estate. There could be a problem if any acts of administration are done by those so authorised when they should not have been entitled to so act under the laws of the domicile. So Thursfields will need to ask whether their acts void or voidable under s.27 Administration of Estates Act 1925? A grant will not be acceptable for resealing if it is limited to estate outside England and Wales. If it is limited in any other way or is in any way temporary in nature it can only be resealed with the leave of the district judge or registrar. The application should be made by the person to whom the grant was made or by someone authorised in writing by the grantee to apply on the grantee's behalf (Non-contentious Practice Rule 39 1987). If the grant was to more than one person, all the grantees should join in the application or authorisation but if this is not possible, the written consent of those who have not done so should be lodged or sufficient reason provided, for example the grantee in question has died. 12.3 The Procedure Thursfields will need to follow (in the UK) • The Inland Revenue Account must be lodged within 12 months of the date of death or a penalty will be

imposed. This "Account" now consists of (from the 14th of February 2000) for these kinds of estates:- ♦ Form IHT 200 ♦ Form IHT (WS) for the IHT calculations ♦ Possibly extra Sheet D2 (where domicile is claimed outside the UK) ♦ Extra Sheet D15 (for Foreign Assets) ♦ Probably extra sheets to cover personal effects and so on (there are 17 in total including the 3

mentioned here) ♦ Extra Sheet D18 (formerly P26A) for the Probate Summary

• Any IHT due must be paid (this must be paid within 6 months of the date of death or interest will be charged on the IHT).

• The original grant or a duplicate sealed by the issuing court or a certified copy lodged at the Probate Registry

• If a certified copy is in fact an exemplification and does not include a copy of the will to which the grant relates, a copy of the will certified as correct by the issuing court must also be lodged

• A plain copy of the grant and of the will is required by the Probate Registry • Where the application is by someone on behalf of the grantee, the power of attorney or other

document authorising that person to apply must be lodged together with a copy for the court to retain (the original will be returned)

• A cheque for the Probate Court fees The Probate Registrar or District Judge will send notice of the resealing to the court that issued the grant. So long as a deceased dies domiciled in either England and Wales; Scotland; or Northern Ireland a grant taken out in any of the three jurisdictions will be recognised in the other parts of the United Kingdom without any need for further formality as long as it contains a note of his domicile. Scottish confirmation is the equivalent of a grant of representation. It includes an inventory of the assets which representatives are authorised to deal with in the estate. Scottish courts will also issue, if requested to do so, certificates of confirmation to show that specific items in the estate are included. If the confirmation or certificate


shows that the executives are executor nominate [which is the equivalent to English executors] it will be treated as a grant of probate; otherwise it will be treated as a grant of administration: section 1 (2), Administration of Estates Act 1971. No chain of representation can operate when the executors nominate dies. If a. person dies domiciled in Northern Ireland a grant of Probate or Letters of Administration issued from Northern Ireland and noting his domicile in Northern Ireland will be treated as if it is issued in England and Wales and have the same effect in Scotland as if confirmation had issued there to the grantee. Unlike Scotland a chain of representation can arise through a Northern Ireland grant of probate. 12.4 Is there a foreign Will as well? If the deceased died domiciled in England and Wales but with assets situated in another country there may be a separate "foreign will" to deal with the assets in the foreign jurisdiction. In which case a local practitioner should be instructed straight away to put in hand the appropriate steps for establishing title to those assets. 13 What are the taxation implications? Insufficient planning can result in there being a taxable estate in more than one country, which could result in: • Tax liabilities in different jurisdictions • An element of double taxation if there is no appropriate double tax agreement between the different

jurisdictions • Increased taxes as different localities may tax an event in different ways • Increased professional fees to sort out the muddle 13.1 When tax is payable and by whom? A person who dies domiciled in England and Wales will find that English IHT will apply to his worldwide assets subject to the fact that the law of the country in which it is in fact situated may also govern foreign immovable property. It is the duty of the deceased's PR's to identify all the assets in the estate and to pay the liabilities, i.e. the tax that falls on the estate as a result of a deceased's death. Lifetime gifts within (at least) the previous seven (7) years prior to death have to be taken into account and can affect the amount of tax due. However, in a different country, such as Spain, the tax liability on the value of the estate does not lie with any PR's but instead falls on the individual beneficiaries and is calculated by reference to both their proximity in relationship to the deceased and the value of their own independent estate. When an individual dies they may have interests in different relationships. For example, under English law, a partnership is the relationship that exists between individuals, or companies, who carry on business in common with a view to profit but a partnership has no distinct legal personality apart from its members; whereas, a company has a separate legal identity distinct from its shareholders. Although a domicile of a company is of no particular relevance in the UK, in other countries it may be relevant. A trust is a common law country concept that is not understood in civil code jurisdictions. It is therefore important to identify what individual interests are parts of the estate and whether those interests are recognised in other jurisdictions that may have an effect upon the succession to them in different jurisdictions. In the UK domicile is the most important tax concept. You can have:- • A domicile of birth (or origin) which is a concept of the general law whereby at birth an individual

acquires the domicile of origin which corresponds with that of the individual's father at that time. If there is no existing father, then the child takes the domicile of the mother. It is hard to dislodge a domicile of birth (origin).

• A domicile of choice - is acquired in another country if the individual resides in that country and resides there with the intention of remaining there permanently or indefinitely. A burden of proof of any change of domicile rests on the person claiming the change who must show that the domicile of origin has been abandoned and a new domicile of choice has been acquired.


• Deemed domicile - for UK IHT purposes only - if either of the following tests are satisfied then the individual is deemed to be domiciled in the UK:

(1) If he was domiciled in the UK as a matter of general law within the three years immediately preceding the time of the chargeable event (e.g. death);

(2) If he was resident in the UK in not less than 17 of the 20 years of assessment ending with the year of assessment in which a chargeable event takes place - it is this second limb which can catch out the long term UK resident who would not otherwise under the general law be domiciled in the UK.

13.2 Can double taxation be avoided? Double taxation relief will usually be available where there is a charge to tax in the UK and at the same time a charge to tax in an overseas jurisdiction. Relief will either be in accordance with the terms of a double tax agreement between the UK and the other country or by unilateral relief. Unilateral relief is given by way of a credit against UK taxation for overseas tax paid or imposed in respect of a disposition or event. For IHT purposes, the UK is party to double tax agreements with France India Ireland Italy The Netherlands Pakistan South Africa Sweden Switzerland and USA In any case where a double tax agreement may affect a situation then there is no alternative but to refer to the wording of the particular agreement. Where relief can be given both under a double tax treaty and by the application of unilateral relief, then the estate can claim whichever will give the greatest relief. For IHT purposes, unilateral relief is given by way of a credit for the amount of any overseas tax imposed which is attributable to the value of any property provided that: • The overseas tax is similar to IHT or is chargeable on or by reference to either death or as a gift; and • IHT chargeable on the disposition is also attributable to the value of the same property in respect of

which the overseas tax is charged. Where the property is located abroad, the credit is an amount equal to the overseas tax. This relief is limited to the maximum amount of M which would have been charged in the circumstances. If the transfer is partly exempt from IHT (e.g. to share between widow and children) the whole of the overseas tax is relieved against IHT on the chargeable part. Where the situs of the property is:- • neither in the UK nor in the particular overseas jurisdiction; or • situated in both the UK and the overseas territory the credit given by the Inland Revenue is calculated in accordance with the following formula:

A A ÷ B

x C

Where:- • A is the amount of UK IHT • B is the overseas tax and • C is whichever of A and B is the smaller.


Before granting relief the Revenue usually require evidence that the overseas tax has been paid by the person liable to pay it. With capital gains tax, relief can be obtained either by claiming unilateral relief or under a double tax agreement with the relevant country. In addition, if a capital gain has been either rolled over or held over it may not be possible to claim unilateral relief (because any CGT subsequently becoming payable will not be computed by reference to the same gain to which the overseas tax relates) and so foreign tax paid by the person making the disposal is allowable as a deduction in computing the UK chargeable gain. This can be useful if there is a loss for UK CGT purposes or where the capital gain has been deferred e.g. through reinvestment relief Checkpoints ♦ Which taxes apply? ♦ Who is responsible for paying them? ♦ What are the key dates to observe? ♦ Can double taxation be avoided?

14 Your “final” checklist 1. What are the deceased's domicile; habitual residence and nationality? 2. To which jurisdictions are the deceased connected? 3. What sort of assets has are there? Are they movable or immovable? Where are they located? 4. To what will English law relate? 5. When is a foreign law relevant? 6. Who is responsible for administering the estate? 7. Who are the beneficiaries? Are they chosen or "forced"? 8. What are the beneficiaries' rights? 9. Who are Thursfields acting for? 10. Do I need to seek local help? 11. Which taxes apply? 12. Who is responsible for paying them? 13. What are the key dates to observe? 14. Can double taxation be avoided? 15. Are any disputes likely? 16. If so, where would be the appropriate or likely jurisdiction in which to promulgate them?

Please remember that legal, and taxation, matters are complex particularly those with a foreign elementand you should not take any action, or inaction, just from reading one of Thursfields' Client Guides. You should discuss this with us first.

This Client Guide reflects Thursfields understanding of the law as at the date of this Guide.

Thursfields acknowledge the assistance of Gill Steel (an independent Solicitor) in the preparation of this Client Guide.
