The impact of the EU Regulations on fiduciary advice in South Africa

Dec 4, 2020 | Article

December 1st, 2020

The increased tendency of South Africans to establish geographically diversified estates – whether as a result of cross-border travelling, studying, work or business opportunities – has complicated not only their own lives, but also those of their fiduciary advisers. Many potential complexities may arise when multiple jurisdictions are applicable during the planning process; one being the tension between freedom of testation and the principle of forced inheritance. In South Africa (SA) we possessively guard the right to give away property by way of a last will and testament, while the right to receive an inheritance is as important in many European jurisdictions. Another substantial difference between many jurisdictions is the concept of joint assets of a married couple.

Central to the fiduciary planning process is the law of succession and the consequences of the applicable matrimonial property regime. Various attempts have been made to unify or harmonise the substantive law and clarify the private international law principles. South Africa is one of the 44 contracting states to the Hague Convention on the Conflicts of Laws Relating to the Form of Testamentary Dispositions (www.hcch.net, accessed 9-11-2020), in terms of which a disposition by will shall be valid if its format complies with the internal law of the jurisdiction regulating at least one of the following connecting factors – situs of property, the place where the will was made, or where the testator had his last domicile or habitual residence. These factors are, however, not the only factors to consider, as further investigations are sometimes necessary to determine whether the relevant countries have different laws governing succession to moveable and immovable assets. Although other Hague Conventions followed, they still only produced treaties and have no legislative powers, with many jurisdictions never officially adopting the international agreements.

The European Union (EU), however, may promulgate regulations and directives for its member states, although individual member states may elect not to accept it. Two of the most recent attempts have dealt with the regulation of succession and matrimonial property matters. The EU Succession Regulation (also called Brussels IV) is aimed at the alleviation of some issues linked to succession in the EU and the need to govern a family’s worldwide estate by way of a single will, while the Council Regulation (EU) 2016/1103 of 24 June 2016 (EU Matrimonial Property Regulation) aims at providing international couples with more legal certainty regarding jurisdiction and the recognition and enforcement of property matters – also in the case of death. The fiduciary advisor should be aware of the potential impact of the succession-law concepts in an applicable jurisdiction, as well as international law, on their client achieving their wishes. The advisor should also consider the various administrative processes, such as the winding-up of the deceased estate, in different jurisdictions and how that interplays with the terms of the will or multiple wills. Some jurisdictions do not recognise the concept of formal estate administration by an executor, while others prescribe a very specific process.

EU Succession Regulation

The Regulation deals with aspects such as jurisdiction, recognition, enforcement, applicable law, the validity and admissibility of wills, and succession agreements. It also established the European Certificate of Succession, which enables individuals to prove their status and rights as beneficiaries and regulates the administration of certain estates in an EU jurisdiction. Certain aspects, such as in community of property-regimes, life insurances, pension plans, joint ownership and the creation, administration and dissolution of trusts, falls outside the scope of the Regulation.

The Succession Regulation applies to all deaths on or after 17 August 2015, aimed at simplifying it for EU citizens to deal with the legalities and consequences of multi-jurisdictional wills and succession matters. The Regulation, however, applies to any person who has property in an EU jurisdiction and not only EU citizens. Although the basic test applied to both movable and immovable property is that of last habitual residence of the deceased person, with only member states being guaranteed subsidiary jurisdiction, it is not limited to EU citizens and may have an effect on any testator with assets in at least one of the applicable EU countries (excluding Denmark, Ireland and the United Kingdom (UK)). As the Regulation applies to all persons with property situated in the EU, a South African national may specify in their will that South African law is to apply to their assets situated in an EU state. This election will prevent interpretive uncertainty and protect against forced heirship laws, which may be applicable in the particular EU state where the asset is situated. Where the deceased habitually resided outside the EU, the courts of a member state in which assets of the estate are located, will have jurisdiction to rule on the succession if the deceased had nationality of that member state or had their previous habitual residence in that member state. Although the general rule is that the jurisdiction whose succession laws apply, will also have the power to administer the estate of the deceased, the Regulation makes provision for a country to refuse application of the law that is incompatible with its own public policy.

EU Matrimonial Property Regulation

In terms of Regulations 2016/1103 and Council Regulation (EU) 2016/1104 of 24 June 2016, a competent court and rules regarding the determination of the national laws applicable in case of divorce or death, were established. These Regulations became operative on 29 January 2019 and adopt common rules on jurisdiction, applicable law and the recognition and enforcement of decisions in the area of the property regimes of international couples, covering both marriages and registered partnerships, in cases of death and divorce. Although it does not deal with succession matters per se, it does provide international couples with some legal certainty regarding jurisdiction and the recognition and enforcement of property matters, including prenuptial agreements drafted on or after 29 January 2019, in another EU country. Matters on the applicable law, apply to marriages concluded on or after 29 January 2019, except if the spouses have made a choice of law applicable to their matrimonial property regime before that date.

The Regulation makes provision for universal application in terms whereof the designated law applies, even if it is not the law of a member state, as well as the principle of unity of the applicable law. Spouses may, therefore, choose the law applicable to their matrimonial property regime, regardless of the nature or location of the property. They may elect any jurisdiction, even in a non-EU state, with which they have a close link, such as habitual residence or nationality. This principle of unity of the applicable law enables married couples to have their various related procedures handled by the courts of the same state. Advisors should encourage couples, where possible, to align their matrimonial property regime with their respective successions in accordance with the Succession Regulation.

Fiduciary practitioners in SA should take cognisance of these regulations, taking into consideration habitual residence, nationality and all other connections the spouses may have with any EU jurisdiction.

Conclusion

The Succession Regulation simplifies probate in cases of cross-border deceased estate administration and an executor in a non-member state will as a general rule be in a stronger position than they were before the introduction of the Regulation. The Regulation, unfortunately, only addresses this issue by way of a European Certificate of Succession, within the context of member states, and does not alleviate the difficulties experienced by practitioners in non-member states, like SA, in which case an Apostille certificate needs to be issued. To benefit from the Regulation the applicable choice of law should be clearly stated in each will, and preferably also the domicile and/or habitual residence of the testator. Drafters of wills must carefully consider the implication of revocation and/or variation clauses.

The Matrimonial Property Regulation provides common rules to apply to the marriages of international couples, and advisors should appreciate the potential advantages thereof at death of a client.

Dr Eben Nel BJuris LLM LLD (NMU) LLB (Unisa) PD Fin Planning (UFS) FPSA® is the Chairperson of the Fiduciary Institute of Southern Africa (FISA), Research Associate at Nelson Mandela University, advocate, and Fiduciary Adviser at PSG Trust in Port Elizabeth.

This article was first published in De Rebus in 2020 (Dec) DR 18.

Picture source: Gallo Images