A holiday home in the south of France, a villa in Tuscany, an apartment above the sun-drenched streets of Barcelona. It sounds idyllic, so it's no surprise that the number of Australians buying property in Europe is on the rise. But after the owner has died, a European holiday home can go rapidly from heavenly to a headache in the context of administering the owner's estate.
Some of the most popular European holiday home locations (eg France, Italy, Spain and Germany) have systems of succession law which differ greatly from Australia; these countries have 'forced heirship' provisions, whereby a certain proportion of the estate has to be left to specified blood relatives of the deceased. Until recently, any real property owned by an Australian in these countries had to be distributed under the succession law of the relevant country – meaning that your beloved Parisienne flat might have to be sold and the proceeds divided up between your spouse and children.
On 17 August 2015 all that changed. From that date the European Union became subject to the EU Succession Regulation 650/2012 (the Regulation), which was introduced to simplify succession issues between member countries. The Regulation stipulates that a deceased person's estate is to be distributed under the succession law of the country "in which they were habitually resident", or, if specified in their Will, under the succession law of a country in which they held citizenship.
The Regulation removes a very complicated process of multiple Wills being proven under multiple systems throughout Europe. Under the Regulation, a German citizen who lived in Portugal and owned properties in Germany and Spain could elect under their Will to have their entire estate distributed under German succession law; their executors would apply for an 'EU Certificate of Inheritance' which would be valid in all relevant countries and the whole estate distributed pursuant to one Will.
As the Regulation was expressed to be universal, it means that any European property owned by an Australian citizen who is resident in Australia will be dealt with under Australian succession law. Australian Wills have been considered valid in most European countries since the 1961 Hague Conference Convention. That being the case, is it possible to include directions about your European holiday home in your Australian Will?
The answer is yes, but there is a catch. The practicalities of distributing the real property (such as transferring title, selling and distributing cash proceeds, etc) must all be conducted in the relevant country, under its own legal system. This means that any Will purporting to deal with assets overseas should be drafted with an eye to the way in which this process is managed in the country where the property is located.
For example, in 'civil law' countries (such as France, Italy and Germany) it is relatively uncommon to have a Will at all – due to the above mentioned forced heirship provisions – and where there is a Will generally assets vest directly in the beneficiaries; it is rare for an executor to be appointed, and there is no recognition of assets being 'held on trust'. Inheritance tax is increasingly high and the more distant a blood relationship a beneficiary has to the deceased, the more tax is payable.
An Australian Will appointing non-beneficiary executors who are to hold assets on behalf of underage beneficiaries will not only be difficult to negotiate under the systems of a civil law state, but may also have significant adverse tax implications.
Any Will purporting to deal with assets held in Europe will also need to be translated by a certified translator for the reference of any overseas officials – so a prudent strategy may be to create a separate, simple will relating to those particular European assets to reduce the inevitable time and expense of translating a lengthy document.
Whatever the eventual approach taken, if you are lucky enough to own a Swiss chalet or an apartment in Berlin, now is the right time to review any estate planning provision made for it, with a careful eye towards both the new Regulation and the processes under which such property must be dealt with in the country where it is situated.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.