Cindy D. Brittain, Partner, Katten Muchin Rosenman, Los Angeles Anne Guichard, Legal Specialist, De Buhren Montes Bigot Guichard Lucas Maudet, Paris

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A EU Succession Regulation: Estate Planning Risks and Opportunities for U.S. Taxpayers Owning EU-Sitused Assets Brussels IV Habitual Residence Standard; Structuring Estate Documents to Incorporate Choice of Law Election TUESDAY, NOVEMBER 20, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Cindy D. Brittain, Partner, Katten Muchin Rosenman, Los Angeles Anne Guichard, Legal Specialist, De Buhren Montes Bigot Guichard Lucas Maudet, Paris The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 1. NOTE: If you are seeking CPE credit, you must listen via your computer phone listening is no longer permitted.

2 Tips for Optimal Quality FOR LIVE EVENT ONLY Sound Quality If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory, you may listen via the phone: dial and enter your PIN when prompted. Otherwise, please send us a chat or sound@straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. NOTE: If you are seeking CPE credit, you must listen via your computer phone listening is no longer permitted. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.

3 Continuing Education Credits FOR LIVE EVENT ONLY In order for us to process your continuing education credit, you must confirm your participation in this webinar by completing and submitting the Attendance Affirmation/Evaluation after the webinar. A link to the Attendance Affirmation/Evaluation will be in the thank you that you will receive immediately following the program. For additional information about continuing education, call us at ext. 2.

4 Program Materials FOR LIVE EVENT ONLY If you have not printed the conference materials for this program, please complete the following steps: Click on the ^ symbol next to Conference Materials in the middle of the lefthand column on your screen. Click on the tab labeled Handouts that appears, and there you will see a PDF of the slides for today's program. Double click on the PDF and a separate page will open. Print the slides by clicking on the printer icon.

5 Estate Planning Risks and Opportunities for U.S. Taxpayers Owning EU-Situated Assets

6

7 EU Regulation Overview The EU: 500 MILLION PEOPLE- 28 COUNTRIES (before Brexit becomes effective) Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the UK. 7

8 EU Regulation Overview REGULATION (EU) No 650/2012 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 4 July 2012 on - jurisdiction, - applicable law, - recognition and enforcement of decisions and acceptance and enforcement of authentic instruments in matters of succession - On the creation of a European Certificate of Succession 8

9 EU Regulation Overview EU Regulation ( also sometimes referred to as BRUSSELS IV) DOES NOT COVER: - Trusts and their recognition : Hague Convention dated 1 st of July 1985 ( Each EU State is free to ratify or not this Hague Convention. The status of each EU county has to be checked: FRANCE and GERMANY have not ratified. On the contrary Italy has. - Taxation of international Estates. Each EU State has its own rules and its own Tax treaty nexus. France has a Tax treaty with the US on successions and gifts (mandatory in France). 9

10 EU Regulation Overview - 83 non binding recitals and 84 binding articles - in 24 languages - Vocabulary tips: 10

11 EU Regulation Overview - Common jurisdiction and Conflict of Laws rules for international successions in 25 European Countries (EU with the exception of the UK; Ireland and Denmark) - When death occurred after 16 August 2015 (before each EU Country has its own Conflict of Law rules). - Common construction of the Regulation under the European Court of Justice. - Importance of last habitual residence and professio juris. 11

12 EU Regulation Overview JURISDICTION Last habitual residence is in a Member State: Principle: courts of the Member State of the last habitual residence Exception: Courts of the Member State which Law has been chosen by deceased to govern the Estate. 12

13 EU Regulation Overview JURISDICTION Last habitual residence is not in a Member State: Courts of a Member State have jurisdiction on whole estate: - if assets located in that Member State AND - the deceased was a national of that Member State at the time of death or, failing that - previous habitual residence in that Member State (but less than 5 years between court is seized and change of habitual residence) 13

14 EU Regulation Overview JURISDICTION When no Court of a Member State has jurisdiction on the whole Estate, Court of a Member State in which assets of the Estate are located has jurisdiction on these assets. BUT when the Law of a Member State has been chosen by the deceased, the Courts of that Member State have jurisdiction (with some conditions). 14

15 EU Regulation Overview JURISDICTION - Forum necessitatis - Limitation of proceedings 15

16

17 EU Regulation Overview CONFLICT OF LAW RULES The whole succession is governed by the domestic Law chosen by the future deceased when a valid election of applicable law has been made. Only the Law of a nationality of the deceased can be chosen. Professio juris. When no choice of domestic Law was made, the whole succession is governed by the Law of the State in which the deceased had his habitual residence at the time of death. In exceptional circumstances, the Law of a State which is more closely connected to the deceased may apply. 17

18 EU Regulation Overview CONFLICT OF LAW RULES Correcting factors: Renvoi: No renvoi when Law of more closely connected State No renvoi when there is a professio juris No renvoi when the Law of the habitual residence is in Member State Renvoi only when the last habitual residence is in a Third State and its Law including its Choice of Laws rule make a renvoi to: the Law of a Member State, or the Law of another Third State which would apply its own Law 18

19 Election of national Law If Yes: No renvoi If No EU Regulation Overview CONFLICT OF LAW RULES Last habitual residence (HR) In exceptionnal circumstances: domestic law of the more closely connected State: no renvoi. In a Member State: domestic Law of HR In a Third State : Conflict of Law Rules of Third State Refer to the Law of a Member State: domestic Law of that Member State Refer to the Law of a Second Third State that would apply its own domestic Law: domestic Law of that second Third State Otherwise: domestic of the first Third State=domestic Law of HR 19

20 US citizen habitually resident in the US $ in France in the US in Hong Kong Valid election of US Law No election of US Law EU Regulation Overview CONFLICT OF LAW RULES No renvoi. US domestic Law applies to all assets whatever nature and wherever situated Last habitual residence USA = Third State No exceptionnal circumstances US Conflict of Law rules: - Real estate: lex situs= law of the place of situation - Movable assets: Law of the last domicile in France France is a Member State. Renvoi accepted. French domestic Law applies. in Hong Kong Hong Kong is a second Third State which would also apply Hong Kong Law to real estate situated in Hong Kong. Renvoi is accepted. Hong Kong domestic Law applies in the US and $ No Renvoi US domestic Law applies 20

21 EU Regulation Overview CONFLICT OF LAW RULES Correcting factors: - Public Policy of the forum and fraud - Special rules imposing restrictions concerning or affecting the succession in respect of certain assets 21

22 EU Regulation Overview CONFLICT OF LAW RULES - A unique connecting factor : no distinction between categories of assets, Estate treated as a whole (except in certain renvoi situations) - Same connecting factor (last habitual residence) to determine jurisdiction and applicable Law. Consequence: in most cases jurisdiction and applicable Law will concur. The court having jurisdiction will apply its own Law - Tool for planning : professio juris and giving maximum effects to succession agreements - New instrument: European Certificate of Succession 22

23 FOCUS ON PRACTICAL ISSUES Choice of law/habitual residence Documentation and other practical issues in estate administration International public order/forced heirship Trusts 23

24 FOCUS ON PRACTICAL ISSUES CHOICE OF US LAW Mrs A is a dual French/US citizen habitually resident in Rome. She owns real estate in the US (in California and New York), in Italy (Rome), in France (Saint-Tropez). For multiple reasons she does not want Italian Law to apply to her Estate. How would you draft the clause of her Will in which she chooses US Law? What happens if she does not elect for the relevant territorial unit? What happens if she has no connection with the US? (Mrs A has never lived in the US and has not assets there) 24

25 FOCUS ON PRACTICAL ISSUES CHOICE OF US LAW 1st step: article 22 of the EU Regulation : «A person may choose as the law to govern his succession as a whole the law of the State whose nationality he possesses at the time of making the choice or at the time of death. A person possessing multiple nationalities may choose the law of any of the States whose nationality he possesses at the time of making the choice or at the time of death. ( ) It is possible for Mrs A to elect in her Will for US Law to apply to her whole Estate, even if she is also a French citizen. The choice shall be made expressly in a declaration in the form of a disposition of property upon death or shall be demonstrated by the terms of such a disposition. disposition of property upon death means a will, a joint will or an agreement as to succession. A WILL is the best instrument to elect for the law of nationality to apply to the whole Estate. 25

26 FOCUS ON PRACTICAL ISSUES CHOICE OF US LAW 2 nd step: article 36 of the EU Regulation: States with more than one legal system territorial conflicts of laws 1. Where the law specified by this Regulation is that of a State which comprises several territorial units each of which has its own rules of law in respect of succession, the internal conflict-of-laws rules of that State shall determine the relevant territorial unit whose rules of law are to apply. 2. In the absence of such internal conflict-of-laws rules: (a)any reference to the law of the State referred to in paragraph 1 shall, for the purposes of determining the law applicable pursuant to provisions referring to the habitual residence of the deceased, be construed as referring to the law of the territorial unit in which the deceased had his habitual residence at the time of death; (b) any reference to the law of the State referred to in paragraph 1 shall, for the purposes of determining the law applicable pursuant to provisions referring to the nationality of the deceased, be construed as referring to the law of the territorial unit with which the deceased had the closest connection;( ) 26

27 2 nd step: article 36 of the EU Regulation: The United States of America falls under article 36. FOCUS ON PRACTICAL ISSUES CHOICE OF US LAW Is there a federal rule which shall determine the relevant territorial unit (New York Law, Californian Law.) which rules of law are to apply? If yes, it must be applied. If not, it is question of determining with which US State Mrs A is most closely connected and it would only be possible to elect for the Law of this most closely connected State. It can be an extremely difficult task as : - The EU regulation does not say on which date to assess the closest connection ( time of the execution of the Will, time of death?) - The EU Regulation does not say how to assess a connection (assets, personal relationship ) - The EU Regulation does not say what is the sanction if the wrong choice is made. - There is no EU case law at the moment on this question. 27

28 FOCUS ON PRACTICAL ISSUES CHOICE OF US LAW 3 rd step: TIPS - Choice of Law under EU regulation is not a choice of Law for the Will such as the Will is governed by the Law of California - Choice of Law under EU regulation should always first say that the testator is a US national and elects for the Law of his nationality to his whole Estate, and then explain which US State is the most closely connected with the testator and elect for the Law of that State. If there are doubts on the most closely connected State, make sure the testator expresses what he/she wants. - Decide whether you want an election of domestic Law for the whole Estate or if you prefer to have a renvoi situation (in simple cases, it will be easier and cheaper to have French Law apply to the real Estate) - Avoid to elect US Law if the testator has no or nearly no connection with a US State. - ALWAYS PUT IN PLACE AN INTERNATIONAL TEAM to deal with international estates. - OF COURSE ELECTION OF APPLICABLE LAW UNDER THE EU REGULATION is not an election of where IHT will have to be paid! 28

29 FOCUS ON PRACTICAL ISSUES APPLYING COMMON LAW IN A CIVIL LAW JURISDICTION Mrs B is a US citizen habitually resident in the US. She has a US Will executed prior to August 2015 made in accordance with the Law of the US (deemed choice of Law article 83.4). She is habitually resident in California. She owns real estate in the US (in California and New York), and in France. In her Will, she appoints an executor with powers to sell the real estate property and pay the proceeds to a charity. She leaves nephew and nieces in France. a/ Are there difficulties to expect? What are the documents you will require to allow the executor to sale the real estate property? b/ same question but Mrs A. is habitually resident in France and leaves no assets in the US. 29

30 FOCUS ON PRACTICAL ISSUES APPLYING COMMON LAW IN A CIVIL LAW JURISDICTION 1/ Valid choice of Law for US Law (be careful for Wills drafted before August 2015) 2/ Californian Law or New York Law? 3/ difficulties with the Civil Law systems such as French Law. 4/ In French law of successions, there is no administration of the Estate, the legal heirs (here nephews and nieces) become the owners of the assets of the estate on the time of death and also become liable to pay the debts on their personal wealth (with some exceptions). Nephew and nieces are in charge of distributing assets to legatees. Executors have very limited powers. 5/ BUT according to EU Regulation, US (California?) Law still applies to the Estate. The French lawyers will require a very extensive legal opinion on how Californian Law settles the Estate, the powers of the executor and personal representatives. Certified and apostilled copies of the US Estate documents For a few French lawyers and if there is a conflict an exequatur will be needed. 30

31 FOCUS ON PRACTICAL ISSUES APPLYING COMMON LAW IN A CIVIL LAW JURISDICTION 6/ Tax issues with the charities and also for capital gain purposes? 7/ if no connection with the US, then there won t be any letters of administration in California. It will then be very difficult. French courts (they have jurisdiction if she was habitually resident in France) will have to be seized and legal onions provided to the French court to explain what authorization they are to grant under Californian Law. 8/ TIP: USE AN INTERNATIONAL TEAM of LAWYER. Might be more effective here to have a direct bequest to an equivalent French charity. 31

32 FOCUS ON PRACTICAL ISSUES CHOICE OF US LAW, FRENCH FORCED HEIRSHIP RULES AND PUBLIC ORDER Mrs C is a US citizen, died aged 75, habitually resident in California. She owned real Estate in France. She has validly elected for the Law of California to apply to her Estate. In her Californian Will, she has left most of her Estate including the real estate in France to her husband aged 35. Her children who live in France are extremely unhappy. Do they have a chance of success in French courts? 32

33 US citizen habitually resident in California (closest connection with California) in France Other assets in California Valid election of Californian Law No election of Law FOCUS ON PRACTICAL ISSUES CHOICE OF US LAW, FRENCH FORCED HEIRSHIP RULES AND PUBLIC ORDER No renvoi. US domestic Law applies to all assets whatever nature and wherever situated. Complete testamentary freedom. Assets includind real estate in France can be transferred to the husband, unless French forced heirship rules are public order rules under EU Regulation. Last habitual residence USA = Third State No exceptionnal circumstances US Conflict of Law rules: - Real estate: lex situs= law of the place of situation - Movable assets: Law of the last domicile in France Renvoi accepted. French domestic Law applies to French real estate and children benefit from French domestic forced heirship rule and are entitled to at least a compensation in cash. Other assets in California. Californian Law applies. Complete testamentary freedom. 33

34 FOCUS ON PRACTICAL ISSUES CHOICE OF US LAW, FRENCH FORCED HEIRSHIP RULES AND PUBLIC ORDER French courts have jurisdiction at least on French situated assets Article 35 of EU Regulation Public policy : The application of a provision of the law of any State specified by this Regulation may be refused only if such application is manifestly incompatible with the public policy of the forum. The question then becomes whether French forced heirship rules are public order rules in an international situation. Cass. civ. 1re, 27 September 2017: A Foreign Law which does not provide for forced heirship rule is not as a principle incompatible with French public order and should not in principle be put aside, unless this foreign Law leaves one of the children in a precarity situation or in need. 34

35 FOCUS ON PRACTICAL ISSUES Trust on European real Estate? Does the EU regulation brings progress? Mrs D is a US citizen, aged 75, habitually resident in California. She owns real Estate in France. She has validly elected for the Law of California to apply to her Estate. In her Californian Will, all assets including her French real estate are transferred to the trustee of a discretionary trust? Do you expect difficulties? France has not ratified the Hague Convention on trusts AND No notion of trust in France. Possible to register under the name of the trustee in trust but difficulties Article 31 adaption of rights in rem Very adverse tax legislation. TIP: USE AN INTERNATIONAL TEAM of LAWYER. Might be more effective here to have a direct bequest of her French real estate. 35