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25.11.2020

International estate planning: Vivre pour le meilleur

Johnny Hallyday, a French rock legend, died in 2017, leaving an estate that was estimated worth over USD 100 million. The 'French Elvis' was survived by his fourth wife, Laeticia, to whom he was married for more than 20 years. Hallyday spent his last years in his house in Los Angeles, where he sent his two young adopted daughters to school. He executed a will under California law, leaving his wealth and intellectual property rights to a US trust, with Laeticia and their two daughters as sole beneficiaries. By doing this, he disinherited David Hallyday and Laura Smet, his two children from previous marriages.

In 2018, David and Laura contested their father's will in France, alleging that his estate should be subject to French jurisdiction under EU Succession Regulation. This is relevant since French legislation, contrary to California law, imposes clear limitations on an individual's freedom of testation and posing strict limits to disinherit children. His two older children argued that Hallyday was a habitual resident in France by providing documentation and evidence of where he spent his time before decease. How? Based on his Instagram posts, among other factors. Evidence showed that Hallyday of his last three years spent at least five months a year in French territory. A French court confirmed their position and applied French law to the estate. Initially, Laeticia appealed the court's decision. However, earlier this year, the dispute was settled by agreement between the two parties.

The Hallyday tale gives us a taste of how complex international estate planning for two countries can become. It can become even more challenging if a wealth owner has a global lifestyle, assets worldwide, and family members living in different jurisdictions. So, if you tick any of these boxes, how can you arrange for a smooth transfer of wealth to your loved ones? How should you outline your wishes to avoid undesirable outcomes? Read on, as this post highlights the key topics that you should be aware of when planning your estate.

Civil-law vs. common-law

You need to assess which laws will apply to your estate. There are different legal systems globally: common-law relies on judicial precedents to solve court cases, even if they have statutes. Civil-law is based on written statutes or legal codes, which are updated continuously; case law is a secondary source.

In common-law jurisdictions, freedom of testamentary disposition means that you can pass on your wealth to anyone. In some countries, a testator has no restriction at all and may benefit even a pet. A testator has to follow specific rules on dividing the estate in other jurisdictions, and certain heirs are entitled to an indefeasible portion, the forced estate.

Forced heirship rules

Forced heirship rules impose that a portion of the estate must pass to particular beneficiaries or classes of beneficiaries. Most civil law countries foresee them, and generally speaking, there is a requirement to provide for spouses and children. Only a residual portion of the state can be freely disposed of by the testator. When drafting a will or setting up a trust, signing a life insurance policy, or doing nothing at all, you need to clarify the applicable law for your estate. And that's not always straightforward since nationality, residence, and domicile have to be considered. Just look at the Johnny Hallyday case. Things can get increasingly complex. And it's not only about applicable law but also which courts have jurisdiction over an estate and the relevant procedures.

Conflict of law

There are several scenarios with international connecting factors: a will drafted in a foreign country, a resident or national of a country dying in a foreign country, or the estate's beneficiaries resident in a foreign country. Finally, foreign assets also lead to the question of which state has final jurisdiction over an estate and the applicable law.

Private international law identifies a case's multinational facts, allocates them to a jurisdiction, and provides rules for determining the applicable law. Countries have different international private law concepts. Thus, two or more states may claim jurisdiction over an estate, and even with that conflict clarified, there may still be a collision of applicable laws. Last but not least, international private law deals with the recognition of foreign court decisions.

Many countries follow the unitary succession' principle, where the deceased's global assets are treated as a unity and subject to their jurisdiction. However, this principle may be pierced by scission if a country's international private law for immovable property allocates jurisdiction based on its location and for a movable property based on the deceased's residence or domicile. Again, two or more countries may claim jurisdiction over an estate or part of it and apply their laws. Both may follow their procedures and apply their rules irrespective of the other country. There may be a bilateral agreement between the countries to solve the issue. However, there are no typical multilateral agreements for estate matters except for testamentary dispositions' formalities.

The next topic is applicable material law that does not necessarily need to correspond to the competent jurisdiction's law. Sometimes countries allow for a professio iuris: a resident with foreign nationality may choose the country of nationality's laws as applicable. Thus, the state of residence will apply foreign law. Countries may then grant their nationals with a foreign residence to choose between the law of their country of nationality and their residence law. A professio iuris usually is subject to formal domestic requirements that may be further specified in a multilateral agreement, such as the Hague Convention on the Form of Testamentary Dispositions.

Unifying succession laws across EU member states

For Europe, your estate planning will go beyond national rules. Suppose you are a national or a resident or plan to become a resident or have assets located in an EU member state. In such scenarios, you need to take into consideration the European Succession Regulation. For five years, the Regulation has been applicable for EU members, except for UK, Ireland, and Denmark, which did not adopt it. The Regulation intends to unify provisions on the jurisdiction, applicable law, and recognition and enforcement of decisions in succession matters across member states. It is also relevant for successions that are connected to non-member states.

As a general rule, jurisdiction and applicable law are based on the deceased's habitual residence, regardless of where the estate's assets are located. The courts of the deceased's habitual residence shall have jurisdiction over the estate as a whole. An exception to this principle occurs in the event of obvious predominant ties to another member state.

The central notion is the habitual residence at the time of the death, which is not defined in the Regulation and may vary from member state to member state. Courts assess all circumstances of the deceased's life during the years preceding and at the time of death and rely on several criteria to reveal a close and stable connection to a country. The Regulation allows for a professio iuris of the law of nationality instead of the law of the state of residence. If a person has more nationalities, the laws of any of them can be chosen by the testator.

In Johnny Hallyday's case, the French court considered various elements for their decision that France was his habitual residence. They based their conclusion on plane tickets, social security, insurance stays in hospitals and derived treatments, membership clubs, schools, Instagram posts, and witness statements. With that, his entire estate became subject to French jurisdiction and law.

The takeaway

International estate planning is a challenging endeavor that requires a thorough assessment of all elements that may impact the outcome. Nationality, residence, assets, local and foreign laws, international agreements, court procedures, and formal requirements are just some of them.

You should obtain clarity on general jurisdiction and applicable law, including a detailed evaluation of how foreign rules integrate into the general procedure for each foreign asset or tie, such as a foreign residence or economic interest. A choice of law may allow for planning options but is subject to specific requirements. Furthermore, succession procedures and potential conflicts of law need to be assessed as otherwise disappointed heirs may engage in forum running to challenge your wishes. Each case is individual, and you should base it on all current and foreseeable future facts and circumstances. Sometimes based on the assessment outcome, the only solution to avoid undesired results may be transferring assets to another location.

We advise first to clarify the legal environment, including matrimonial law and tax implications. Only then you should start drafting specific wishes; otherwise, an already complex matter may become overly complicated. It would be best if you aimed for exact wishes that can be executed in a smooth process in a predictable legal environment to avoid Johnny Hallyday's estate's destiny.

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