Spain: Express Choice Of Law Alternatives In International Estate Planning

Spain: Express Choice Of Law Alternatives In International Estate Planning

International-Estate-Planning-1

The expression “Estate planning” is used in connection with the different available procedures in order to transfer wealth to the next generation, usually within the family, avoiding the intestate rules provided by the law of succession.

The estate planning legal industry has become increasingly global, and a worldwide comparative perspective will be required from estate and taxation international lawyers. Of course, the Common law world still has the advantage of offering several wills-substitutes, including trusts, which in civil law jurisdictions are not generally available.

The choice of an estate planning instrument requires the previous analysis of the interplay between the different substantial regulations in the jurisdictions involved and the determination of the applicable law from each jurisdiction’s conflict of laws perspective.

In connection with this, the agreement or disposition making an express choice of the applicable law will add certainty to the operational cross-border estate planning instrument.

Of course, the first possible instrument of estate planning is the drafting of a last will and testament with a substantial content that differs from the intestate rules applicable for the distribution of the estate under the law that governs the succession.

Here Regulation (EU) 650/2012 on international successions has given the international planner the flexibility to escape from the law of the last habitual residence of the deceased by choosing the law of the nationality of the testator as the law that governs the succession (professio iuris), and in the case of a plurality of nationalities the testator can choose any of them and not only the most effective or last-obtained nationality.

The choice of the law of the nationality of the testator also affords great legal certainty in anticipation of eventual changes of the habitual residence of the testator, because the law of the nationality of the testator, once chosen in a last will and testament, will be applicable even if the testator dies with last habitual residence in a third jurisdiction, therefore the last will and testament that includes a professio iuris is immune to the forced heirship rules of the place of last habitual residence of the deceased.

Contractual succession is also possible under EU Regulation 650/2012, where an agreement as to succession means an agreement, including an agreement resulting from mutual wills, which creates, modifies, or terminates rights to the future estate or estates of one or more persons who are parties to the agreement. The parties may also choose the law of the nationality of anyone of the persons whose estate is involved (one or more testators can be party to the agreement along with the beneficiaries) as the law that governs their agreement as to succession, but of course the chosen law should provide for the admissibility and binding effect of agreements as to succession.

Estate planning can also be achieved by inter vivos instruments such as gifts or donations. Certainly, a high degree of coordination will be necessary between donations and the drafting of a last will and testament, otherwise the rules on forced heirship eventually applicable to the succession may give rise to complex litigation if the sum of the donations made inter vivos clearly exceeds the limits of the testator’s freedom to dispose of his assets upon death.

The choice of the law of the nationality of the testator (professio iuris) can have the effect of displacing the forced heirship rules under the law of the last habitual residence of the deceased. However, the choice of the law of the nationality of the testator in some cases only serves to choose the lesser of two evils, a law with a lower forced heirship quota than the law of the eventual last habitual residence. In connection with gifts or donations we should also mention that there is always the possibility of an express choice of law for contractual law purposes according to Regulation (EU) 593/2008 on the law applicable to contractual obligations.

The parties to a donation are free to choose whatever law they understand as appropriate to govern the contract; of course, the choice of law will have no impact upon obligations arising out of matrimonial property regimes or for matters of succession. Matrimonial property agreements on this side of the fence of the civil law/common law divide and prenuptial agreements on the other side, are indirect estate planning instruments.

The community of property regime will have the effect of reducing the amount of assets that will constitute the taxable estate ready to be distributed among heirs. On the other hand, the separation of assets regime will greatly reduce risks associated with divorce or with the conduct of business by one of the spouses in relation with third parties, but for taxation purposes it will result in a larger taxable estate. In this area, EU Regulations have provided us with generous possibilities regarding the express choice of the governing law.

Regulation (EU) 2016/1103 in matters of matrimonial property regimes allows the spouses or future spouses “to agree to designate, or to change, the law applicable to their matrimonial property regime, provided that that law is one of the following: (a) the law of the State where the spouses, or one of them, is habitually resident at the time the agreement is concluded; or (b) the law of a State of nationality of either spouse at the time the agreement is concluded. Moreover, a change of the law applicable to the matrimonial property regime made during the marriage can have retrospective effect between the spouses with the limitation that it shall not adversely affect the rights of third parties.

Prenuptial agreements providing for the effects of a future divorce should also contain a choice of law clause and, if possible, a choice of jurisdiction. This practice is of standard use in the USA where prenuptial first appeared in the legal landscape, but it will be respected also in the UK and in the EU Member States. Regulation (EU) 4/2009 on Maintenance Obligations and The Hague Protocol of 23 November 2007 on the Law Applicable to Maintenance Obligations will usually do the trick, even though choice of jurisdiction is not possible for divorce in Regulation EU) 2201/2003 for matrimonial matters and parental responsibility.

To sum up, the estate planner is required to identify the legal complexities and dynamics of wealth transfers across jurisdictions.

The analysis of common law institutions from the civil law perspective is one the expected tasks assigned to the international tax planner. In this endeavour some frictions will be encountered between the fundamental legal principles of both legal traditions.

The express choice of law by the parties, where possible according to the conflict of laws rules of the jurisdictions involved, is a useful preventive tool providing additional legal certainty.

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. By Álvaro Checa, Co-founder and Partner of Kinship.

  • If you wish, you may read the full article published in Mondaq.

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