Increasing international mobility can make the process of transferring assets to the next generation a complex process. It is not a question of tax, but relates to the law governing the estate and to whom you can, or should, transfer offshore and onshore assets to, and how to do it the best way.
The EU Regulation 650/2012 will come into effect on 17th August 2015 and has the aim of simplifying the process of international succession and cross-border inheritance.
The current position
Both Russia and France follow the general principal that the deceased’s last domicile (that is his last permanent residence), will determine the law to be applied to the inheritance. The sole exception concern properties owned in personal names, which should follow the inheritance rules of the country where they are located.
Thus the similarity of rules between the Russian and French law leads to the same solutions.
Monaco, however, applies the national law of its residents at the time of their death (when resident in Monaco), except for properties they own, which are also subject to local law.
The three laws therefore apply a dual system, whereby the movable assets are subject to a law, and the real estate assets are subject to another law.
A Russian national resident in Monaco should, therefore, plan his estate based on the Russian succession rules (and marital rules too if he is married in Russia). However, Russian law applies the law of the residence country, so Monaco succession law can be applicable, to the worldwide assets of a Russian living in Monaco (except for properties owned in his/her name).
It is important to consider when becoming Monaco resident.
The future position – After 17 August 2015
The EU Regulation introduces standard international rules of private law to inheritance law. The Regulation is broad in its application and will also apply to a conflict of laws between both EU and non-EU member states.
In general terms, the law of the country in which the deceased had his habitual residence at the time of death will apply to all its assets. Should the deceased have closer ties with a country other than his country of habitual residence, the law of that country will apply. Under the Regulation, the location of the asset is no longer relevant, as the Regulation expressly adopts the principle of unity of the deceased’s estate, so the law of one jurisdiction applies to the entire estate.
Monaco has incorporated similar principles in the draft law n°912.
Furthermore, the Regulation will permit a testator when making his Will to elect to choose the law of his citizenship as the law that will apply to his estate on his death.
The system of recognition of foreign estate qualification may appear to be fairly liberal in Russia. However, it is uncertain whether a deceased’s estate that benefited from the application of French law, or for that matter any other European law, will be able to enforce that order in Russia.
To avoid possible uncertainty, we recommend that Russian citizens who own real estate in the EU or Monaco to review their current estate planning to take advantage of the forthcoming changes.
Russians living or simply purchasing a property outside of Russia, need to take into account their inheritance planning to avoid blockage between two laws, as for example:
• Russian national resident in France owns real estate in both in France and Russia. Under the EU Regulation the entire estate will fall within the French law, while in Russia, Russian law will apply to the Russian real estate.
• Russian tax resident, investing in a property in France or Monaco, should invest through a company and avoid a direct ownership. If he own French or Monaco property in his name, Russian and local laws will applies simultaneously, with risks of conflict, blockage and litigation.
These types of conflict of law risk apply frequently, as soon as you move to on country to another or invest out of your own country in real estate assets.
In order to settle a conflict applying to real estate investment, one of the best solutions is to purchase the property through a company (ie: SCI). Related tax consequences need, of course, to be reviewed.
When dealing with the organization of the worldwide estate planning of an individual, it is also important to take into account the marital regime of the spouse, the law applicable to this regime, the law governing the rights and duty of infants and their representation when they are minor, etc.
Various solutions are possible, to best organize your estate and ensure that your family do not have to manage more problems. If you would like to discuss this brief summary in more detail, please contact us.
Cécile Acolas
For further information on Rosemont Consulting SARL and services provided please visit www.rosemont.mc
Please do not hesitate to contact Cecile Acolas at c.acolas@rosemont.mc for queries on these topics.
This article is published in MONACO БИЗНЕС (Monaco Business) Magazine - November issue http://issuu.com/monacobusinessmagazine/docs/mobu_11_issuu