A conference in Geneva focusing on issues such as a sweeping reform of European rules about succession has heard that while new rules have made life clearer in some ways, complexities remain.

The rollout in August this year of a new European Union succession regime, giving citizens across most of the EU bloc freedom to choose (to some extent) the applicable succession law in writing wills, will on the face of it cut through the current web of complex rules hobbling wealth transfers across national borders. But as ever with the EU, the new regime isn’t quite as simple as it first appears, a conference in Geneva heard recently.

The EU succession regulatory regime, about which this publication has carried a detailed report from experts (see here), is due to take effect on 17 August. Although three countries – the UK, Ireland and Denmark – have opted out of the regulation, these jurisdictions will still need to take note of this legislation, as will the neighbouring non-EU country of Switzerland. That was one of the messages from the STEP Geneva Conference 2015 held at the Hôtel Président Wilson a few days ago. WealthBriefing was the media sponsor of the event. (For a previous article about it, see here.)

Besides the succession rule changes, other topics debated by STEP members in Geneva were the ever-changing meaning of privacy in a world where technology sometimes outpaces legal systems; the latest developments concerning the US FATCA Act and their impact on trusts, and the new rules for Switzerland stemming from the Financial Action Task Force (the inter-governmental organisation set up to fight money laundering).

Underpinning the whole event was the theme of privacy in an age when people seek both to protect what they think of as confidential information while regulators and policymakers also try to stamp out what they see as illicit wealth transfers. Leading off the conference agenda was Paul Papadimitrou, founder of the firm Intelligencr (UK), a business charting trends in areas around technology and business. His colourful business presentation highlighted some eye-popping statistics: there are today anywhere between 2 to 3 billion smartphones in the world.

“People were living in a world of borders but people don’t see borders any more…Companies that are winning are those that allow information flows against those that don’t,” he said.

Among the trends in the use or possible misuse of what is called big data, he said, were pattern recognition techniques to plot health trends and to catch tax dodgers.

One problem, he noted, is that when people asked firms not to sell their personal data for commercial purposes, the privacy-conscious person making such a request could suffer costs such as higher insurance premiums.

EU succession regulation
Much of the conference was taken up with discussions by academics and legal experts about the EU succession regulations. The main mission of the new rules is to make sure that the court of a single jurisdiction will apply a single law to the entire estate of the individual. This would provide total clarity and reduce the opportunity for conflict.

Arguably the most important point is that the law of the state in which the deceased was “habitually resident” applies to succession of assets across the zone covered by the rules; that position can be overturned if there is a jurisdiction to which the deceased was “manifestly” more closely connected to. Otherwise, the deceased can elect the law of his nationality to apply to all the assets across the “Brussels IV” zone and if the deceased has more than one nationality he may choose the law of any one of them. Such selection should be made in the deceased’s will or similar document. Lawyers say that provided the law that governs succession falls within one of these categories, it does not need to be that of an EU member state, meaning that assets held in a participating state could pass in accordance with the law of another jurisdiction entirely.
 
Professor Andrea Bonomi, professor of law at the University of Lausanne, said the new regulations only apply to transnational succession issues (such as where a person living in Germany has property in Spain or France, for example, or has inheritors living in various countries). One of the potential benefits, so the regulations’ framers hope, is to mitigate the impact of forced heirship inheritance rules in countries such as France. (In France, a person is forced to transfer a share of his/her wealth to children.) Besides, a benefit for Switzerland is that the EU regulation recognises some tools (such as choice of law or succession agreement), which already exist under Swiss law.The ability to have a choice of law is new for a great majority of EU member states, he said, noting that it was previously only known in eight member states, and even then, with some differences. The development is “very positive” from a Swiss outlook because the Swiss “professio juris” will often be recognised in the EU member state that falls under the new regulatory umbrella.

Richard Frimston, chair of the STEP EU committee and head of private clients at Russell-Cooke, told conference attendees of how there have been a large number of succession conflicts of law in recent times. “The EU has different systems that cause enormous problems. The [new] legislation is ambitious because it tries to do everything. As a result, it is horrendously complicated,” Frimston said.

The new regulations give worldwide jurisdiction to national legal codes, he said. “It is important to think where the assets [at issue] are because if the deceased is a national of that state, he/she might want to move assets from that state to avoid subsidiary jurisdiction,” he noted.

A choice of law in writing wills has been seen as an issue in other jurisdictions – such as for citizens of the US who have properties in different states of the Union, such as California or Texas. And in the UK, there are different legal codes as affecting inheritance in Scotland and England, he noted.

One issue for people to consider is that even before the new regulations, they have made an “implicit” choice of law when writing wills by tacitly accepting one jurisdiction’s power over another one. “You would think that an explicit choice replaces an implicit one, but don’t bet on it,” he said.

“I think the choice of law idea is obviously brilliant but we don’t always know what it brings,” Frimston said.

Professor Gian Paolo Romano, professor of law, University of Geneva, said the new rules could simplify what have been sometimes complex legal conflicts in inheritance issues between Switzerland and its neighbours, and countries further afield. He said the European certificate of succession, as part of the new rules, was a “tremendous innovation”. He added: “It seems to be more reliable and trustworthy than other documents out there.”

He ran through a whole set of hypothetical situations to illustrate the still-complex issues arising when non-Swiss persons, for example, who were living in Switzerland, wanted to deal with inheritance by recourse to Swiss law and where French or German assets, both movable and immovable, were concerned.

Alessandro Amadeu da Fonseca, speaking to STEP delegates via a video link, gave an outline of how Brazil, which isn’t yet a member of the Organisation for Economic Co-operation and Development, deals with issues surrounding automatic exchange of information. Brazil has taken part in a number of OECD initiatives and, for example, signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. He also set out some of the domestic procedures Brazil sets in place to stamp out financial crimes such as money laundering, while respecting client privacy. There is, for example, an obligation to respect confidential client data that has been provided and a bank is obliged not to reveal without cause the client’s data.

There is a potential bilateral agreement for exchanging bank information between Brazil and Switzerland, da Fonseca said; he noted that Brazil’s federal tax authority has not classed Switzerland as a blacklisted jurisdiction.

In a presentation on how trusts in a country such as Switzerland are affected by the Foreign Account Tax Compliance Act of the US, or FATCA, Adam Jagusiewicz, director of tax and legal services at Deloitte, went through a series of presentations showing all the different forms and fields that trusts, depending on whether they are classed as “foreign financial institutions” for the purposes of FATCA, or not, must fill in.