When choice gives way to law: planning around forced heirship

However, in many countries, succession laws impose mandatory rules that reserve part of a deceased person’s estate for certain family members, typically children and sometimes spouses, regardless of the deceased’s wishes. These rules are commonly known as forced heirship.

Where do forced heirship rules apply?

Forced heirship is common in civil law jurisdictions and particularly in continental Europe, Latin America, the Middle East and parts of Asia. In these jurisdictions, a Will that seeks to disinherit protected heirs may be ineffective.

This differs markedly from the position in England and Wales, where the principle of testamentary freedom allows an individual to leave their estate to whomever they choose, subject to potential claims for reasonable financial provision under the Inheritance (Provision for Family and Dependants) Act 1975.

For internationally mobile families and those with assets in multiple jurisdictions, forced heirship can have a significant impact on estate planning and, if overlooked, may undermine succession arrangements.

Succession planning should involve consideration of the location of assets and local succession laws, the residence of relevant family members and any related tax consequences.

Why does it matter?

Clients may assume that a professionally drafted English Will will govern the succession of all their worldwide assets. Unfortunately, that is not always the case.

For example, whilst an English Will may provide that all assets pass to a surviving spouse, local forced heirship rules may entitle children to a compulsory share regardless of the terms of the English Will.

The result can be a range of unexpected outcomes, including:

• beneficiaries receiving less than intended;
• disputes between family members;
• delays in estate administration;
• difficulties selling or transferring overseas assets; and
• unexpected tax consequences.

Interaction with tax planning

Forced heirship frequently affects tax planning. Although the legal and tax analyses are distinct, they should be considered together when developing a coordinated global estate plan.

For example, an estate plan may depend upon assets passing to a surviving spouse to benefit from the UK inheritance tax spouse exemption. If local succession law instead diverts part of those assets to protected heirs other than the spouse, the anticipated tax treatment may change significantly.

Planning around forced heirship

The available planning opportunities depend entirely on the jurisdictions involved. Potential options may include the following.

Choosing the applicable succession law

• Under the EU Succession Regulation (commonly known as Brussels IV), an individual may elect for the law of their nationality to govern the succession of their estate. This can provide greater flexibility where assets are situated in participating EU Member States and may, in some cases, help mitigate the impact of local forced heirship rules.

Lifetime planning

• In some jurisdictions, lifetime gifts may reduce the impact of forced heirship.
• Certain lifetime transfers may be brought back into account, however, when calculating compulsory shares. In addition, gift taxes or similar transfer taxes may apply in the relevant jurisdiction.

Trust and corporate structures

• These structures can sometimes assist, particularly where assets are held across multiple jurisdictions.
• That said, not all countries recognise trusts in the same manner as the UK. In some jurisdictions, trusts may give rise to adverse tax consequences.

Local Wills

• Whilst having a Will prepared under the law of the jurisdiction in which assets are situate does not remove forced heirship rights, separate Wills dealing with assets in specific jurisdictions can help ensure that succession arrangements are structured as effectively as possible within the applicable legal framework.
• Care is needed to ensure that multiple Wills operate together and do not inadvertently revoke one another.

Conclusion

Forced heirship rules can override the terms of a Will, alter the intended distribution of assets, and create unforeseen tax and administrative complications. For those with international connections, understanding how these rules may apply is an essential part of effective succession planning. Failing to consider the impact of forced heirship will invariably lead to uncertainty during the administration of a cross-border estate, thereby increasing costs, including tax. Tailored advice can help identify potential issues and ensure that an estate plan works as intended across all relevant jurisdictions.

This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.

Meet the team:

1. 

   • George Merrylees

   • Partner
   • Private Client

   Visit George's profile
2. 

   • Abigail Pearson

   • Associate
   • Private Client

   Visit Abigail's profile

View the whole team