The difficulties of cross-border estates

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Comment on and describe the particular difficulties arising in cross border estates, i.e. a person dying with assets in several jurisdictions. Cross border estates have inherent difficulties that centre on the legal and fiscal consequences when the investor dies.

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There are varying rules in the different countries and various operations in regard to succession. Some countries devolve the entire estate on the direct heirs whilst other countries allow the succession to be determined by the authorities. In some countries there is a policy of forced heirship[1]. Further problems exist in the levying of taxes on the estate. It may be difficult to decide which jurisdiction should levy the taxes[2]. This could be crucial to the estate as the tax might be higher in some jurisdictions. For the heir it is obviously preferable if the country operating the lowest taxation system taxes the estate, however the heirs do not have any input in this decision. Through the recognition of trusts the Hague convention has attempted to address the issues on the taxation of estates[3]. In some instances estate taxes have been avoided by the assets being placed in a trust. There have been problems when such trusts have been settled as where occasionally a gift tax charge has been levied. There have been attempts within the European Union to try to introduce some form of regulation on the rules of succession so that there are clear guidelines on the rules of succession and the issue surrounding the jurisdiction in which the inheritance is table in[4]. Under the present system some countries regard habitual residence or domicile as the deciding factor on succession rights whilst other countries base their decision on nationality. Other European states have adopted a policy of determining the estate in the terms of immovable and movable items[5]. To give an example of how this works under the present system, if an English person after retirement decided to go and live in France then French law would regard him as habitually resident in France whereas English law would regard him as domiciled in England. Any movable items would be subject to succession in both English and French law. Once the owner of the estate dies the division of the estate becomes difficult as the movable items are governed by succession rules in 2 different countries. This can be demonstrated by the case of Barbier (C-364/01) 2003[6] in which the European court made it clear that an inheritance of property constituted a movement of capital. In this case the court held that the Dutch authorities were in breach of Article 56 of the Convention due to the restrictions placed on the successors of the estate on the grounds of nationality. In Van Hilten-Van der Heijden (Free movement of capital) [2005] EUECJ C-513/03 (23 February 2006) the problem of cross border estates was highlighted.

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