Trusts and Forced Heirship

Trusts and Forced Heirship

August 2, 2019

This is the seventh article in a series of eight about leaving family wealth to the next generation(s).  The other Articles are entitled:

  • Why you should make a Will?
  • Why create a trust?
  • Types of trust and who’s involved
  • One trust or two?
  • Trusts and passing on the family business
  • Powers of Attorney and Family Wealth
  • Protectors, the ups and downs

Most people have never really heard of the term “forced heirship” although they do tend to know that the law as to who and what you can leave to others does differ throughout the world.  One tends to come across it first of all when you buy property overseas and a local lawyer seeks to advise you of the need to perhaps have a local Will on account of how your estate will be distributed on your demise.

This in fact happened to me in 2009 when I bought a home in France and having regard to my wife and I having been married previously and having children, we were advised to acquire the property in a French property company known as a Société Civile Immobilière (SCI) so that we could leave our respective interests in the SCI how we wished.

Thankfully the law as regards succession changed in the EU on 17 August 2015 when the EU Succession Regulation (EU/650/2012), known as Brussels IV, came into effect and which now allows an individual to choose which rule of law will apply to the distribution of their estate on death.

So what is forced heirship?

In many jurisdictions throughout the world the person making a Will, a testator, has complete freedom to decide, without any legislative restriction, how their estate should be distributed on their death.  Unfortunately this is not universal and many countries have incorporated provisions into their succession laws which require an individual’s estate to be distributed in “shares” (portions usually expressed as a percentage and/or fraction) in accordance with the law with regard to status and connection with the deceased.  Such individuals, known as “protected heirs”, typically include any surviving spouse, children and other relations of the deceased.

Forced heirship provisions typically only apply to a portion of the deceased’s estate, with the balance being distributed at the discretion of the testator.  However, under Sharia [Islamic] law things can get complicated for instance a man or a woman, married or not, can only distribute a third of their estate to whoever they wish, with the remaining two thirds being distributed in accordance with the law (with the person receiving any proportion of the third of the estate not benefitting from the remaining two thirds) and a daughter for instance may only be only entitled to receive half of what a son may receive.

Sharia law aside, one generally finds that Moveable Property (sometimes called “Personal Property”) devolves [is distributed] in accordance with the laws of the jurisdiction where the testator is resident, whereas “Immoveable Property” (sometimes called “Real Property”) is devolved in accordance with the laws of the country in which it is situated.

What is the rationale for Forced Heirship?

The argument for Forced Heirship is that a deceased should make adequate provision for his/her family and dependants; the counterargument being that neither the state nor religion should impose restrictions on the distribution of a person’s estate in death that it could not impose in life.

Which jurisdictions have Forced Heirship?

Whilst Forced Heirship is generally a feature of most civil law jurisdictions it also applies to some Common Law ones such as Ireland, where under Irish Law a spouse has certain rights to inherit and section 111 of the Irish Succession Act 1965, as amended, provides that where there is a Will a:

  • Surviving spouse with no children has a legal right share to have 1/2 of a deceased spouse’s estate; and
  • Surviving spouse and children have a legal right share to 1/3 of a deceased spouse’s estate.

There are no Forced Heirship provisions within Isle of Man law and indeed the Trusts Act 1995 specifically provides that where a trust is governed by the law of the Island [Isle of Man] any dispositions of property shall be determined according to the law of the Island without reference to the laws of any other jurisdiction with which the trust or disposition may be connected.

Mitigation of Forced Heirship

As one would expect most people have no issue with leaving funds to their spouse and children but statutory provisions and/or religious ones can be restrictive in terms of who and what may be given to whom.  So what can you do in practice to alleviate some of the issues?

  • One immediate thought, although not necessarily practical especially where all your family live in the same country, is to move to a jurisdiction where forced heirship does not apply and preferably one where specific legislation has been passed to prevent its application.
  • You can of course give away assets during your lifetime, although some jurisdictions do have legislation to prevent lifetime dispositions defeating a claim by a “protected heir” within a given period prior to death.
  • Consider establishing a family trust which benefits those you want to benefit and set out your wishes to the trustee(s) as to your intention behind the creation of the trust and what you would like the trustee(s) to consider when exercising their discretion.
  • If you have a family business think about how you and members of your family hold shares and/or other interests.
  • Above all seek legal advice as to how forced heirship is going to apply to your estate, where ever it may be and take appropriate steps to limit its application through your Will, life time gifts or otherwise.

If you would like to know more about the points raised in this Article then please contact me or one of my colleagues at Crossman Trust Company Limited

NIGEL ROTHEROE
DIRECTOR
Crossman Trust Company Limited
nrotheroe@crossmantrust.com

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