An Overview of the Implementation of the Regulation and the Related Potential Problems

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The EU Succession Regulation

An Overview of the Implementation of the Regulation and the Related Potential Problems in Austria

I would like to begin the overview of the problems related to the implementation of the Regulation and the opportunities to solve them with a brief insight into the Austrian law.

1. An Overview of the Austrian Material Succession Law

1. General Facts

The sequence of relatives in succession is the basis of Austrian succession law. The aim of the provision is the awarding of succession to blood relatives to the maximum extent possible, mainly the testator's children and spouse. On the other hand, the freedom to specify heirs in one's will –the testator's freedom principle– exists as well. Austrian laws opt for "the golden medium" between a testator's complete freedom and the protection of forced heirs' rights, attributing reserved shares of succession to certain members of the family. Children, the spouse, and in exceptional cases – parents, are entitled to one half of the succession.

Austrian laws distinguish between universal succession and singular succession. Heirs become universal successors by means of a court decision on the transfer of title (Einantwortung) which means that they inherit all of the testator's rights and obligations, or a certain part of these rights and obligations. Legatees, in turn, acquire only the entitlement to certain items of property included in the succession, thus becoming singular successors. It is about entitlement for the purposes of law of obligations, thus civil-law legacy (Damnationslegat) (not vindication legacy (Vindikationslegat)). Forced heirs also possess only entitlement for the purposes of the law of obligations, thus – the right to claim the disbursement of a certain amount of money.

1. Dispositions of Property (Wills)

The following forms of wills exist in Austrian law: Hologrphic wills (entire text is written and signed by hand), private wills executed in the presence of three witnesses, and publicwills executed by a notary or at a court. Wills executed by notaries are stored at the respective notary's office and registered in the Austrian Central Register of Wills. Data on the testator and the location of the will is available in the Register or Wills, not the wills themselves. Each succession process encompasses requesting a certificate from the Central Register of Wills in order to ensure the performance of the testator's disposition of property.

Various types of contractual successions exist as well, for example, agreements as to succession, gift agreements which become effective in the event of the grantor's death, agreements on the waiver of intestate succession or agreements on the waiver of the reserved share of succession, etc. These agreements are irrevocable, and they are also registered in the Central Register of Wills.

1. Procedure of Intestate Succession

Intestate succession procedure is applied if the testator has not left a will. Relatives inherit in a certain sequence (Parentelensystem). The first category of heirs (Parentel) includes children, the second category includes parents and their descendants, etc. The official spouse is also an intestate heir, however a non-married spouse is not. If the spouse inherits together with children, then he/she is entitled to one third of the succession (and children are entitled to two thirds), otherwise the spouse is entitled to two thirds of the succession.

1. Reserved Shares of Succession

Descendants (if none exist then parents) as well as the spouse is entitled to reserved shares of the succession, i.e. one half of the succession. Expert statements on the total value of the succession are necessary for determining reserved shares (unless the value is determined by means of mutual agreement).

1. The Grounds for Succession Process

1. General Facts

One does not acquire succession rights automatically; these rights are acquired only as a result of the succession process. In order to inherit one needs to execute a declaration of acceptance of the inheritance (Erbantrittserklärung). Unconditional acceptance of the succession means that the heir fully takes over debts and liabilities. However, conditional acceptance the succession, i.e. by assuming debts and liabilities in the amount of the succession value, exists as well. Expert statements on the total value of the succession are required in such cases.

1. Competent Authorities

The inheritance process is managed by the court which services the district of the testator's last habitual residence however the vast majority of procedural functions are carried out by notaries who act in the capacity of a court commissioners (Gerichtskommissär). The court commissioner also manages such succession processes in which there are no statements on the acceptance of the succession due to excessive debt loads.

1. Universal Succession with Court Decisions on the Transfer of Title of the Succession

The court adopts a decision on the transfer of title of the succession at the end of the process which specifies the heir(s) and the respective shares of succession. Thus universal succession sets in with such a decision, i.e. the transfer of all rights and obligations to the heir(s).

It becomes a succession in abeyance, hereditas iacens (ruhender Nachlass), after the opening of the succession, yet before the decision on the transfer of title of the succession. The heir(s) starts to manage this succession in abeyance as soon as announcements on the acceptance of the entire succession are received.

The transfer of title takes place on the basis of the decision on the transfer of title of the succession; no additional documents are required. The title to the immovable property is registered in the Land Register however this type of registration only declarative. Legatee, in turn, acquires the title to immovable property only when it is registered in the Land Register. For this reason the Court of Succession issues the so called official confirmation of the title (Amtsbestätigung) which can take place only with the consent of the heir. Having acquired the official confirmation of the title, the legatee turns to the Land Register Court by means of filing an application on the transfer of title.

1. Inheritance Tax, Tax on the Purchase of Immovable Property

Austria abolished succession and donor's (gift) taxes in 2008. Since then the following taxes and duties are applied to the purchase of immovable property:

-real estate purchase tax: for relatives – 2%, for others – 3.5%, and

-court registration duty – 1.1%.

Taxes and duties make up a total of 3.1% and 4.6%.

In cases of the transfer of title from one family member to another the above mentioned rates are determined according to the universal immovable property calculation procedure. For this reason these taxes and duties are insignificant. As of 1 June 2014, the tax for the purchase of immovable property and the respective registration fee will be calculated on the basis of the market value for persons outside of the closest family circle; thus it will be 4.6% of the market value.

1. Notary as the Authorized Person of the Court

Notaries play a very important role in the Austrian succession process: they carry out procedural functions in the capacity of court commissioners. They establish forced heirs, request statements from the Central Register of Wills, send copies of wills to forced heirs, notify legatees, perform measures for protecting the succession, clarify assets and liabilities of the succession, execute agreements on the intestate shares and reserved shares, defend the interests of heirs who are under guardianship as well as legatees and forced heirs, and defend the interests of creditors to the succession.

Generally Austrian laws regulate the succession process to a comparatively detailed extent. Thanks to this, the transfer of title takes place in an orderly way, defending the interests of forced heirs and creditors; legal disputes are observed only in exceptional cases. Besides, Austrian Land Registers register proprietary rights only after courts verify their validity on the merits.

1. International Private Law, Austrian Jurisdiction

In terms of the applicable legislation Austrian laws state that succession procedures must take place in accordance with the laws of the testator's citizenship country. Matters are heard at Austrian courts if the testator's habitual residence was Austria. Thus, substantive law of other countries are usually applicable for succession procedures of foreign nationals living in Austria. Jurisdiction of Austrian courts applies to the movable and immovable property located in the state. Matters related to movable property located abroad are reviewed only upon special request in such succession procedures. Jurisdiction does not apply to immovable property located abroad.

If the testator did not have a permanent residence in Austria, however he/she had immovable property there, then the succession procedure that takes place in Austria deals only with the immovable property. Matters related to a foreign person's movable property located in Austria are heard in separate transfer proceedings(Ausfolgungsverfahren).

1. Changes Introduced by the EU Succession Regulation

1. Choice of the Applicable Law in Wills

The choice of applicable law in Austrian citizens' wills are an important novelty that Austrian notaries have already started introducing. When I execute a will, I execute it in accordance with the Austrian substantive succession law. If the client will move abroad and die there then substantive succession law of another country will need to be applied, and chances are that the provisions included in my will are not going to be applicable in accordance with the laws of the respective country. In such cases one must observe the third party liability of the will's executor.

For this reason I enter the following reference in the wills of the citizens of Austria:

I am currently a citizen of Austria, and in accordance with Article 22 of the EU Succession Regulation all matters related to my succession shall be reviewed applying Austrian succession law regardless of my habitual residence country at the time of my death.

It is up for discussion whether one should refer to Article 22 of the EU Succession Regulation (hereinafter referred to as “the Regulation"). There is actually no need for it because the choice of law can be made without such a reference. The problem with the reference to Article 22 may be related to the fact that the choice of applicable law might be interpreted in a narrow context, i.e. only in relation to EU member states. If, in turn, the testator moves to a country located outside of the EU, then the conflict-of-laws existing there may prohibit choosing the applicable law (even though Article 91 of the Austrian Federal Act on the Law of Conflicts, for example, would permit an Austrian citizen living in Switzerland to choose Austrian law).

The choice of the actually applicable law may currently not be necessary because Article 83, Paragraph 4 of the Regulation provides for the choice of fictitious law in wills made before 17 August 2015. Thus the choice of applicable law acquires much greater importance as of the effective date of the Regulation. The Austrian Council of Notaries, however, has recommended its members to start including the choice of applicable law in wills already now in order to prepare duly for the new reality.

Conversely, I inform foreign clients that they will have the opportunity to choose the law of their country. If the client wishes, I study the law of the respective country (for example by using the website), and, in line with my third party liability insurance, I clarify whether the insurance also covers potential mistakes in the will executed on the basis of foreign law.

In this regard, I would like to mention two very useful websites of the Council of the Notariats of the European Union (CNUE) which provide a large range of useful information free of charge:

Succession law website provides information on

• Competent authorities and succession procedures,
• procedure of intestate succession
• reserved shares of succession,
• drafting and registration of wills,
• opening of successions,
• succession taxes.

Conversely, website provides information on the matrimonial property regimes and consequences in the event of death of a spouse.

Certainly, we can imagine cases when testators wish to use the opportunity to "make the choice of applicable law" by changing their habitual residence. If so, then it is recommended to specify that clearly in the will in order to avoid third party liability of the executor of the will. References to the choice of applicable law may also play a certain role in the interpretation of the will expressed in the disposition of property. Therefore generally it is not recommended to execute wills without indicating the choice of applicable law in one way or another.

In practice, problems may arise in relation to cases when testators, not being fully aware of succession law, execute their wills on their own without choosing the applicable law and move to another country later on.

When managing succession matters of foreign nationals, Austrian notaries will always have to verify whether the choice of law of the citizenship country has been made.

In my opinion, the notary's should also be obliged to inform clients that the choice of law can only be annulled only by means of dispositions of property. The change of habitual residence, as such, does not amend the choice of applicable law made previously.

When amending a will, one should verify whether the previously made choice of applicable law is annulled by means of revoking all former dispositions of property.

Up to now, remarks regarding the applicable law were related to wills as well as testate succession types, for example, agreements as to succession, gift agreements which become effective in the event of the donor's death, agreements on the waiver of intestate succession or agreements on the waiver of the reserved share of succession, succession purchase agreements, etc. This term apparently should be interpreter widely regardless of the fact that Article 25 lays down only agreements as to succession.

I would like to point to another practical aspect of the choice of applicable law. In Austria, and possibly in other member states with a comparatively high protection level for forced heirs, discussions are taking place regarding whether a wave of emigration to South England among wealthy testators might start staking place after the effective date of the Regulation. This would not be related to the pleasant weather in Cornwall as much as to the opportunity to choose English succession law which, as we know, defend forced heirs poorly. Personally I am not convinced that many Austrian testators will opt for such voluntary emigration.

However I see another potential risk: the so called living will (Vorsorgevollmacht) which replaces guardianship in the event of authorizer's incapacity. Living wills grant extensive authority to authorized persons, incl. the right to determine the authorizer's habitual residence without judicial intervention. I can imagine that more than one authorized person will consider relocating the authorizer to Cornwall in order to "get rid" of forced heirs. If, in turn, the testator will have specified Austrian law as the law of his/her choice, then such a plan will not work and the relocation to Cornwall will not take place regardless of the pleasant weather conditions there.

1. Validity of Wills

Validity of wills by form will require verification in accordance with Article 27 of the Regulation which supplements the 1961 Hague Form of Wills Convention. To be accurate, Article 75 of the Regulation lays down that the provisions of the Convention must be primarily applied to the parties to the Hague Convention. It follows that Article 27 of the Regulation is applicable to the countries that are not parties to the Hague Convention.

In accordance with Article 83, Paragraph 3 of the Regulation, verification of Article 27 must also be carried out regarding the dispositions of will that were executed before the effective date of the Regulation. Likewise, transitional provisions lay down certain retroactive effect regarding the choice of applicable law.

Article 27 of the Regulation includes an extensive list of various circumstances which ensure the validity of wills in accordance with the favor testamenti principle. I would especially like to emphasize items b), c) and d) which specify such circumstances as the benefactor's citizenship, domicile and habitual residence.

1. International Private Law, Austrian Jurisdiction

The most substantial changes are related to the replacement of citizenship as the criterion for determining jurisdiction with the habitual residence as per Article 21 of the Regulation. Amendments to the Austrian Federal Act on the Law of Conflicts are underway in the course of transposition of the mentioned provision.

Currently Austrian substantial succession law is applied also for cases of EU foreign testator cases in Austrian Court of Succession proceedings unless the choice of applicable law has been made in favour of the country of citizenship. This actually applies to the citizens of third countries as well.

The above mentioned provisions on jurisdiction change insofar as that in the future Austrian jurisdiction will not be applied if the testator's habitual residence is abroad. Mandatory jurisdiction regarding separate transfer proceedings (Ausfolgungsverfahren) for immovable property of citizens of other EU member states located in Austria will thus be renounced. Respective amendments to the provisions on jurisdiction have already been prepared at ministry level.

1. Changes in the Registration Procedure in the Land Register and Enterprise Register

As mentioned previously, proprietary rights are registered in the Austrian Land Register only on the basis of a document signed by the parties or issued by Austrian authorities. In the area of succession law this document is a court decision on the transfer of the succession (for heirs) or official certificates of title (for legatees).

Article 69, Paragraph 5 of the Regulation lays down that from the effective date of the Regulation European Certificates of Succession must be recognized as valid documents for registering property officially. Certainly, this provision also includes a reference to Article 1, Paragraph 2, items k) and l) of the Regulation which states that the following are excluded from the scope of this Regulation:

• Item k): numerus clausus of rights in rem,
• Item l): any recording in a register of rights in immovable or movable property, including the legal requirements for such recording, and the effects of recording or failing to record such rights in a register. This means that if the national rights in rem state that the transfer of title takes place only in upon making an entry in the register, this provision will remain unaltered.

Recitals 18 and 19 of the Regulation fortify the lex rei sitae principle regarding immovable property. The Regulation endeavours to intervene with the national law to the minimum extent possible in this regard as well.