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Cyprus: EU succession law

Where an individual owns assets in more than one country at the time of their death, complex rules can apply to their estate.

There’s now increasing freedom for people to choose to set up home and establish a new life in a different country to where they were born. However, where an individual owns assets in more than one country at the time of their death, complex rules can apply to their estate.

On 17 August 2015, the EU Regulation 650/2012 regarding EU succession law came into force. The regulation was enacted to deal with the complex issues that have to be resolved before an estate can be administered and distributed, such as determining which country’s law will govern the testator’s estate. Determining the law that applies is important for a number of reasons; one being where the law of one country, such as Cyprus, states that a certain proportion of an estate must be left to specific members of the family - known as the forced heirship rules. Whereas in the UK, an individual is generally free to leave their property to whomever they choose. Should they have assets in both countries, the difference between the two laws creates a potential conflict.

For more information on the Regulation 650/2012 please read our article 'New EU succession laws'.

Cyprus adopted the regulation, which means an individual is free to choose which law to apply to their estate, within the parameters of the regulation. However, before the regulation came into force, Cyprus also made an amendment to its domestic succession law (Wills and Succession Law, Cap 195). The main change was the deletion of clause 42 which, in effect, stated that “any person whose father was born in the UK or in any other member of the commonwealth, may, whether domiciled or not, dispose of all of his moveable and immovable property to any person by leaving a Will.”

Before its deletion, clause 42 was a significant advantage to those UK expats with assets in both Cyprus and the UK because it allowed for English law to apply to those assets, which meant the Cypriot forced heirship rules didn’t apply. However, with effect from 3 July 2015 this advantage has now been removed, meaning that UK expats currently living in Cyprus will be subject to the Cypriot forced heirship rules (specified in clause 41 of Cap 195) when they die.

These rules can undermine a client’s wishes by stating that a testator’s spouse and children, or just their children (if they have no spouse), will inherit a fixed proportion of their estate as forced heirs. The remainder of the estate is freely disposable.

For example, John (a UK expat) has cohabited with his partner Maureen since divorcing his first wife 15 years ago. John owns a life assurance policy and wants to leave this to Maureen on his death and leave the remainder of his estate to his two children from his previous marriage.

However, as the children are protected heirs under Cypriot law and are therefore absolutely entitled to their share of John’s assets, John’s wishes with regards to leaving the benefits of his life assurance policy to Maureen may not be followed.

There are a number of points to consider here:

  • Regulation 650/2012 allows John to choose the law that will apply to his estate on his death. By choosing English law in his will, Cypriot law will not apply and John will be free to leave his whole estate, including (for example) a life assurance policy, to whomever he chooses. The Cypriot forced heirship rules will not apply.
  • The forced heirship rules only apply in relation to assets disposed of on death, they don’t apply to lifetime gifts. Therefore, if during his lifetime John assigned his life assurance policy, which is subject to English law, into a trust, the forced heirship rules are of no concern because the property is disposed of during John’s lifetime and not on his death. However as settlor of the trust, John needs to consider the right type of trust and whether he still wants access to the policy during his lifetime or not.
  • If the policy was not assignable into trust then it may be more suitable to create a nomination, effectively electing who will benefit from the death benefits. A policy with a nomination will be transferred on death to the named beneficiaries or, if the policy comes to an end, the benefits will be paid to them. However the nomination doesn’t bypass the forced heirship rules meaning the forced heirs could challenge it.

Dealing with an estate on death can be complicated even when there isn’t an international element. When dealing with internationally mobile clients, a significant advice opportunity exists for advisers who understand these conflicts of law and who can help clients feel in control of their assets.

The information provided in this article is not intended to offer advice.

It is based on Old Mutual Wealth's interpretation of the relevant law and is correct at the date shown on the title page. While we believe this interpretation to be correct, we cannot guarantee it. Old Mutual Wealth cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

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