I’m a beneficiary, get me out of here!
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Stella Strati
Patrikios Pavlou & Associates, Limassol
Report on session at the 25th International Private Client Conference
Tuesday 3 March 2020
Session Co-chairs:
Tom Amlot Alexiou Fisher Philips, London
Anne Guichard N3T Notaires Associes, Paris; Secretary, IBA Private Client Tax Committee
Speakers
Sangna Chauhan Charles Russell Speechlys, London
Jakob L Kaplan Alston & Bird, Atlanta, Georgia
Dirk-Jan Maaslan Loyens & Loeff, Amsterdam
Tatiana Mikoni S&K Vertical, St Petersburg
The title of this session was quite appropriate, considering that the speaker during the Conference Dinner the previous night, Shappi Khorsandi, appeared as a contestant on the reality show I’m a Celebrity… Get Me Out of Here!
The panel addressed the challenges posed by modern families, but also new types of assets that can be part of international estates, such as digital assets and cryptocurrencies. The law of the administration of such international estates can be a jungle when taking into consideration modern family ties and concepts, as well as these new types of assets that can be treated differently (if at all) by various jurisdictions.
An interesting and quite complicated case study was provided to the delegates to form the basis for discussion, concerning the same-sex couple ‘Anthony and Declan’ (any similarities with the I’m a Celebrity… hosts are purely coincidental). The case study scenario is provided in full below.
Case study
Anthony is a dual US–UK citizen and the owner of a thriving and extremely valuable organic sustainable meal delivery service, Bushtucker Inc. His main markets include the US, Russia, the Netherlands and the UK. He travels regularly between these jurisdictions and has homes in each of them. Those homes are owned by him directly or through different vehicles. Anthony has a child, Amy, now 30, from a previous relationship. Amy lives in London.
Anthony has been married for 12 years to Declan. They married in Amsterdam where Anthony owns a beautiful house.
They are the parents of Katerina, aged 10, born in Moscow where they were living at the time, from a surrogacy agreement. When Katerina was born, Declan resigned from his well-paid position in Bushtucker in order to care for the newborn baby. Declan never returned to work, partly because Katerina developed learning difficulties. Declan and Katerina spend the school year in Amsterdam where Declan has found a school which meets Katerina’s needs.
In recent months, Anthony has been less and less at home with Declan and has become more and more secretive with his business plans and travels. He no longer shares with Declan the advice he receives from his wealth advisers and the way his wealth is structured. Declan suspects he might even have a romantic liaison.
Anthony dies suddenly from a heart attack in one of his US homes (Atlanta, Georgia).
He leaves wills in the UK, the US, the Netherlands and Russia. In each will, there is a clause limiting the effects of the will to assets situated in the jurisdiction where the will was drawn and excluding from the scope of the will assets situated outside of this jurisdiction.
His Russian will leaves everything to Declan except all of his Russian real estate, which is left to Katerina.
In his Dutch will, he somewhat mysteriously leaves real properties and investment portfolios to a Dutch national called Philip Skodafield (whom none of the parties have heard of previously) living in London. The US and English wills leave everything including Bushtucker and ‘all of my digital assets’ to Declan.
The lawyers involved quickly realise that Bushtucker Inc is controlled through a holding company which is not incorporated in any of the jurisdictions where there is a will. Declan is aware that Anthony had a substantial amount of bitcoins and tokens but has little idea how to find out where or how these are held.
Amy is not happy at all with all the arrangements. She depended on regular generous payments from Anthony to lead an extravagant international lifestyle.
Declan wishes to secure his legacy. He also wishes to access Anthony’s social media and email accounts to obtain some of their shared photos (and also to satisfy his curiosity as to what Anthony was up to before he died).
Discussion
The discussion of the panel focused in addressing the following issues:
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when a will fails to deliver what was expected;
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issues arising from the modern family; and
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the digital assets.
When a will fails to deliver what was expected
The Netherlands
Dirk-Jan Maasland kicked off the discussion by talking about the matrimonial property regimes upon death in civil law jurisdictions, by indicating that matrimonial property regimes have effect in case of death of one of the spouses. The principal rule is that the settlement of the matrimonial property regime has precedent over the settlement of the estate of the deceased spouse, while the default matrimonial property regime in most jurisdictions in continental Europe is a community of accrued gains. The two main archetypes are the community of property and the settlement of the value of gains accrued during marriage.
He also highlighted that Article 22 of the Council Regulation (EU) 2016/1103 allows a choice of law of: the state of the habitual residence of one or both spouses, or the nationality of either spouse. Once a choice of law is effected, the designated applicable law applies, whether or not it is a law of a Member State under the Regulation.
In the absence of choice of law under Article 26 of the Regulation, the spouse’s matrimonial property regime is governed by the law of the State:
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of the first common habitual residence after the conclusion of the marriage;
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of the common nationality of spouses; or
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with which the spouses jointly have the closest connection at the time of the conclusion of the marriage.
United States
The discussion continued with the US in which ‘marital share’ laws exist. The concept of the interest in the estate differs on a state-by-state basis. The factors that can impact on the marital share is the type of property that may be subject to it; namely, the probate estate versus the augmented estate. For example, in Minnesota the augmented estate is the subject of the marital share.
The concept of the community property is also encountered in the US, pursuant to which spouses own 50% of the assets acquired during marriage (subject to certain exceptions). Neither spouse has the right to give away the other spouse’s interest at death.
Jake Kaplan highlighted that every state follows its own rules, and there are states that do not use marital share but the community property concept.
United Kingdom
In the UK, according to Sangna Chauhan, the concepts of community or marital property do not exist and total testamentary freedom exists.
She iterated that the first question to always ask is ‘what is the domicile of the deceased’? In the UK, English law applies to all UK real estate and the law of domicile applies to the movable assets of the deceased. Therefore, in relation to the particulars of the case study it is important to identify the domicile of Anthony to determine the intestacy laws applicable to any Bushtucker assets, and to bitcoins located in different jurisdictions. The UK will leaves everything to Declan, including Bushtucker and all digital assets. However, some of these assets might be located elsewhere, where other intestacy laws may be applicable.
Russian Federation
In Russia, the concept of domicile does not exist. Succession in relation to immovable property shall be governed by Russian law, while succession in relation to movable property will depend on the nature of the property. For example, boats or aircrafts registered in registers located in the Russian Federation will be subject to Russian succession laws, but other movable property may be subject to the succession laws of the last country of residence of the deceased.
Forced heirship
Russian Federation
The discussion then went on to cover any applicable forced heirship rights. Tatiana Mikoni explained that, in the Russian Federation, there is the concept of compulsory share, pursuant to which minor children, disabled children, disabled spouses, disabled parents and disabled dependents (who actually live together with the deceased) have the right to receive a share in the estate. In relation to the case study, Amy does not meet these requirements but Katerina will probably have the right to receive her compulsory share in Anthony’s estate.
The Netherlands
Forced heirship rights of children under Dutch law entail a monetary claim equal to half of the value of the child’s share on intestacy. The claim is not compulsory and the possibility to invoke the forced heirship right lapses when five years have passed after the deceased’s death, even if the child was unaware of the parent’s death. The surviving spouse may also claim a lifelong right of usufruct of the family home. Therefore, Declan has a right to use the family home in the Netherlands for life.
US
In the US, the general rule is that there is no forced heirship to descendants, with the exceptions of Louisiana and Georgia for children under 24 years old. In Georgia, spouses and minor children can file a probate claim asking for a year’s support. This includes a year’s support for their accustomed lifestyle. Declan and Katerina could proceed to claim this but not Amy, as she is older than 24.
UK
As already pointed out, there is total testamentary freedom in the UK. However, the disinherited heir (being a dependent child or a spouse) can make a claim against the estate but only if such heir is UK-domiciled. Anthony should also be UK-domiciled for this to apply. Amy, who lives in London and hence is UK-domiciled, can claim that she is dependent. This is supported by the facts of the case study since she depended on regular generous payments from Anthony to lead her lifestyle. It is important that such a disinherited heir can claim against any assets, including the Dutch assets of Anthony.
The panellists also discussed whether, instead of having multiple wills, a global or master will would be preferable. The consensus was that a global or a master will is in fact preferable, as in this way multiple interpretations of the various wills and inconsistencies between them can be avoided. Moreover, the use of one single will can tackle any legal issues caused by modern family matters that can arise.
Issues arising from the modern family
Russian Federation
Marriages between foreign citizens concluded outside Russia under the legislation of the relevant foreign country are recognised as valid in the Russian Federation. But what does ‘marriage’ mean? In Russia, marriage is a union between a man and a woman. As a result, there is no recognition of same sex marriages in the Russian Federation, which contradict the public order.
Furthermore, surrogacy in Russia has been legal since 1995; nevertheless, a number of further issues arise in relation to the case study since a same-sex couple is not allowed to be specified in a child’s birth certificate. There are also difficulties with indicating the father as a single parent on the birth certificate.
The next question discussed whether Katerina can inherit Anthony’s estate in Russia. If Anthony is specified as the father on the birth certificate, then Katerina can inherit. However, if Declan is specified as the father she has no legal right. If Anthony is the genetic father, perhaps a court order can be obtained; however, it is most likely she cannot inherit because Anthony will not be recognised as her father.
The Netherlands
In relation to property law, succession law and tax law, same-sex couples are treated in exactly the same way as heterosexual couples in the Netherlands. In relation to surrogacy, the birth mother remains the legal parent until full adoption takes place. The father can establish paternity by recognition. Only individuals with legal familial ties to the deceased can be intestate heirs and exercise forced heirship rights.
The digital assets
US
Access to digital assess may be challenging unless the beneficiary already has in their possession the relevant login details (which they can use right away and with no obstacles whatsoever).
In the US, the Revised Uniform Access to Digital Assets Act (RUFADAA) creates a legal framework for fiduciaries to access and manage digital assets and an electronic record of a decedent, unless the decedent denies such access.
A fiduciary is defined as an original, additional or successor personal representative, conservator, agent or trustee. A custodian is defined as a person or entity who engages in the transmission of, maintains, processes, receives, or stores a digital asset or electronic communication of another person. Digital assets include, among others, accounts on Facebook, Twitter, Google, LinkedIn, PayPal (each of which are considered as a custodian under RUFADAA).
RUFADAA follows a three-tiered approach to determining fiduciary access to digital assets:
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if the decedent left instruction for fiduciary access in an online tool provided by the custodian, such instructions override any contrary direction in a will, trust, power of attorney or other record;
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if the decedent left instructions in a will, trust or other instrument; and
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if the decedent did to leave any instructions then the custodian’s terms of service agreement will prevail.
Declan’s ability to access Anthony’s digital assets will depend on the instructions he left and where he left them. If Anthony left instructions in the online tool designed by the relevant custodian, this will overrule what is stated in the will. Otherwise, Anthony’s will stating ‘all of my digital assets go to Declan’ will prevail over any contrary direction in the custodian’s terms and conditions.
Beneficiaries of cryptocurrency must first identify where the decedent stored it (where the cryptocurrency is). Next, beneficiaries must determine how to access the exchange account or wallet holding the cryptocurrency. The easiest way would be if the beneficiary possesses the necessary information: username, password, security question etc.
Declan will not be able to withdraw Anthony’s cryptocurrency without knowing where he stored it and how to access it. If Anthony stored it in an exchange account, the exchange may be willing to cooperate with the executor of the estate. If this is stored in a software or hardware wallet, Declan will need to find the device where the wallet is located and Anthony’s private key. If Declan cannot find this information, then most probably he will not be able to access the cryptocurrency.
UK
Similarly, in the UK the first questions to ask are ‘what type of cryptocurrency is involved?’ and ‘where is it located’?
Furthermore, the legal analysis of cryptocurrencies and blockchain is complicated. Is cryptocurrency property?
In the House of Lords case of National Provincial Bank v Ainsworth, the court set out a four-step test before ‘a right of interests can be admitted into the category of property’. It must be:
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definable;
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identifiable by third parties;
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capable in its nature of assumption by third parties; and
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have some degree of permanence of stability.
Cryptocurrency probably meets this test, but what type of property interest is it? Under common law there are two categories of property; namely real and personal property. Cryptocurrency is definitely not real property but is it personal property? It is definitely neither choses in action (as you cannot enforce it), nor choses in possession (as you cannot hold it).
In the recent case of AA v Person unknown and others, re bitcoins [2019] EWH C3556, the judge confirmed a third category of property – the category of miscellaneous – where other types of property can be considered as ‘falling into’ (eg, milk quotas and cryptocurrencies).
The panel finally pointed out the importance of proper planning when dealing with cryptocurrencies, with the most important matter being that the owner must address any post-death access issues.
Conclusion
It is a jungle out there, especially for beneficiaries in cases where modern family concepts and digital assets exist. In complicated situations (especially where a variety of assets located in different jurisdictions are encountered), proper planning is always advisable.
A master will should be prepared, taking into consideration the particularities of the specific case, the wishes of the testator and having in mind the existence of any marital share and forced heirship rights.
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