Recently we have been involved in a number of estates which have involved the concept of domicile. Kevin Doughan, Associate Solicitor, Wills and Probate, explores this often misunderstood concept together with the effect it can have on the administration of estates.
An individual’s domicile can determine the law that applies to the administration of the estate, who may be entitled to administer the estate, and if Irish inheritance tax is payable. This can be important if the laws of other jurisdictions are particularly restrictive or draconian or at odds with the laws of Ireland.
Domicile is the country which is considered to be a person’s permanent home as distinct from nationality or residence. Every person acquires a domicile of origin when they are born, normally that of their father. No person can be without a domicile and it is not possible to have more than one at the same time.
A domicile of origin continues to exist until it is displaced by a new domicile of choice or dependency. In order to change domicile to a domicile of choice, an individual needs to fulfil one of two conditions – that the individual:-
- Is resident in a new country; or
- Intends to reside there permanently or for an unlimited time.
The first condition is more than mere tax residence. It is the establishment of a physical presence in the country and it is the quality of residence that is important, i.e. owning a house rather than renting on an ad hoc basis is more persuasive.
The second condition is not satisfied if a person only intends to live in the new country for a fixed period of time or for a particular purpose. Acquiring a domicile of choice requires a deliberate and final intention and in practice requires severing almost all connections with the country of origin and establishing a permanent relationship with the country of choice.
Application of Domicile to Inheritance Tax and Administration of Estates
A person with a foreign domicile is not considered to be Irish tax resident for inheritance tax purposes until they have acquired five years continuous residency. To be resident they must be present in the state for 183 days in a calendar year or for a period of 280 days in the current and previous calendar year (subject to minimum of 31 days in either year). If residency is interrupted in any of the five years, they cannot be deemed resident for inheritance tax purposes.
Where a person dies domiciled in Ireland, generally their estate is administered in Ireland first and the Irish Grant gives authority to the executors to collect in the Irish situated assets.
If assets are abroad, then a separate grant may be required in that jurisdiction, to release them to the executors.
There have been some legal changes to how estates involving an EU cross border dimension are administered. The EU Succession Regulations, which came into effect on the 15th August 2017, codified the rules across the EU. The law of the country of habitual residence applies to the entirety of the estate across all EU jurisdictions. Denmark, Ireland and the UK, all opted out of the regulations.
Domicile is still therefore relevant in Ireland. If there are immoveable assets (generally property), then the law of the country where the asset is situated applies. For example, in relation to an Irish situated property, Irish law applies. If situated in Spain, then Spanish law applies and so forth. If moveable assets are located in Ireland, the law of the country of domicile applies to those assets.
Further complications can occur where conflicts of law arise. For example, where an individual is habitually resident in Ireland, with property located in France, Irish law would indicate French law applies, however, in turn, French law would indicate that Irish law applies. If the matter came before the French courts they would refer the matter back to the Irish Courts. The Irish courts would then have to accept and apply Irish Law.
This can create issues if the country of domicile has succession laws which are very much at variance with Irish succession laws, such as forced heirship rules, which require strict inheritance rules. Those forced heirship rules might be in the form of discretionary forced heirship. In Ireland, a parent may disinherit a child or treat children unequally, and a child may make a claim against the estate of the parent in certain circumstances. The Irish courts may, if it considers proper provision has not been made, make further provision to the child as appropriate. Other jurisdictions (like France and Spain) have forced heirship laws, which set fixed percentages of the estate pass to certain beneficiary types.
These conflicts of law are also relevant in determining who is properly entitled to administer an estate, for example, whether there is recognition of cohabiting or same sex relationships. These conflicts, if they apply, can have significant effects on the manner of the administration process, and indeed distribution the estate.
Some of our recent cases
We were recently asked to advise in a case where the deceased died domiciled in Spain, married twice and divorced twice. We had to deal with the threat of Section 117 proceedings from one child. The estate consisted of Irish bank accounts only (moveable assets). In this case Spanish law applied as the deceased was domiciled in Spain, and under the EU Succession Regulations, Spanish law would equally apply as the individual was habitually resident there.
The issues to be determined under Spanish law included the forced heirship rules that apply in Spain (effectively leaving a greater share of the estate to the children than originally intended), whether marriage revoked a will under Spanish Law and whether a former spouse upon divorce was precluded from benefiting under the will. The case is ongoing, but serves as a reminder to be mindful of domicile, when making your will.
In another case, we were asked to advise on the issue of a second grant to an estate where the primary executor had extracted a grant and left some of the estate comprising (moveable assets) unresolved and died. Under Irish law the person next entitled to administer an estate is the residuary beneficiary, who was not our client, and relations were strained with that beneficiary. However, the deceased died domiciled in Australia and under Australian law, the chain of executorship is recognised. Accordingly, our client, as executor of the primary executor’s estate, was properly entitled under Australian law.