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Forming a personal union
There are two diplomatic actions which can lead to a personal union.
Royal marriage: If two countries have [needs verification] and a royal marriage and the ruler in one of the nations dies without an heir, the other country will gain a personal union if it has higher prestige than the other country and anyone else with the same dynasty and a royal marriage. If another country has the same Dynasty and claimed throne then a succession war will start.
Claim throne: If you have a royal marriage with another country and they have a disputed succession (either no heir or an heir with low legitimacy) you can take the diplomatic action to claim their throne. Taking this action will give a -50 relations penalty to all countries you have a royal marriage with, including the -100 penalty with the target. It makes your monarch the favored successor should their king die without an heir; however if another country has also claimed their throne, and have both the same Dynasty as the target, it will result in a succession war. The biggest benefit from claiming a throne is that it gives you a claim throne casus belli to force the target country into a personal union for 84% warscore, rather than hoping their king will die without an heir. Since this casus belli always costs 84% warscore, regardless of size, it's one of the best ways to gain large swathes of territory for little cost.
NB: since 1.2 the CB is now only granted when claiming the throne of a country with the same dynasty as yours.
NB: since 1.7 You can only claim the throne of a country that is the same dynasty as yours.
A personal union is similar to vassalage. The senior partner controls the diplomacy of the junior partner and the junior partner will always join their wars. The junior partner cannot declare war, negotiate separate peace treaties or enter royal marriages. As in vassalage, being the senior partner of an elector in the Holy Roman Empire will result in a 50 point bonus to their electoral vote and a 50 point malus from all non controlled electors.
However, unlike a vassal, you do not receive any income from lesser partners in a personal union.
Ending a personal union
A personal union can end in two ways, either with the incorporation of the junior partner in the senior partner or with the junior partner declaring their independence and being assigned a new monarch from their nobles.
Integration & inheritance
After 50 years the senior partner can inherit or integrate the junior partner. Inheriting is random; it has a chance to occur each time the ruler dies. This chance may be 0%; to see the probability, hover over the king in the diplomacy screen. The chance mainly depends on two factors: the Diplomatic Reputation of the senior partner and the Basetax of the junior partner. Because of this, large countries can never be inherited. The Stability of the senior partner also plays a role in this chance, but only a minor one.
Alternatively, if the senior partner has over 190 relations with their junior partner, they can take the diplomatic action "Integrate" to immediately start the process of integrating them. This process works identically to annexing a vassal: it will take one month and 15 diplomatic power per point of base tax of the junior partner, and the diplomat cannot perform any other missions while integrating. You may cancel the diplomat, but all progress and diplomatic power will be lost, so this is generally not recommended. To see the modifiers, progress, and remaining time, hover over the icon in the diplomacy screen or in the outliner once integration has started. Either way, integration will end with the senior partner owning all the junior partner's territory and gaining cores on all their provinces - even the ones the junior partner themselves didn't have cores on - as well as being the new overlord of any vassals, protectorates, or colonial nations the junior partner may have had.
Rebels that change government type or state religion and enforce their demands in the provinces of the junior partner being integrated may instantly cancel the annexation process and even break the Personal Union.
Note: Player-controlled nations will never be inherited on monarch death, though they may still be integrated manually by their overlord.
If the senior partner's king dies while having negative prestige or negative relations with the junior partner, the junior partner will declare their independence and be assigned a new king. The senior partner will get a "Restoration of Union" casus belli to reclaim the throne for 60% warscore. A junior partner can also declare war on their senior partner at any time - even while the nations are in a war together (since the 1.6 patch) - to gain their independence. Note that, since the 1.6 patch, a "great power" nation which is the lesser partner in a personal union is far more likely to declare a war for independence.
If the country creates personal union as a leader with another country which is leading its own personal union, also the junior partner's junior partner will enter the personal union. Example: Aragon is leading personal union with Naples and Castile creates personal union with Aragon as a leader, Castile will lead personal union with both Aragon and Naples.