4. Inheritance Planning in France

1. 4.1. Buy Property 'En Tontine'
   4.2. Buy using a Property Company
   4.3. Adopt a French Marriage Contract
   4.4. Enter into a French Civil Partnership
   4.5. Make a Family Inheritance Pact
   4.6. Make a Will
   4.7. Create a Trust Structure
   4.8. Buy or Improve with a Mortgage
   4.9. Make a Gift Between Man and Wife
   4.10. Make a Gift to Children/Grandchildren
   4.11. Make a Gift to Others
   4.12. Take out Life Insurance

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4.10. Gifts to Children and French Inheritance Laws

1. 4.10.1. Tax Allowances
2. 4.10.2. Organised Division of Assets
3. 4.10.3. Gifts Tax & Inheritance Laws
4. 4.10.4. Procedure

4.10.1. Tax Free Allowances

Although there is a gifts tax in France there are also quite generous allowances, which operate on a ten-year cycle, as follows (as at 2011):

1. i. Every ten years each parent can give each of their children €156,974 free of gifts tax. Accordingly, if you are a couple with two children, then you can donate to each of them €313,948 free of tax every six years, i.e. €627,896. If the child is registered disabled the allowance is increased by a further €156,974 per parent.
2. ii. Every ten years each grandparent may make a gift of €31,395 to each of their grandchildren free of tax.
3. iii. In addition to these allowances, it is also possible to make a one-off monetary donation of up to €31,395 to each grandchild. This separate allowance is conditional on the donor being not older than 65 years of age and the beneficiary over 18 years old. The gift must also be declared to the tax authority.

These allowances are cumulative so that a child may receive gifts from both parents and grandparents, without one affecting the exemption limits of the other.

The gift may also be made as a single payment or a series of payments over time.

Moreover, it is possible to make a gift of all or part of a real estate you own, but continue to live in the property. This can often be very tax advantageous. You can read more about this process in our pages on Gifts of Real Estate.

However, if this procedure is used with the express purpose of later reducing the potential capital gains tax liability the tax authority can later decide to tax the capital gain as if the gift had not been made.

The tax authority will consider the circumstances of each case to determine whether or not there has been an abus de droit.

Important factors that will be taken into consideration by the tax authority will be the date of the gift transfer, and of the date of the later sale of the property, as well as any continuing controls exercised over the property by the donor.

4.10.2. Organised Division of Assets

One particular type of gift procedure is called a donation-partage, which provides the opportunity for parents and grandparents to organise the division of their estate between their children and grandchildren to avoid later conflicts and uncertainty.

Accordingly, it is not unusual for beneficiaries of the donation-partage to be party to the gift procedure, in order to reduce the risk that one or more of the inheritors will later contest the process.

Indeed, if grand-parents wish to make a gift to their grand-children beyond the amount that is freely disposable (as of course their own children are protected heirs) then the consent of their children is necessary.

It is also possible for the donor to retain life use (usufruit) of the gifts granted under a donation-partage e.g. revenue earning real estate.

You can also favour one child over another, but only up to the amount that is freely disposable under inheritance laws, unless the other beneficiaries are prepared to agree to an unequal spilt.

This might be appropriate, for instance, in relation to a family business, or a handicapped child. There is a specific renunciation procedure that would need to take place, through a family inheritance pact, called a pacte successorale.

Whilst those favoured by either procedure would be obliged to make monetary compensation to their brother/sister on your death (assuming it exceeded in value the proportion of your estate to which they were entitled), they would at least have control of the real estate, as they would not share ownership with them.

Alternatively, you might be able to persuade your estranged child to renonce their right to your inheritance, which you could do through a family inheritance pact.

4.10.3. Gifts Tax and Inheritance Laws

It is important to note the relationship between gifts and inheritance tax.

In addition, if the value of the gift is in excess of that freely disposable under inheritance rights to protected heirs, then, on death, an adjustment will need to be made.

In practice, this is done by preparing a balance sheet of the assets of the deceased (including those previously gifted) and reducing the amount of the inheritance to anyone who may have received more than their entitlement through a gift.

Alternatively, those who may have received more than they might have been entitled under an inheritance, may keep the gift(s) received by them, on condition that they make a compensatory payment to other reserved inheritors who may have lost out.

4.10.4. Gift Procedure

If you wish to make a gift to your children or grandchildren you should contact your local notaire who will be able to process the transaction.

Unfortunately, whilst donations are a useful way of reducing liability to inheritance tax, there are fees that are payable.

If you are making a gift of the transfer of real estate, then notaire fees (and land registration taxes - (droits de mutation)) are payable, which can run into several thousand euros.

In the case of cash the fees are likely to be under 1% of the value of the gift. If the value of the real estate exceeds the gift allowance, then gift tax will also be payable. Stamp duty (taxe de publicité foncière) of 1.1% (2.5% from 2012) is also payable.

We recommend you read more in our pages at French Gifts Tax.

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