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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4.12. Life Insurance in France - Assurance Vie

There are two types of life insurance in France:

1. i. Assurance vie
2. ii. Assurance décès

Both are useful inheritance planning measures, as they offer tax advantages, but the first are mainly savings schemes for the living!

Assurance décès on the other hand are death policies that pay out a sum to the beneficiary on the death of the insured.

In the following review we consider primarily assurance vie although the main inheritance tax benefits apply to both.

1. i. Life Insurance for Inheritance
2. ii. Life Insurance for Savings

i. Life Insurance for Inheritance

The level of the tax is increased to 25% for any benefits exceeding €1,053,338.

As the tax allowance applies to each beneficiary (not the total sum), it is possible to make provision for several family members, save that there is no inheritance tax between man and wife or those in a civil partnership.

Beyond your spouse or partner, the capital sum payable out of an insurance policy up to the tax threshold is simply not taken into consideration in the global inheritance calculation.

In order to benefit from this exoneration, the insurance premiums in respect of the policy cannot be so large that they are considered excessive in relation to the lifestyle of the insured.

This condition is imposed in order to prevent insurance policies being opened near the end of a persons life, specifically to get around the entrenched rights of protected heirs. On the death of the insured, the latter would be able to make a legal challenge a policy if they considered it had this intent.

However, the courts have taken a liberal view of the size of the policies taken out, and many use this as an open window through which to circumvent the entrenched rights of inheritance.

Thus, in a recent case, a 91 year man took out a life insurance policy, making a premium payment of €23,000, with his nephew named as beneficiary in the event of his death. Within a month of taking out the policy, the man died. The nephew received the whole of the premium payment on the policy, without having to pay any inheritance tax. The nephew would otherwise have been liable for inheritance tax, at the rate of 55%.

Since the recent abolition of inheritance tax between married couples, and increased allowances for children, life insurance policies have ceased to be of such importance for the purposes of inheritance tax planning.

Nevertheless, provided the premiums are not considered 'manifestly excessive' to the lifestyle of the insured, any sums paid out by a life insurance policy to a named beneficiary are not caught by the rule on the entrenched rights of protected heirs, leaving it possible for you to leave the full proceeds of the policy to whomever you wish.

Of course, if you are not married, then the policies also remain an important tool in inheritance planning.

Any proceeds of a life insurance policy that remain on the death of the surviving partner will be inherited by your children, or those next in line of inheritance.

ii. Life Insurance for Savings

Despite the undoubted advantages of life insurance for inheritance planning, the policies are as much a savings scheme as a method of providing for your loved one(s) on your death.

These policies offer three key savings advantages:

• A return that is normally higher than bank savings schemes
• A right to make withdrawls during the life of the policy
• Favourable tax treatment

During the term of the policy, if you make a withdrawal, then only the growth element of the withdrawal is taxed. The rest of the sum is available to you tax free. The rate of tax on withdrawals reduces the longer you have held the policy and, if held at least eight years, a couple could withdraw €9,200 each year, free of tax.

Accordingly, if you arrive in France with a lump sum to invest, you can take out a life insurance policy, and later make withdrawals to meet day to day requirements, with only the growth element of the withdrawls subject to tax, and (inevitably) the social charges.

As always with any investment, you need to do your research and get good advice. Be careful, in particular, of management charges and charges for withdrawls.

We will provide more information about assurance vie in due course.

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