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

4.3. Adopt a French Marriage Contract - Communauté Universelle

1. 4.3.1. Spouse Inherits Whole Estate
2. 4.3.2. Children from a Previous Relationship
3. 4.3.3. Inheritance Tax Implications
4. 4.3.4. Care Needed if Self-Employed
5. 4.3.5. Procedure

4.3.1. Spouse Inherits Whole Estate

As we have noted on previous pages, whilst there is no inheritance tax payable between husband and wife, children are protected heirs, with entrenched rights to a share in the estate of their parents.

These rights apply on the first death, leaving the surviving spouse as merely one of the inheritors, not the sole inheritor of their deceased's estate.

This may not be a problem to you, because the surviving spouse retains the right to lifetime occupation to the family home.

However, if you wish your surviving spouse to receive all of your estate on your death, then you need to enter into a special type of French marriage contract.

This contract can be adopted by most couples, even though you are already married under the marital laws of your home country.

Under this marriage contract, all the assets of the couple are said to be owned communally, and transfer automatically to the surviving spouse on first death.

This is where the French marriage contract scores over a donation entre epoux or through a will where, in either case, the children would still inherit some of the property.

It is also possible to tailor the contract to exclude specific (personal) assets if you so wish. Thus, if you did not have complete confidence in your surviving spouse to leave some of the inheritance to someone you wished to receive it, then you could exclude the asset from the marriage contract (and make appropriate provision in a will).

In this sense, a French marriage contract is akin to a pre-nuptial agreement, something with which Anglo-Saxons will be more familiar.

4.3.2. Children From a Previous Relationship

The main limitation on the use of this marriage contract is that it is not ordinarily available in the presence of children by a previous relationship. This is because it disenfranchises one side of the wider family.

Thus, on the death of the surviving partner, only the blood children of the deceased would have an automatic right of inheritance.

Example: John has two children by a previous relationship. He and his new wife Anne buy their French home and adopt a French marriage contract. They later have a child, Christine. If John dies first, his wife Anne inherits the home in its entirety. When Anne herself dies, the property passes to Christine, as John's children have no blood relation with Anne. Only if Anne died first would all the children, including Christine, later share in the inheritance of the property, following John's death.

As a result, most notaires have been reluctant to allow you to adopt the regime communauté universelle if you have children by a previous relationship.

Indeed, a notaire is obliged to notify children not of the issue, who continue to have a right to contest the change of marriage regime. Now, we are aware that some notaires do not always undertake this task. We also know that where relationships with a child are estranged, some couples have not admitted to the existence of a child outside of the relationship. The risk is that this does leave the contract open to legal challenge at a later date.

Accordingly, if you have children by a previous relationship, you may be able to enter into a Family Inheritance Pact (pacte successoral) with the protected heirs.

The process requires the involvement of two notaires, and the child/ren must be advised privately and separately from their parents of the consequences of this decision.

4.3.3. Inheritance Tax Implications

If you are wealthy enough to be liable to inheritance tax, then the major disadvantage of a change of marriage regime is that, on the death of the final surviving parent, your children will pay a higher level of inheritance tax than would otherwise be the case.

This is because the taxes are payable on the whole of the estate, and with a lower level of allowances to set against the estate.

Thus, where this marriage contract had not been signed the children would benefit from the tax allowances available to both parents, whereas only one set of allowances is available on the death of the remaining parent.

These allowances are considerable, and most married couples need no longer be concerned about inheritance taxes, either between themselves or to their children.

Nevertheless, if you think you may be liable, there are several possible ways of reducing your liability.

• Make tax-free gifts to your children during your lifetime, so that the value of your estate is reduced.
• Make the clause d’attribution in the marriage contract specified for the life use (usufruit) of the property, not for the freehold interest. In this case, the children would receive the reversionary interest in the property on first death, and the freehold interest with taxes to pay on second death.
• Buy the property in France with a mortgage, or take out a loan against the property during your lifetime. The debt against the property is then deducted from the value of the estate, thereby reducing potential inheritance tax liability.
• Finally, each parent could specifically exclude certain ‘personal' assets from the marriage contract, so that these would become part of the shared, family inheritance. Indeed, if you so wished you can exclude any assets from the marriage contract.

4.3.4. Care Needed if Self-Employed

There are potential limitations of this type of marriage contract for those who also run a business in France, because family assets may then be unprotected from business creditors.

The use of a limited company, to run the business would be necessary to overcome this problem.

If you do not use a limited company it is possible to secure protection of the family home from creditors through a declaration d’insaisissabilité, which you can get through a notaire.

4.3.5. Procedure

The marriage contract is available to both residents of France and non-residents, but there are slightly different rules that apply, depending on whether the assets are real estate or cash. Real property is always subject to the laws of France, where this is not necessarily the case with cash or other similar assets.

If you think adopting a French marriage contract suits your circumstances, then you should make contact with a notaire and discuss the implications in full. They are able to complete all of the formalities.

Needless to say, fees are payable and, whilst there is an official tariff, the level of the fees does seem to vary between notaires. We have seen them as low as €200, but they are normally around €500. Provided there is no actual transfer of the property, the fees should be no more than a few hundred Euros; if a transfer is required, then the fees and taxes can be substantial, as they are related to the value of the property.

On the death of the first spouse, there are also fees and taxes payable, as the property will need to be transferred to the sole name of the surviving spouse through an attestation immobilière prepared by the notaire, and may amount to several thousand Euros, based on the value of the property.