Guide to French Inheritance Laws and Taxes
4. Inheritance Planning in France
Property Ownership Options
- Adopt a French Marriage Contract
- Enter into a French Civil Partnership
- Make a Family Inheritance Pact
- Make a Will
- Create a Trust Structure
- European Succession Law
Financial Planning Options
- Buy or Improve with a Mortgage
- Make a Gift Between Man and Wife
- Make a Gift to Children/Grandchildren
- Make a Gift to Others
- Take out Life Insurance
4.3. Adopt a French Marriage Contract
4.3.1. What Does a Marriage Contract Mean?
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 the estate.
This may not be a problem to you because the surviving spouse retains the right to opt for 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 particular 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.
The French marriage contract is called régime de communauté universelle with the clause d’attribution intégrale.
The clause is imperative, as the marriage contract can exclude it, or contain other clauses.
Under this type of marriage contract, all the assets of the couple are said to be owned communally and transfer automatically to the surviving spouse on first death.
The contract is merely a way of regulating the ownership and transmission of assets in a marriage and does not involve annulment of your existing marriage. In this sense it ought more properly to be called a 'property agreement' for it deals with the distribution of property within the relationship.
Since 2019 only residents have a right to enter into this marriage contract.
On the death of the first spouse the surviving spouse automatically becomes sole owner of all of the property, and the rights of the children are deferred. It is the clause 'd’attribution intégrale' which ensures that the surviving spouse succeeds to the totality of the inheritance.
The great advantage of a French marriage contract is that the surviving spouse is able to do whatever they wish with the assets, whereas the consent of other inheritors would otherwise be required if, for instance, they wished to sell the main home.
This is where the French marriage contract scores over a gift to the spouse ( donation entre epoux) or through a Will where, in either case, the children would still inherit some of the property. One other benefit of such a contract is that it greatly eases the costs and formalities of the succession.
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 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.
Nevertheless, such a contract is only necessary for a couple with children as it is possible to exclude all other potential inheritors (brothers, sisters parents) by a Will or a Donation-entre-époux.
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.
A child from a former marriage can renounce their right to bring an action for retrenchment, but retain their rights to an inheritance, which they would receive on the death of the surviving spouse, in the same manner as children from the existing marriage.
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.
The other alternative if you wish to protect your spouse, while avoiding any action by the deceased spouse's children, you can opt for a 50% usufruit attribution clause.
This clause allows the surviving spouse to hold 100% of the usufruit of the communauté universelle while retaining 50% of the communauté universelle.
Since the heirs of the deceased spouse inherit, an action for retrenchment is no longer possible.
Since 2015 it has also been possible to adopt the inheritance laws (but not taxes) of your nationality and if the laws give you testamentary freedom this is a simple alternative. You can read more in European Succession Law.
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.
- Consider buying 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.
- Consider taking out an assurance vie policy.
- 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.
If you have also entered into a French marriage contract - régime de communauté universelle with the clause d’attribution intégrale - then the policy is not automatically excluded from the succession.
Life insurance contracts taken out by the spouse of the deceased, married under the community regime, are part of the estate assets to be divided between the heirs, in particular the children.
That said, the policy is not taxable for inheritance tax purposes.
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, although since 2015 the family home is automatically protected, save where a personal guarantee has been given.
The use of a limited company, to run the business would be necessary to overcome this problem, provided none of the debt of the company has a personal guarantee.
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 and Costs
Since 2019 this marriage contract is only available to residents and the formalities have tightened, including consultation with adult children.
Such contracts can only be drawn up under the auspices of a French notaire.
As usual, when it comes to notaire fees the position is not always straightforward, as the fee may be made up of several elements.
The basic fee is €226, vat inclusive. It is regulated by the government and set out in the Code de Commerce Article A444-82.
We frequently hear of reports of overcharging by notaires so check with the notaire before you commence the formalities.
In particular, some charge extra for advice they provide, but such advice should form part and parcel of the service they offer for the fee.
Since 1st Jan 2020 a marriage contract has also been subject to a tax, called a 'droit d'enregistrement', of €125.
The charges can rise considerably if you wish to declare real estate within the marriage contract. That is to say, if there is property that is only owned by one spouse that is to be included in the contract.
If so, their fee is a percentage of the value of the property being transferred, provided it is in excess of €30,800. The scale rate is regulated, so ask the notaire. You will also need to add stamp duty of 0,715%. The stamp duty will be payable on 50% of the value of the property.
Generally speaking, there is no need to transfer title of the property to joint names and if your notaire is insistent on this point then you need to take other advice. You should avoid even listing the property in the marriage contract, as this can mean an increase in the fees.
Higher charges may also be payable where the adoption of the marriage contract involved other issues than merely the right to succeed to the estate of the deceased spouse, or there was a need to liquidate an existing French marriage contract, something that would not normally apply to a married couple from abroad.
If you are advised by the notaire you need to go to court to obtain court approval of the contract then you need to query why this is necessary, as such a requirement does not normally apply, although the law of succession in some countries has limitations on the extent to which a couple may adopt such a contract.
If you wish to enter into such a contract you might be well advise to ask your local notaire what they would charge, and if you do not like what they say, try another one.
On the death of the first spouse, there are also fees and taxes payable for the transfer (mutation) of the property to the sole name of the surviving spouse through an attestation immobilière prepared by the notaire. The cost of this process can be expensive, depending on the value of the property, with stamp duty of €125, but fees a percentage of the total value of the property held jointly.
It might be of interest for some to note that there is no sanction that applies if you do not arrange for the transfer of the property into the sole name of the surviving spouse, although you would not be able to sell it, or take out a mortgage on the property.
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