French inheritance law - part 1

INHERITANCE

French inheritance law and taxation differ substantially from many other countries, especially Anglo Saxon law countries. It is important to address this issue at the purchasing stage because what is contained in the acte authentique will often determine what ultimately occurs in relation to the inheritance of the property. Individually tailored advice should be sought as the best solution will depend on a variety of factors, including family circumstances, place of domicile and the value of the property. It is for this reason that this guide does not seek to provide blanket inheritance advice. A summary of certain of the main issues is provided hereafter.

LIMITS TO TESTAMENTARY RIGHTS:
Certain of an individual’s closest relatives benefit from protected minimum interests in a share of property owned by that person i.e. children; grand-children if the children are pre-deceased. As of 1st January 2007 parents and other ascendants have lost their protected inheritance status and can now be disinherited. These protected beneficiaries are known as réservataires (forced heirs). A will that derogates from the protected rights of a réservataire cannot be fully applied. For example, in the presence of children simple wills benefiting the surviving spouse will not achieve the desired objective and the children will remain the prime beneficiaries. The interests of a réservataire thus supersede those of a spouse, unless express measures are taken to ensure that the spouse is the only beneficiary.

BENEFITING SPOUSES:
As mentioned above, a spouse will not always automatically inherit. His or her rights will depend in part upon how the purchase is structured e.g. what is stated in the deed of completion in relation to how the property is owned between the spouses, and also upon the family situation of the other spouse. Despite recent legislative changes improving the inheritance rights of a surviving spouse, care needs to be taken to ensure that they are adequately protected. The two principal methods for passing property to the surviving spouse are the ‘tontine clause’ and a change of matrimonial regime to adopt the French regime of ‘universal community’. The tontine clause is inserted into the acte authentique and means that upon the death of one spouse, the survivor is the sole owner of the property. The change of matrimonial regime to adopt the French regime of ‘universal community’ involves signing an act, usually immediately before completion, altering the law governing the matrimonial regime. The main advantage of such an act is that the surviving spouse will inherit property owned under the regime but without any inheritance tax liability (although this is now also the case with the tontine clause following the recent introduction of the spousal exoneration from inheritance tax). There is a fee attached to this mechanism due to the fact that a separate act is required. It is always important to consider the impact that such mechanisms will have on the ultimate inheritance of the property. For example, if one spouse has children from another relationship, these children could effectively be disinherited by such provisions. Those children can take legal action to overturn a change of matrimonial regime which would substantially prejudice the rights of the surviving spouse so the tontine clause may offer greater protection in such a situation due to the fact that it is more difficult to overturn. An alternative is for the beneficiaries of the deceased spouse to inherit and for the survivor to be left with a life interest known as an usufruit. This will ensure that the survivor benefits from exclusive use and possession of the property for the remainder of his or her lifetime. As well as ensuring that the respective families inherit equally, this method can have an inheritance tax advantage for a couple with children due the maximisation of the tax free allowances that it offers.

Copyright: Victoria Headdon, Compass Immobilier