We have created this simple guide to French Estate Planning, to ensure that your French property is dealt with in the way you wish during your lifetime and after death. This includes information on succession law.
French succession law is somewhat different to English succession law and its provisions may come as a surprise to English buyers who are used to the idea of testamentary freedom. Family situations are often complex these days, with second marriages, stepchildren and so on and provisions usually need to be made at the time of purchase to avoid difficult circumstances later on.
En Indivision and En Tontine
The first point to be aware of is what is meant by joint ownership. The usual method in France is that of indivision. This means that each spouse or partner owns half the property, which is similar to the tenants-in-common situation in England.
If a married couple want to buy a property together, they usually want the survivor to have ownership of the property after the first death. This will not automatically happen as the French are very protective of children in their legal provisions and will use the indivision method in preference to any other. Therefore, joint ownership en indivision means that when the first spouse dies, a portion of their French must go to that person’s children. The size of the portion depends on the number of children – half for one child, 2/3 for 2 children and ¾ for 3 or more children.
The remaining spouse therefore does not have freedom to do with the property as he or she wishes. If the children are those of the deceased from a previous marriage, then the survivor may be in the uncomfortable position of being in joint ownership with stepchildren.
These situations can be avoided by having a tontine clause inserted in the final conveyance deed (acte de vente). Ownership en tontine roughly equates with joint tenancy in English law and will mean that when the first spouse dies, the survivor will be considered as having owned the property from the start and thus the rights of the deceased’s heirs can be avoided.
Another important aspect to consider is that of FRENCH INHERITANCE TAX.
The tax-free allowances in France are not nearly so generous as in England. There is no longer any inheritance tax between spouses but for unmarried partners, even with a tontine clause, inheritance tax will still be payable on half the value of the property at the time of the first death. Consideration must therefore be given to the value of the property in relation to current inheritance tax rates and allowances to see if further precautions are necessary.
The tontine clause can only be applied to real property ie the house so if you are moving to France you will need to take further steps to deal with your moveable estate, such as cash and shares.
A French Marriage Régime
When people get married in France, they often sign a marriage contract which determines how their property is dealt with on death. The régime of communauté universelle de biens ensures that on the first death, all the property of the marriage passes to the survivor. English buyers can adopt a French marriage regime just in respect of their French property under the rules of the Hague Convention.
Those who decide to go and live in France permanently will find that their worldwide assets are then subject to French succession law and tax, as opposed to just the French real property. In these circumstances, it would almost certainly be worth adopting an appropriate marriage regime as the whole French estate can be included in the regime.
However, where there are children from a previous marriage, many French notaires will not agree to deal with the kind of marriage regime which could have the effect of disinheriting children and would be surprised that anyone might want to do this. Even though such a marriage regime is perfectly legal and valid, according to the French civil code, it will be set aside if the children take action to enforce their succession rights.
If Mr and Mrs Smith have moved to France and want to leave all their property to each other and then to Mr Smith's two children from his first marriage. They could adopt the regime of communauté universelle. If Mr Smith dies first, then the children can take action so that the regime is ignored as far as two thirds of their father’s estate is concerned, as this is their legal reserve. However, if the children were willing to renounce their right to take action at this point, then the property would pass under the regime as intended with no inheritance tax.
A law that came into effect in January 2007 allows the children to renounce their rights before the death of their parent and then exercise them after the death of their step-parent. This may be a very useful solution in certain circumstances. To put this into effect, the children would have to sign a renunciation deed in the presence of 2 notaires.
The SCI - A French Property Owning Company
Another useful solution in some circumstances, particularly for unmarried couples is to set up an SCI. An SCI is a company set up for the management and letting of property. If the property is bought by the SCI, the members of the company own shares rather than property. As shares are considered to be personal property, not real property, then English succession law applies and the shares can be left in accordance with the deceased’s wishes. The SCI also gives the members a lot of flexibility as they can transfer shares freely between themselves and to others (usually with the agreement of all members only). This means, for example, that parents can gift shares to their children during their lifetime thereby avoiding hefty inheritance tax liability for them, providing the gift was given at least 10 years before death.
A special form of the SCI, where the shares are held ‘en tontine’ can be a way of considerably reducing tax liability for unmarried same-sex or heterosexual partners.
The owners of the SCI must keep accounts and hold an annual general meeting. As a means of avoiding succession law, this structure only works if the owners remain resident in the UK.
Do you need a French will? When an owner of French property dies, the succession must be dealt with in France. If there is no will for the French property, the notaire will want to see the English will. A translation must be provided by an appropriately accredited translator causing difficulties and considerable expense to the heirs. An English will would be accepted only insofar as it does not contravene French succession law. If a husband has willed his property to his wife and has not left the required amount to his children, this provision will be ignored. It is usually advisable to have a French will for the French estate.
Owning property in France can be a pleasurable experience for the owners and their family but it is worth taking advice to ensure that your particular circumstances and wishes are taken into account.
About the Author
The Author Susan Busby is the owner of France Legal a small practice that specialises uniquely in the legal aspects of French property matters. She has studied French law for several years and has a Masters degree in European law (specialising in French property, employment, company and contract law).
Tel/Fax: 00 44 (0)1449 736644.
© Susan Busby - France Legal 2012