French Riviera Lawyers

INHERITANCE

Advice given by a French notary to his foreign or French clients who own property abroad must be adapted.  It is necessary to plan which law is applicable at the time of inheritance as well as corresponding taxes.
 

HOW TO PREPARE AN INTERNATIONAL INHERITANCE

When a person owns property located in different countries, what are the consequences concerning payment of his/her inheritance?  This brings up problems specific to private international law and taxation, about which notaries are being consulted more and more.
 

At the time of investment

As a preventative measure, a notary may be required to find the best civil and fiscal solution.  Problems of preparing the inheritance may arise as soon as a modification is made in the interested party’s estate,  that is as soon as an investment is envisaged.
 

Type of marriage settlement and inheritance law

If the buyer is married or bound by a partnership agreement abroad (such as the “pacs” agreement in France), the marriage settlement between the spouses or the partners’ binding agreement plays an essential role.  Indeed, liquidation of the marriage settlement or of a partner’s interests shall constitute an indispensable preliminary to the settlement of the inheritance.
 

Spouses married without a contract

Couples who are married without a contract must establish their type of marriage settlement.  In order to remedy inequalities in an unfavorable marriage regarding inheritance, they must have their settlement modified, which is easier in international law.   Any change of applicable law must be made by a deed (drawn up by a notary, a solicitor or a lawyer), with no legal ratification, in accordance with Article 6 of the Hague Convention concerning the law applicable to marriage settlements (see Mémo Mariages internationaux et régime matrimonial).
 

Real property or company

The nature of the investment plays a decisive role in the future estate of the buyer.  French international private law subjects movables to the law concerning the deceased’s domicile, and real property to the law where the premises are located.  Any buyer must be informed, as soon as a purchase agreement is signed, of the intended purpose of said real property in his/her estate.
 

In France: How to avoid the portion of inheritance devolving upon the heirs

Purchase of real property in France by an English citizen domiciled in London, for example, entails application of French inheritance law on said property.  The portion of inheritance devolving upon the heir(s), unknown in Anglo-Saxon law, shall limit his/her capacity to dispose of said property and shall create a division in the estate, subjected up till now to Anglo-Saxon law.  However, purchase by means of shares in a French non- trading real property investment company (“SCI”), subjected to Anglo-Saxon law, shall avoid the effects of estate apportioning.
 

Switzerland:

Let’s take the example of a Swiss citizen with 3 children from a first marriage and remarried a second time under a marriage settlement of separate estates between husband and wife.  Domiciled in Geneva for example, he buys alone an apartment in a French ski resort.   Should he die intestate, said property would be inherited by his 3 children for three quarters of his estate, and his wife would only inherit one quarter, according to French law.
 

Incorporation of a company

If, however, he incorporates a French non-trading real property investment company (SCI) to carry out said purchase, according to the Swiss law governing his movable estate, 50 % of the shares of his company shall be attributed to his wife and 50% to his 3 children.
 

Tax advantage

When persons domiciled in Switzerland buy real property in France, purchase by a French SCI is preferable to direct purchase of said property.   The most favorable tax advantage at the time of death results from the Franco-Swiss convention dated December 31st, 1953.  The company shares shall be subject to transfer taxes following death in Switzerland, in the canton of the deceased’s domicile, whereas the property shall be subject to transfer taxes following death in France.  In Switzerland, the majority of cantons have abolished inheritance duties in a direct line and between spouses.
 
 

Choosing the type of descent for your estate

In an international context, the choice of type of descent is very important.  The will and donation inter vivos are institutions well known by foreign internal law, but donation inter vivos concerning future property and a deed of gift under French law are unknown in many countries abroad.  On the other hand, trusts and inheritance agreements are not accepted in France.
 

The Will

A will is the most currently used means of preparing the descent of one’s estate.  But the division of an estate in different countries does not bind the testator to make several wills.  Your notary should verify the scope and compatibility of the arrangements made, should your future will not expressly revoke any earlier testamentary arrangements made.
 

Choose a holograph will or a will drawn up by a notary

The Hague Convention dated October 5th, 1961, in force in 36 States, concerns the validity of wills.  It would be exceptional if the type of will chosen by a testatrix is not included in the range of laws likely to be implemented.  For example, a holograph will drawn up in France by a Portuguese, even if written in Portuguese, is valid in both France and Portugal.  A joint will drawn up by a German married couple in one sole deed, either to the reciprocal benefit of the testators, or to the benefit of a third party, forbidden by French law (French Civil Code, Article 968) shall be valid in France as it is admissible under German law.

An international will, introduced by the Washington Convention dated October 28th, 1973, is a form of mystical will drawn up in the presence of two witnesses and one person authorized to draft legal deeds.  The drawing up of such a will is not recommended because of its complexity, whereas the possibility of using a holograph or authentic will is admitted in numerous countries.  On the other hand, a donation inter vivos of future property widely used in France would be dangerous in an international context.  Your notary will suggest drawing up a will with equivalent dispositions.
 

Trusts and inheritance agreements

Arrangements made by English, Canadian or American citizens by trust, a typical institution in Anglo-American law, would cause problems upon execution in France.  In the same way, inheritance agreements admitted by German and Swiss law, will not be recognized if French inheritance law governs the estate and if said agreement in fact contains an anticipated renunciation of an estate.
 

Inheritance law

Whatever form is adopted for the dispositions, the disposable share of an estate, the portion devolving upon the heirs, problems pertaining to restoration and abatement are subjected to the competent inheritance law.  Thus, in an international estate, the portion devolving on the heirs is calculated according to each gross estate subjected to its own law.  Should an estate comprise two real properties of the same value, one in France and the other for example in Belgium and there are 2 descendents as heirs, they should each find the portion devolving on them from both the property in France and from the property in Belgium.  It would be impossible to bequeath the property in France to one and the property in Belgium to the other.
 

Limitations of a deed of gift

A deed of gift cannot be used when an estate is dispersed in different countries.  It might seem evident for the parents of three children with real properties of equal value in different countries to attribute the house they own in Brussels to Nathalie living in Belgium, their apartment in Lucerne to Henri living in Switzerland, and the penthouse to Guy living in Cannes.  The deed of gift would be called into question upon the death of the donators, since each heir is entitled to claim his/her portion of each gross estate subjected to a different law.
 

Tax repercussions

Tax repercussions often determine the choice of civil solutions.  Your notary must systematically verify if a convention enabling you to avoid double taxation on estates or donations exists between the States where the estate is located.
 

In the absence of a tax convention

When the donator or the deceased, is domiciled in France, all property, both movables and immovables, made over free of charge are subject to taxation in France.  The field of implementation is absolutely general and includes all transmitted property located in France or abroad (French General Tax Code, article 750 ter 1°).
When the donator or the deceased is domiciled outside France, only those movables and immovables located in France (according to article 750 ter 2° of the French General Tax Code) are subject to tax in France.
Finally, since January 1st 1999, article 750 ter 3° of the French General Tax Code extends the field of territorial application of transfer taxes free of charge.  When an heir or donee is domiciled in France for tax purposes, he is liable for transfer taxes free of charge on the movables and immovables received from a donor or a deceased with his tax domicile outside France.  But it is possible to deduct any tax that may have been paid abroad for the same property from taxes payable in France (French General Tax Code art. 784A).
 

A Swiss chalet

Arlette Bon, a French national, domiciled in France, is the sole owner of a chalet in le Valais worth one and a half million Swiss francs which she would like to make over to her two sons by deed of gift.  What should we advise her? The Franco-Swiss convention dated December 31st, 1953, only applies to successions and not to donations.  According to French tax law,  a donation by a donor domiciled in France is taxable in France.  It is also taxable in Switzerland at the applicable rate in the canton where the property is located.  In le Valais, there is a tax exemption for the surviving spouse, the descendants and ascendants in direct line and the adopted children.  Donation should be avoided.  It would be better for her to bequeath the property on her death since transfer taxes in that case would only be due in Switzerland and there is no inheritance tax in le Valais.
 

Fiscal strategy

Most tax conventions (and the principles of fiscal law applicable in the absence of a convention) attach movable assets, bank accounts, movable shares and claims to the deceased’s domicile.  Where the assets consist of movables, it is advisable to establish domicile in a State where the amount of transfer taxes is low.
 

Real property

Real property is always subject to transfer taxes on death in the country where it is located. However, in certain cases the place of taxation may be varied by contributing the real property to the capital of a non-trading real estate investment company.  Thought must be given to civil consequences since a change of qualification of the property may modify the law applicable to inheritance.
 

Variable interest of the company

From a tax point of view, the ideal solution depends on the apportionment given to the shares of the non-trading real estate investment company.  As previously noted, incorporation of a company is advantageous for a person domiciled in Switzerland.  However, the Franco-British convention subjects shares in a non-trading company to the place where the real property is exploited as does the convention with the United States.
 

Well-planned management of estate

From the civil point of view, applicable inheritance laws may grant different shares to heirs.  From a tax point of view, certain States enjoy reduced taxation, considerable deductions or have done away with inheritance and donation taxes.  Your French Notary will advise you on all available possibilities.
 

TAX CONVENTIONS WITH FRANCE

To avoid double taxation on successions, France has signed tax conventions with the following countries: Algeria, Saudi Arabia, Bahrain, Belgium, Benin, Burkina Faso, Cameroon, the Comoros and Mayotte, Congo, Ivory Coast, Central African Republic, United Arab Emirates, Spain, Finland, Gabon, Kuwait, Lebanon, Mali, Mauritania, Monaco, Niger, Oman, Qatar, United Kingdom, Senegal, Switzerland, Togo and Tunisia.
Six other conventions apply to both successions and donations.  They link France with Austria, the United States, Italy, New Caledonia, St Pierre and Miquelon and Sweden.  Outside of these six conventions, taxation on donations is in compliance with article 750 ter 3° of the French General Tax Code.
 

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