As we get older, many of us think more about the legacy we will leave to future generations; specifically, how and to whom our assets will pass after our death.
Review your estate planning arrangements regularly to ensure your wishes will be fulfilled, taking account of regulatory reforms or changes in your family.
Estate planning is made more complicated for British expatriates by French succession taxes (which can be as high as 60%) and ‘forced heirship’ succession law.
I touched upon French and UK succession taxes in my September article, so here I move on to focus on succession law.
Forced heirship and reserved heirs
French forced heirship rules dictate how assets are distributed on death. Key points are:
Assets do not automatically pass in accordance with your will.
Children are protected heirs, inheriting up to 75% of your estate.
Spouses are not automatically protected.
There can be ways of limiting the effect of forced heirship rules.
Provided you have a will, under French law your estate is divided as follows:
- With one child, 50% freely disposable and 50% to the child
- With two children, 33.4% freely disposable and 66.6% to the children
- With three children, 25% freely disposable and 75% to the children
The part of the estate that does not constitute the above hereditary reserve can be distributed freely.
If there are no children (from any relationship), the surviving spouse is a protected heir and entitled to 25% in full ownership. This does not extend to Pacs (civil) partners. The rest of the estate is freely disposable according to your will and can be left to your spouse.
Read more: What is key information needed in ‘simple will’ written in France?
It gets more complicated without a will. Where the children are just from this marriage, the spouse can choose between ownership of 25% of the estate or a life interest (usufruct) to receive income of 100% of the estate.
If the deceased has children from a previous relationship, the spouse only has the legal right to 25%; the rest of the assets will be divided equally between the deceased’s children.
Where there are no children, the spouse receives half the estate in freehold, and 25% goes to each of the deceased’s parents if alive, otherwise to the spouse.
With or without a will, provided a family home is owned solely by the couple, the surviving spouse has the right to claim to live in the property for the rest of their life.
Avoiding or mitigating French succession law - Brussels IV
Further to EU Regulation 650/2012, foreign nationals living in an EU country can opt for the succession law of their country of nationality to apply on their death, instead of that of their country of residence.
UK nationals can elect for the relevant UK succession law to apply to their whole estate. This must be stated in your will, otherwise French law applies by default.
Some British expatriates opt for UK law, but this is not always the right choice for everyone, so do your research first. The most suitable solution for you will depend on your family situation and aims.
One significant hiccup is that 2021 French legislation overrides Brussels IV by allowing the protected heirs under French law to make a claim for assets located in France. This applies if assets are distributed under a law without forced heirship, such as England and Wales.
Despite contradicting the above-mentioned EU regulation, this law is currently applied by notaries. We will see how things unfold and whether this law will continue to apply.
Property ownership
Different ways of owning property in France can impact succession law.
For example, inserting an en tontine clause into the conveyance (afterwards is too late) ensures the property will pass to the surviving tontine holder. It is, however, not the best option for unmarried partners or where there are stepchildren.
Read more: Is it possible to buy my ex-partner's share in French home?
Marriage contracts
The different types of marriage contracts in France can affect how assets are owned. For example:
Séparation de biens (separation of assets) – each spouse is treated as owning the assets acquired by them personally, and 50% of jointly held assets. Most British married couples automatically fall into this regime, as do Pacs partners.
Communauté réduite aux acquêts (community property ownership) – wealth created after marriage is considered joint property (even if held in one name); assets acquired before marriage remain the property of the original owner.
The donation entre époux alternative can help protect the surviving spouse where there are children from an earlier relationship, but there are still restrictions.
Before changing your regime, research the tax implications – a different marriage regime will not automatically improve your succession tax position.
For example, it would not avoid the 60% succession tax for stepchildren and may mean children from your current marriage end up paying more tax.
Read more: Married couples: Are you familiar with your French marriage regime?
‘Pacte de famille’ or ‘Pacte Successoral’
Your family can choose to enter into a pre-inheritance contract where one or more of your children agree to give up, or defer, some or all of their inheritance in favour of other persons.
Unmarried couples and Pacs
Unmarried couples have no rights over each other’s property and French succession law will apply. In addition, the survivor will suffer 60% succession tax.
Pacs is a formal written agreement entered into between the partners. A contract is drawn up, detailing division of possessions.
Pacs partners are treated the same as spouses for tax purposes – so no succession tax is due on death – but this does not extend to succession law.
Pacs partners must consider the impact of French succession law on their deaths and set up effective mitigation strategies in advance.
Investment capital
It is much easier to mitigate both French succession law and tax on capital investments than on real estate.
There are investment arrangements available in France which fall outside French succession law and provide tax advantages for yourself and your heirs.
All in all, care must be taken when setting up your estate planning in France.
With complex, cross-border issues, this is a specialist area. Your estate plan must be tailored to meet your personal objectives and family situation.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.
