TRANSFERRING ASSETS

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Transferring assets

 

Transferring assets raises many questions, because the law determines the heirs, except in the case of testamentary provisions, for which freedom is relative.

Taxation is a major question when a person deceases but also when anticipating death.

The management of the estate can also be anticipated.

 Who can inherit ?

 

In the absence of a will or donation between spouses, the sequence and the share of each heir is set by the law:

 

– If the deceased is married and only has children who were born within the bonds of his marriage with the surviving spouse :

Will be entitled to the estate: the surviving spouse and children.

The share of each will be determined according to the rights granted by the law to the surviving spouse. The surviving spouse will have the choice between:

  • either having the usufruct (i.e.: beneficial interest) of all the assets, and the children will inherit the bare ownership of the same assets;
  • or the surviving spouse can choose sole ownership of one quarter of the estate, and the tree quarters left then go to the children.

 

– If the deceased is married and has children from different unions:

Will be entitled to the estate: the surviving spouse and his children.

The surviving spouse will be granted sole ownership of one quarter of the estate and the remaining three quarters will go to the children.

 

– If the deceased is not married and has children:

The totality of the assets will be divided into equal shares and will go to the children.

 

– If the deceased is married but has no children and still has his mother and his father or one of them:

Each parent will receive one quarter of the estate.

The surviving spouse will receive half of the estate, but the parents of the deceased will take back half of the property that their child had received by donation or inheritance.

 

– If the deceased is married but has no children and has one father and/or mother still alive :

The parent will receive one quarter of the estate.

The surviving spouse will receive three quarters of the estate.

 

– If the deceased is married but has no children, no longer has a father and mother, but has brothers and sisters:

The surviving spouse will receive all of the estate.

But the brothers and sisters of the deceased or their descendants will take back half of the property that the deceased received by gift or inheritance.

 

– If the deceased is not married and has no children:

Each parent will receive one quarter of the estate.

The surplus goes in equal shares to the brothers and sisters, or, if failing that to the nieces and nephews; if none, the heirs inherit up to the sixth degree.

 

What can be transferred by way of will or by donation?

 

You can give during your lifetime to the person of your choice, all or part of your estate.

You can also write a will to change the sequence and the shares of the heirs as stipulated by the law.

But children (and their descendants), and if none, the surviving spouse, are called « rightful heirs « : these heirs are entitled by law to a minimum share of the estate.

This share is calculated by taking into account the assets left by the deceased as well as donations and benefits previously granted that will be collected and counted with the assets left by the deceased. If, as a result of a donation prior to the death, the rightful heirs do not get their minimum share, the recipient of the donation will, at their request, have to reimburse the heirs the amount they are entitled to. Similarly, a will or a donation between spouses can only be executed if the share of the rightful heirs is respected.

Therefore, you can only dispose of a certain portion of your estate called “freely disposable portion”. By taking assets out of the disposable portion of your estate, through a donation or a will, you can favour the person you want even if this person is not one of your heirs.

After death, the heirs may, however, give their consent in order fully execute the donation or the will.

Since the 1st of January 2007, they can also give their consent during the lifetime of the one who agrees to give by way of donation or will. It is then necessary to establish a specific act which must be made by two notaries: this is the “anticipated waiving to the action by reduction”, called « family pact ». But if the waivers are in need at the deceased’s death, the waivers can challenge this waiving.

 

What is the disposable part of your estate?

 You can give or bequeath the disposable part of your estate to the person of your choice.

The size of this portion of your estate depends on your family situation.

Be careful: if one of your children dies before you, his children will inherit in his name and share the assets your child would have inherited.

– If you have a child (legitimate, natural or adopted):

This child will receive at least half of your estate.

You are free to dispose of the other half.

– If you have two children:

They must receive two thirds of your estate divided equally between the two of them.

You are free to dispose of the remaining third.

– If you have three or more children:

They must get three quarters of your estate, divided equally between all of them.

You are free to dispose of the remaining quarter.

– If you do not have children but you are married:

Your spouse must receive at least one quarter of your estate.

You are free to dispose of the remaining three quarters.

-If you do not have children, and you are not married:

You are free to dispose of all of your assets.

 What does the surviving spouse receive?

 

The law of the 3rd of December 2001 has significantly improved the situation of the surviving spouse. (See above « Who can inherit? »).

However, in many cases, it will be necessary to draft a will or to make a donation in order to give as much as possible to the spouse and in order to ensure greater security for the survivor.

A prenuptial agreement or a deed of amendment to your matrimonial system can help to pass on to the surviving spouse more rights in relation to the common assets than a donation to the « last survivor » between the spouses.

The estate is reduced accordingly, especially from a fiscal point of view.

However, the effect of these provisions may be limited at the request of the stepchildren. They can then file for an action called “retrenchment ». It is therefore not recommended to prepare such an act when children are not common heirs.

The law provides:

 – If you have children

The surviving spouse may receive at the most either the freely disposable portion in full ownership, which varies according to the number of children (see above “What is the disposable part of your estate?”), or the entire usufruct (i.e.: beneficial interest), or three quarters in usufruct and one quarter in full ownership.

– If you have no children

The spouse is the sole heir and can receive all the assets of the estate.

Since the 1st of January 2007, the spouse must deduct from his/her legal rights what he or she has received by way of donation or will (see above « Who can inherit? »). The more the spouse will have received by way of donation or will, the less he or she will receive according to the law.

 

The right to the family house and its furniture

to the benefit of the surviving spouse and civil partner

 

The law recognizes the surviving spouse and civil partner a right on the family house.

During the year following the death, and without having to perform any formalities, the survivor can stay in the family house for free.

If the house is rented, rent will be paid by the estate.

After one year, and if the house belongs to the two spouses or to the deceased spouse or partner alone, the survivor can apply to receive a lifetime right on the family house and the right to use furniture. The survivor has to indicate his desire to do so during the year following of death.

 How to draft a will?

A will is a way to favour one of the heirs, to ensure the future of the surviving spouse, to bequeath property to a third party, to distribute accurately the different assets between the heirs.

You can state provisions in your will that are not related to your estate: for example, you can appoint a guardian for your minor children, you can organize your funeral, etc.

 

Holograph wills

Any adult can write a will on his own: the will must be entirely handwritten, dated and signed. The will cannot be a joint will, which means that each person must write a separate will, even if it contains the same provisions, for example for the supervision of common minor children.

This holograph will is legally valid and gives rise to no cost.

But it is exposed to the risks of loss, destruction or litigation if the deceased did not respect the legal conditions of form and substance.

Holograph wills entrusted to a notary

It is safer to seek advice from a notary who will help the testator write the will and who will make sure of the validity of the will. Entrusting a will to a notary avoids any risk of loss or destruction, it is almost always registered in the Central File of Last Wills Provisions (without its content) that all notaries always interrogate when someone dies.

Wills made by deed

The safest way to draft a will is by deed: in this case, you dictate your « last wills » to a notary in the presence of two witnesses or of another notary. This form of will is the only option for people who cannot write themselves. It is also recommended for the very elderly in order to avoid any challenge of the validity of the will by evicted heirs. The will made by deed is a guarantee of security because it is very difficult to contest. It has a definite date and is registered at the Central File of Last Wills Provisions.

Bequests

  • You can leave a specific asset (Table, real property, money, etc.) to a designated person: this is called « specific bequest”.
  • You can leave a portion of your assets, specifying only the portion of the whole or the nature of the assets: this is a “universal bequest” (for example, a quarter of your assets or all of your furniture or all of your real estate).
  • You can also leave all of your assets, without more details, to one or more people: this is the « universal legacy ».

Changing the provisions of a will

  • A will may be amended or supplemented at any time by additional provisions (« codicil »).
  • You can also write a new will that cancels the previous one. Only your « last » wishes matter, but only if they cancel the previous ones; hence, the importance of the drafting of a will.
  • A will can also be simply cancelled: you can destroy it yourself or you can contact your depository notary.

Litigation over the will

Heirs who deem the will to be unfair may initiate a legal action to request the cancellation of the will or to request a partial enforcement. The reasons may be various: the will does not fulfil the formal requirements of the law, the deceased was not sane when drafting the will, the will does not respect the share of rightful heirs.

 

Donations

 A will allows you to transmit all or part of your assets when you die. A donation enables you to do so during your lifetime (except in the specific case of donations between spouses « last surviving »).

All types of assets can be given: furniture, real property, money, etc.

You can give « in advance on inheritance shares » to one of your heirs: this is an advance drawn from the reserve. At your death, equality between the heirs will be restored.

You can also give « out of inheritance shares » by taking from the freely disposable portion: this is an additional benefit for the beneficiary.

Because we live older today, children often inherit from their parents at an advanced age.

By anticipating the transfer of your estate thanks to donations, you can help children before you die, when they need it most (marriage, real-estate acquisition, etc.).

Inter-generational shared gifts, which exist since the 1st of January 2007, have the same goal in relation to grandchildren.

Donations also benefit from tax advantages.

Thus, donations made over fifteen years are no longer concerned by the deduction (see below) nor are the reduced first brackets’ rates (5, 10, 15, 20 %, etc.).

They can cause evaluation issues when the grantor dies, so it is preferable to consent to a shared gift.

Shared gifts

This type of donation enables to distribute equitably all or part of your assets among your heirs. By getting the donation done during your lifetime and under your mediation, you are providing is a guarantee of family peace because it avoids potential conflicts that could arise after your death.

Inter-generational shared gifts allow ascendants to distribute their assets among their children and grandchildren, or between the latter only. It can help the younger generations if they have consent of their parents.

For those who have no descendants, this faculty is granted to the benefit of nephews and nieces.

Since the 1st of January 2007, it is also possible to make shared gifts within the context of stepfamilies.

Donations of money

 Donations of money granted by people under 80 years of age for the benefit of their children or grandchildren over 18 or emancipated are exempted from tax up to € 31,865 every fifteen years. This limit applies to donations by the same person to the same beneficiary. Aunts and uncles with no descendants may also grant in their nieces and nephews in the same conditions. This allowance is applied in addition to other allowances.

Revoking a donation

Unlike wills, donations are in theory irrevocable: the grantor cannot take back the property that is already given. There are very few exceptions. For example, a donation could be revoked if the beneficiary doesn’t act properly towards the grantor: this is called “ingratitude”. As for donations between spouses (called “donations to the last survivor”) of future assets consented during marriage, they are freely revocable.

 

The estate settlement

 

When someone dies, the heirs have six months to pay the inheritance tax. In order to avoid penalties, they should contact a notary as soon as possible to settle the estate.

The acceptance of the succession

 The deceased’s estate consists of his or her property (assets) but also of his or her debts (liabilities). If the liabilities exceed the assets, the estate is in deficit: this is a burden for the heirs.

They can either accept or renounce to inherit.

« The acceptance up to the net assets » is a compulsory-intermediate formula when the heir is a minor or protected adult. They collect the assets without risk: the heirs will pay the deceased’s debts only to the extent of the value of the assets they have received. A notary must establish the inventory of the estate within two months of the date of acceptance. The inventory will then be published, which gives creditors fifteen months to submit their claim. Those who declare their claim are paid within the limit of the value of the estate; and the rights of those who do not declare their claim will extinguish. As of the 1st of January 2007, this formality no longer requires the heir to auction off the assets it even allows the heirs to keep a few.

Be careful: certain acts, such as selling an asset from the estate (but not the act of paying urgent debts such as funeral expenses, rent, taxes, etc.) can be considered as an acceptance of the estate.

Taxation

 The transfer of assets by gift or inheritance is subject to transfer taxes.

  • The amount of these taxes depends on the extent of the estate and on the relationship between the beneficiary and the grantor. Distant relatives, cohabitants or third parties are heavily taxed: up to 60% of the value of the assets. The spouse and the surviving civil partner are fully exempt of taxes.
  • Each child benefits from a fiscal allowance on the value of assets transferred by his mother or his father.

Therefore, it is possible for parents to transfer assets to each one of their children tax-free to the extent of this allowance (See below).

  • This discount can be applied once every fifteen years. Upon the parent’s death, a child cannot benefit from the discount if he or she has already used it for a donation less than fifteen years ago.
  • Each grandchild receives a allowance of € 31,865 on the assets transferred by each of his/her grandfather and grandmother. This discount applies only to donations.
  • Furthermore, special deductions and allowances exist in certain cases. They are related to the quality of the beneficiary (a handicapped person…) or the nature of the assets (new buildings, woods and forests, etc.).

The tax benefits of donations

The scale of fees to be paid and the amount of allowances that can be deducted are the same (with some exceptions) that are applied for inheritance and gifts. But the latter have several advantages that can significantly reduce taxation.

  • Very incentive legal dispositions have been taken so as to reduce donation fees considerably.
  • The grantor may transfer the bare ownership and retain the usufruct. The tax value of the asset will be reduced depending on the grantor’s age by applying a scale of the value of the usufruct.
  • The fees will be more or less reduced depending on the grantor’s age and whether the donation occurs in bare ownership or in full ownership. Be careful, some measures may be temporary.
  • The grantor can decide to support the costs and fees of the donation. This additional « gift » is not considered as a donation and is not taxable. This is a considerable saving when the percentage of fees is high.
  • It is possible to benefit from tax allowances every fifteen years.
  • When a grantor dies, donations made ​​over fifteen years ago are not taken into account for tax purposes.

Allowances and exemptions (applicable as of the 1st of January 2010 and changed every year)

Allowances for donations and legacies (they are the same):

Children (living or represented): €100,000

Brothers and sisters: € 15,932

Nieces and nephews: € 7,967

A handicapped heir: € 159,325 (it is possible to add this allowance to the other ones)

General deduction (for legacies only): € 1,594

Specific provisions related to legacies:

Surviving spouse or partner: exemption

Specific provisions related to donations:

Spouse or partner: € 80,724

Grandchild: € 31,865

Great grandchild: € 5,310

N.B.: It is possible to benefit from tax allowances every fifteen years.

The mandate with posthumous effects (applicable since the 1st of January 2007)

 This mandate is intended to prevent any management difficulties of the estate after one’s death.

This power of attorney is highly recommended, especially when a business is involved in the estate or when certain heirs are under 18, or if some are very young, inexperienced or vulnerable adults.

This provision allows you to entrust the management of all or part of your estate to one or several agents acting in the interest of your heirs for a period of two to five years.

While establishing this mandate, a notary’s advice will make it easier to anticipate the potential difficulties in the management of the estate.

What are the formalities to establish a mandate with posthumous effects?

The mandate with posthumous effects must be established by deed.

The presence of the authorised representative is not mandatory but is recommended in order to ensure that he or she accepts his/her mission.

 

It is essential to ensure good grounds for establishing the mandate, i.e. to explain that the heirs do not fulfil the requirements or cannot perform the agent’s mission (lack of experience, incapacity, vulnerability…).

What are the agent’s powers?

The scope of powers of the agent and the object of his mission must be defined in the mandate; they may be limited to one asset (business management only) or to a specific mission (sale of the company or a defined asset) but this mission can be much more general.

 

The agent administers and manages all or part of the estate in accordance with the provisions defined in the mandate.

The agent can also sell some of the assets in the interest of the estate, if this possibility is provided.

 

This mission can be free or paid (by the heirs). It depends on the scope of the mission entrusted, on the agent himself, on the duration and the time it takes.

 

The judge may be referred to and can control the agent’s mission. The judge is also enabled to revoke the power of attorney in certain cases.

 Various questions about inheritance

What are the formalities to carry out in case of death?
The death certificate signed by a doctor must either be handed over to the town hall within 24 hours or transmitted by the hospital administration. The burial certificate is issued by the mayor of the city of the person’s death. Incidentally, you should also inform the social organizations and the different banks in which the deceased had accounts about the death.

What happens to the deceased’s bank accounts?

 All personal accounts are frozen until the bank receives instructions from the notary in charge of the estate and from all the heirs, as well as a document proving the quality of the latter. The joint accounts continue to operate under the sole signature of the survivor. In principle, half of the account balance at the time of death is supposed to belong to the deceased and is integrated into the estate.

What happens if the deceased has no living heir?

If the deceased has no will in favour of a third party, and after a genealogist has checked that there are no living heirs to inherit of the estate, all of the assets go to the State.


Can I transfer all of my estate to my spouse?

Descendants are entitled to a minimum share called “rightful portion”. Therefore the spouse can only receive all of the assets by way of donation or will, if the deceased has no descendants. However, it is possible to give or bequeath to the surviving spouse the entire estate in usufruct.

In some cases, if the deceased’s children are common to both spouses, the matrimonial system of community with a full attribution clause in favour of the surviving spouse enables the deceased to transfer all of the estate to the survivor.


How is the deceased’s estate evaluated fiscally?

 The estate is valued at net market value: the value of the assets is reduced by the amount of the deceased’s debts at the date of death.

Is it possible to disinherit a child?

 No. A child is a rightful heir who must receive a minimum share of the deceased’s estate. However, it is possible to reduce this share by giving all or part of the freely disposable portion to this child’s own children, his/her brothers and sisters, his/her spouse or to third parties.

Is it possible to disinherit a mother and/or a father?

Yes: since January 2007, parents are no longer rightful heirs.


How can I be sure that my will will not get lost or destroyed?

 The risk of loss or destruction of wills is an important matter. It is safer to go to a notary, who will ensure the conservation, make sure of the legal validity in substance and in form, and will guarantee that your last wishes are carried out.

How do I know if the deceased entrusted a notary with a will?

 Notaries have created a central database where donations between spouses and wills deposited at their office are confidentially referenced. They consult this file when they are in charge of someone’s inheritance. This file is now common to France and Belgium and is supposed to be extended to Europe. This is the best way to ensure that the will will be executed.

How can I ensure my spouse’s future?

 In the absence of a « donation to the last surviving spouse » and in the absence of a will, the situation of the surviving spouse may be particularly vulnerable if there are children of a previous union involved and if the spouse forgets to claim the lifetime right to the family house recognized by the law.

In this case, the survivor will lose his/her lifetime right to the family house. His/her legal rights in the estate will be the full ownership of one quarter of the estate. Therefore, it is appropriate for spouses to follow through with the organisation of their own protection with the assistance of their notary.

Several solutions are possible, including the following ones:

  • Each spouse can consent to the other a « donation to the last survivor « . When one of the spouses dies, the children collect their minimum shares, while the rest (the freely disposable portion between spouses) goes to the surviving spouse.
  • It is possible to adjust the prenuptial agreement in order to transfer certain assets to the spouse (e.g. the family house and its furniture or financial assets…).
  • It is also possible to adopt the joint estate system: all of the couple’s assets then belong to both spouses. When one dies, and if the prenuptial agreement provided a clause of full attribution of the community to the survivor, the latter, in principle, becomes sole owner of the whole and has no tax to pay.


What rights does my cohabitant have?

 Legally, the cohabitant is considered as a third party, as a stranger to the family. He has no right to inherit: the entire estate goes to the children (if any), or if none, to other relatives (parents, brothers and sisters, etc…).

Of course, you can always carry out a donation or bequeath a portion of your estate to your cohabitant, provided that you comply with the rightful heirs’ rights (descendants). But the fees are very important: 60% of the value of the assets transferred. The donation can reduce the rate depending on the donator’s age.

Other solutions also help reduce the amount of tax: life insurance, the tontine, payment of the donation fees by the donator. These solutions can be implemented with the help of notary.
What are the rights of my partner who is bound to me by a contract of civil partnership?

This legal situation is special.

Civil law treats partners as cohabitants: they are strangers to the family who have no legal estate vocation. They will inherit only if a will was drawn up in his/her favour and if there is no contradiction with the rightful heirs’ shares (see above).

Since the law of the 21st of August 2007 (“TEPA Act”), tax law assimilates surviving partners to surviving spouses. In case of donation, they also benefit from a € 80,724 allowance before the rate between spouses applies. In case of inheritance, partners are completely exempted from taxes.

What do “usufruct” and “bare ownership” mean?

The attributes of ownership can be divided into two distinct rights:

  • The right of usufruct which corresponds to the right to use the asset and to receive incomes related to the asset. This right can be either a temporary right or a life annuity right.
  • Bare ownership leads to the full property when the usufruct ends.

There is no joint ownership between an usufructuary and a bare owner.

What happens if I put all of my money on a life insurance account?

Funds invested in a life insurance contract are not treated as part of the assets of the inheritance. Therefore, one could be tempted to put all their money on a life insurance account in order to avoid the children’s rightful heirship. But, if the premiums are considered to be « manifestly excessive », they will be reinstated in the deceased’s estate to serve the children’s reserved shares. The judge will compare the assets and the incomes of the insured party to the premiums paid.

How is the money from my life insurance taxed?

  1. For contracts subscribed before the 20th of November 1991: no matter the age of the insured party
  • Inheritance tax exemption
  • For premiums paid after the 13th of October 1998: application of a 152,500 euro allowance per beneficiary before application of a 20% levy on the capital paid and of 25 % for the part of the part capital exceeding € 902,838.
  1. For contracts subscribed between the 20th of November 1991 and the 13th of October 1998:
  • Concerning the premiums paid before the insured’s 70th birthday:
    Inheritance tax exemption

Concerning the premiums paid after the 13th of October 1998: application of a 152,500 euro allowance per beneficiary before application of a 20% levy on the capital paid and of 25 % for the part of the part capital exceeding € 902,838.

  • Concerning the premiums paid after the insured’s 70th birthday:

After a global allowance of € 30,500 for all beneficiaries allocated in proportion to their rights, the inheritance tax scale is applied.

  1. Contract signed as of the 13th of October 1998:
  • Concerning the premiums paid before the insured’s 70th birthday:
    Inheritance tax exemption

Application of a 152,500 euro allowance per beneficiary before application of a 20% levy on the capital paid and of 25 % for the part of the part capital exceeding € 902,838.

  • Concerning the premiums paid after the insured 70th birthday:

After a global allowance of € 30,500 for all beneficiaries allocated in proportion to their rights, the inheritance tax scale is applied.

What are the effects of donations between spouses abroad ?

 Donation between spouses enables one or both spouses to protect the other in case of death.

However, this institution is little known abroad, and it is sometimes even prohibited in some countries.

In an international context, either because of the foreign nationality of on of the spouses or because certain assets are owned abroad, its application is uncertain.

It is therefore not  recommended to multiply acts and not to scatter them in different countries. Rather than regulating such an act which may give rise to difficulties of application or not be applicable, it is safer to make testamentary dispositions. These provisions will achieve the same purpose as that sought by way of donation between spouses. Given the importance of these provisions, consult your notary before drafting them.

What are the consequences of an international context on inheritance ?

 In an international context, the inheritance law that is applicable may not be French law, either because of the deceased’s last place of residence, or because of the location of the real estate. Several laws may be applicable to the same estate.

The consequences are important because certain inheritance laws impose the transfer of assets to heirs, and other inheritance laws, as in France, require the transfer of a share of the estate (a rightful share) to children or to the spouse if no children, whereas other systems provide complete freedom for the transfer of the estate.

Furthermore, taxation of the transfer of the estate is necessary but may in some cases be solved by a tax treaty signed by the foreign country and by France, which will avoid double taxation.

Within the European Union, it will soon be possible to choose, by way of will, the European inheritance law applicable to the deceased’s entire estate, regardless of the location of the real estate and regardless of the deceased’s place of residence. This will enable a uniformed treatment of the estate, no matter where the real estate is located.

Because law is specific to a country, both from a civil and a fiscal point of view, it is recommended to seek advice from a notary before you decide to expatriate or if you own assets abroad. Your notary will guide you in order to draft a will in accordance with tax law and the legal inheritance rules.