French Succession - no close relatives

[anglais tarnais]

We are a married couple with no children, no brothers or sisters, and only one surviving parent (elderly, without mental capacity, and in a nursing home).  We are domiciled in the UK with a sécondaire in France, purchased en tontine.  We have English wills that specifically exclude immovable property in France.  We do not have French wills.

Presumably, under French succession law, the parent would inherit the property upon the second death?  Is there any way of avoiding this?

If we make French wills, can we ensure that the property passes instead to someone of our choice, albeit subject to significant inheritance tax?  As an alternative, can we state that the house should be sold and the proceeds divided between a number of relatives (aunts, uncles, cousins, cousins once removed), with each person's inheritance tax deducted from the proceeds prior to their receiving an amount of money net of tax?

Hope someone can help.

[Clair]

You might find some info here: http://www.successions-europe.eu/en/france/topics/

[AnOther]

I wonder if you know about or have considered the viager system and whether it might be an option ?

http://www.thisfrenchlife.com/thisfrenchlife/2005/12/buying_a_home_e.html

http://www.franceviager.fr/default_zone/fr/html/page-1213.html

[parsnips]

[quote user="anglais tarnais"]We are a married couple with no children, no brothers or sisters, and only one surviving parent (elderly, without mental capacity, and in a nursing home).  We are domiciled in the UK with a sécondaire in France, purchased en tontine.  We have English wills that specifically exclude immovable property in France.  We do not have French wills.

Presumably, under French succession law, the parent would inherit the property upon the second death?  Is there any way of avoiding this?

If we make French wills, can we ensure that the property passes instead to someone of our choice, albeit subject to significant inheritance tax?  As an alternative, can we state that the house should be sold and the proceeds divided between a number of relatives (aunts, uncles, cousins, cousins once removed), with each person's inheritance tax deducted from the proceeds prior to their receiving an amount of money net of tax?

Hope someone can help.

[/quote]

Hi,

      The parent would only inherit if their child was the last of the couple to die.

       I suggest you avoid inheritance problems altogether by looking into the french equivalent of "equity release", the "viager". In essence you take a contract whereby the insurance company pays you a "rente viagere" for life (index-linked) and on the second death , they take the house.

       To find companies offering these contracts , I suggest you contact a french based IFA such as Siddalls International.

        Here is a brief description of the product (in french , I'm afraid);

 

Le prêt viager hypothécaire, souscrit auprès d'une banque, peut être versé sous forme de capital ou de rente, garanti par une hypothèque sur un bien immobilier à usage d’habitation (résidence principale, secondaire ou bien locatif). L'emprunteur n'est tenu à aucun remboursement de son vivant (capital et intérêts), sauf en cas de vente ou de don du bien.

S'adressant presque exclusivement aux personnes agées, ce type de prêt permet d’obtenir des liquidités de son patrimoine sans s’en séparer, contrairement à la vente en viager. Ce prêt peut être utile pour compléter les revenus de sa retraite et/ou faire face à des dépenses imprévues (dépendance, réparation du logement, etc).

Au décès, les héritiers peuvent alors choisir de racheter le prêt s'ils souhaitent conserver le bien immobilier ; mais quoi qu'il arrive, la dette réclamée par la banque ne pourra excéder la valeur de revente du bien telle qu'estimée au jour du décès (plafonnement de la dette), ce qui protège les héritiers.

En janvier 2008, seul le Crédit Foncier de France* propose un prêt viager hypothécaire : accessible à partir de 65 ans et versé sous forme de capital. Le prêt viager hypothécaire pourrait être utilisé en réponse à la dépendance des personnes âgées.^[1]

(*There are more companies doing these contracts now)

[anglais tarnais]

Thanks to you all for your responses.  We are not keen on the viager option for the following reasons: (a) we would like to keep the property (or its sale proceeds) in the family, even if it is distant family! and (b) we have heard of problems if the company buying the property under viager becomes bankrupt.

So, returning to our original questions, if we make French wills, can we ensure that the property passes instead

to someone of our choice, albeit subject to significant inheritance

tax?  As an alternative, can we state that the house should be sold and

the proceeds divided between a number of relatives (aunts, uncles,

cousins, cousins once removed), with each person's inheritance tax

deducted from the proceeds prior to their receiving an amount of money

net of tax?

Thanks again for your help with this.

[KathyF]

As far as I know the simple answer to your question is No. Under French law you cannot disinherit a parent or a child, even if, as your case, the parent concerned is mentally incapable.  In the unlikely event that you both predeceased your parent, s/he would inherit as your nearest relative and your house would be added to his/her estate.

[Richard51]

Sorry, going slightly (ok very) off topic here but the Tontine system was devised by a Neapolitan banker, Lorenzo Tonti, who introduced the system into France in the 17th c.  It was originally an investment vehicle for multiple investors where, on the death of each member, their share passed to the others.  Winner takes all.  It is no longer popular as an investment system as, surprise, surprise it resulted in rather too many premature deaths...

Mrs R51

[tinabee]

Under the most recent changes to French inheritance law - parents are no longer regarded as reserved heirs. So in the absence of any children, the remaining spouse can dispose of the property as he or she wishes. You would need to make a will in France detailing what you want, otherwise, in the absence of any French will, other relatives (e.g. parent, brothers, sisters) will inherit by default

I have found this guide very useful:

http://www.french-property.com/guides/france/finance-taxation/inheritance/overview/

[KathyF]

Thanks, Tina, I stand corrected and am glad for the OP's sake that this is now the case.

[parsnips]

Hi,

 If you remain UK domiciled there is a possible way of passing the property to whoever you wish, provided they also are UK resident. You can sell the house to them "en viager" via a french notaire (this would involve some fees and taxes , but much less than they would pay in IHT)--then ,as you are all UK resident you can use your financial freedom as UK citizens to return the money they pay you (both the "bouquet" and the "rente") by giving them equivalent amounts as gifts on anniversaries ,Xmas , birthdays etc.  On your eventual death they would take the house without any french IHT (as they would already own it). I assume it would also be exempt from UK IHT, but maybe someone knows differently?

[cooperlola]

I think you will find, Parsnips, that the o/p has already considered and rejected the en viager option in this thread!  However, I believe it really is worth considering.  We are in a similar postion (albeit in France) whereby there is only my aged mother (still fit and well though, at 88)who falls into the "immediate family" category and we don't want her to have our house if we both pop them before she does (there's not much else worth having!)  The tax is prohibitive (about 60%????/) for our godson ,who is our main beneficiary.  I do think the o/p needs to look at this again as  it could save somebody a lot of money.

[Stan Streason]

I had always assumed that as the inheritance tax position was so prohibitive, dying owning a french property was very bad tax planning.  We are en-tontine and I believe any survivor will be better placed to sell up and repatriate the cash.  Alternatively (in my position its the kids not the godson), why not loan them the money to buy the property from you. (The cash just goes round in circles with some fees leaving but a lot less than inheretance tax). 

[cooperlola]

[quote user="Stan Streason"] why not loan them the money to buy the property from you. (The cash just goes round in circles with some fees leaving but a lot less than inheretance tax). [/quote]In our case because the only capital we have is in our house - we don't have any money to lend anybody, we live on our pensions.  Thus the capital will only be released on death and frankly, even 40% of our net worth is more than he has at the moment so tough if the French government gets the rest.

Your kids only pay a fraction of that amount, Stan, as they are direct blood relatives.

[Judith]

Ours is willed to my sister, and I have put an AV in place with her as the beneficiary. I can use it if needed of course, but it would also pay the inheritance tax if required.  Another way round the problem possibly.

[debbie]

Cooperlola: In the U.S. you can sell your property for as little as $1.00 (for purposes of reducing inheritance tax). I don't know if that is an option in France but if so, think that would solve your problem.

[parsnips]

[quote user="debbie"]Cooperlola: In the U.S. you can sell your property for as little as $1.00 (for purposes of reducing inheritance tax). I don't know if that is an option in France but if so, think that would solve your problem.[/quote]

Hi,

      There are specific measures in french tax law to prevent this--any sale which the tax man thinks is below a realistic price is treated as a disguised gift and is taxed accordingly, with penalties if bad faith is suspected. This may not be too bad if parents/children are involved but for 3rd parties and distant relatives could be catastrophic and end in losing the house. 

[debbie]

Ahhh! So the French are wise to this scheme. So sorry that it is not an option for you.

[Sprogster]

debbie, in the US you can sell/gift a property for a $1 during your lifetime, as there is no gift tax, but this does not apply to Federal death duties that apply after your death to assets still held in your name. Generally speaking though, for tax purposes in the USA, you have to declare the market value of any investment transaction, as otherwise everyone would avoid paying any capital gains tax on the sale of investments, by declaring under value, which is illegal!

As I am sure you are aware as a US citizen, French death duties and succession laws are a particular concern, as unlike Brits you run the risk of a double tax exposure because of your ongoing US tax obligations, even if you move to France. Therefore, this is an area that you should tax professional advice on, before any move.

[PaulT]

When my SIL died a couple of years ago we suddenly discovered that our perception of UK inheritance laws when there is not a Will was woefully off the mark and left my BIL with all sorts of problems (they had put everything in her name as the plan was that he would die first!).

We therefore quickly made an appointment with a UK Solicitor and had UK Wills drawn up and an appointment with the Notaire who handled our purchase to draw up the French Will. He was very helpful in enabling disposals to be made as we wqanted. In addtion, the French one cost half what the UK one did.

It now gives us peace of mind.

If like us you thought that, in the UK, everything goes to the surviving partner if the other one dies without a Will the reality is that it has great similarities with the French system.

Paul

[idun]

Using the word partner can cloud this issue. For the most part, it just means boyfriend/girlfriend and simply not any rights at all, unless ofcourse a proper civil partnership is involved.

And if you meant spouse, well that is quite quite different. Both countries protect the spouses interests these days, especially since the french amended their laws not that long ago.

[AnOther]

Good point.

Personally I do not care for the casual use of the term as it can mean absolutely nothing

at all in relation to some of the questions which regularly crop up and completely turn around the responses when it comes to light that there is in fact no legal relationship at all.

[just john]

I recently took advice from my Notaire on this, and he said it was quite simple that a will can be made leaving property to anyone, however he did stress that if they were not direct heirs (children) then they would be obliged to pay full inheritance tax, I think the figure mentioned was 40%. In fact he added that people with children they did not wish to inherit could exclude them from the will, (although if they became aware and appealed they would probably receive an award). He went on to say that he would give full advice including tax planning if I were to arrange a will through him. 

[cooperlola]

[quote user="just john "]I recently took advice from my Notaire on this, and he said it was quite simple that a will can be made leaving property to anyone, however he did stress that if they were not direct heirs (children) then they would be obliged to pay full inheritance tax, I think the figure mentioned was 40%. In fact he added that people with children they did not wish to inherit could exclude them from the will, (although if they became aware and appealed they would probably receive an award). He went on to say that he would give full advice including tax planning if I were to arrange a will through him. [/quote]This confirms what I was told by our notaire.  However, I'm not sure it isn't 40% that they get to keep!  Still, as I say, it's more than they have now.

[idun]

There is an allowance of just over a 1000€ and then it is 60% inheritance tax for non relatives. It is all on the service public web site.