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Hague Convention of 14 March 1978 on the Law Applicable to Matrimonial Property Regimes


Chico
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When we bought our house in France nine years ago our Acte de Vente included a clause to give us the benefit of this convention as we are a married couple with a simple family situation (two adult children), are both UK domiciled and have no intention of becoming French domiciled.  Our notaire called it "La clause magique".  The main benefit is to allow our French house to pass to the survivor when the first of us dies.

Something happened recently which caused me to check that this was really as good as it was promised to be.  After trawling through lots of threads in the Forum I felt reassured until I came to read the full text of the Convention, 
http://www.hcch.net/index_en.php?act=conventions.text&cid=87  when the first thing I read was Article 1, which says

The Convention does not apply to -

(1)  maintenance obligations between spouses;

(2)  succession rights of a surviving spouse;

(3)  the capacity of the spouses.

Am I missing something?

Chico

 

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[quote user="Chico"]When we bought our house in France nine years ago our Acte de Vente included a clause to give us the benefit of this convention as we are a married couple with a simple family situation (two adult children), are both UK domiciled and have no intention of becoming French domiciled.  Our notaire called it "La clause magique".  The main benefit is to allow our French house to pass to the survivor when the first of us dies.

Something happened recently which caused me to check that this was really as good as it was promised to be.  After trawling through lots of threads in the Forum I felt reassured until I came to read the full text of the Convention, 
http://www.hcch.net/index_en.php?act=conventions.text&cid=87  when the first thing I read was Article 1, which says

The Convention does not apply to -

(1)  maintenance obligations between spouses;

(2)  succession rights of a surviving spouse;

(3)  the capacity of the spouses.

Am I missing something?

Chico

 

[/quote]

Hi,

      The convention deals with the right to opt for a marriage regime. As such , it does not ,in itself,  apply in the three cases you quote.  HOWEVER, the marriage regime for which you

opt may well have an effect on them.  I assume that you opted for french law to apply , and THEN for the regime of "communauté universelle" with a clause of "attribution integrale", (have a look at the paperwork , to confirm) which certainly does ensure that the surviving spouse takes all the french estate, without the need for a full french succession procedure.

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As far as property purchase and inheritance is concerned, the effect of the Hague Convention on marriage regimes is basically to establish which type of regime applies by default to marriages conducted in the various countries that are part of the Convention. So a couple married in France will, unless they take steps to adopt a different regime, be considered married under 'communauté universelle', in which assets are jointly owned. An English marriage is normally regarded, at least under French law, as being under the 'séparation de biens' regime in which assets are individually owned. These, and other, regimes can be modified, or a totally different regime chosen, by going through a simple legal process.

Up to a couple of years ago, couples married in England wanting to purchase property in France were often advised to change to communauté universelle in order to ease the inheritance tax burden and make French succession law a little less onerous on them. In fact it was seen as a 'magic solution' - the cynics would say that it provided a nice little extra earner for the notaires. It wasn't quite as 'magic' as many thought; conversely married French people were often encouraged to change to 'séparation de biens' if one spouse started a business in order to protect the family home in the event of the business failing.

Following small but significant amendments to the law, changing marriage regimes is currently rather less favoured though notaires may still advise a change in particular cases. The benefits of the communauté universelle can mostly be achieved by the much simpler process of buying 'en tontine', and I understand that an easier process than changing marriage regime for protecting homes against business failure is available too.

I suspect that the tontine solution, which is a simple statement inserted in the Acte de Vente, might be what you have - changing marriage regime was a rather more complicated process that, although it would be mentioned in similar fashion in the Acte, involved paying an extra couple of hundred euros or more. The tontine was fairly common, and usually recommended, before the marriage regime change became popular, even though it had, then, more tax disadvantages than it has now. But as your Acte mentions the Hague Convention, the CU seems rather more likely. Do you recall an extra charge being made for the change of regime?

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Hi,

Thank you both, Will and Parsnips, for such full explanations and for taking the time to respond so quickly.

Our Acte does indeed opt for french law to apply, and then for the regime of "communauté universelle" with a clause of "attribution integrale", so I now feel much relieved.  Interestingly, when we visited our notaire in 2003 to write french wills, she told us that they were unnecesary and that under the terms of our Acte our son and daughter need only visit a notaire to have the names on the "deeds" changed at a small cost.

I don't think we paid any extra for the change of marriage regime - it was all dealt with in two paragraphs within the Convention clauses.

The clause only relates to "biens immobilieres", in other word our house.  Do you know if this is effectively the same as "real estate" as we have french real estate excluded from our UK wills? Our expectation is that the contents of the french house and our french bank account (Britline) will thus be subject to the terms of our UK wills.

Regards,

Chico

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Hi,

     Yes ," biens immobiliers" are real estate, and if you remain UK resident ,only your french house will be dealt with under french law. I think you may have slightly misunderstood what the notaire said--at the first decease the surviving spouse will take the house with minimal paperwork and a reasonable fee, but at the second decease, the children will receive their shares via a normal succession process , at whatever the standard fees are at that time.

     If the surviving spouse's estate is lucky (unlucky) enough to be liable to UK inheritance tax, the french house will also be included in the calculation , with allowance given for any IHT paid in France.    

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I understand that buying a property "en tontine", although protecting a surviving spouse in terms of succession, does not avoid inheritance taxes if the value is more than 75,000€

http://www.universimmo.com/repq/unirepq00x.asp?Qr_Code=451

Attention aussi à ne pas traduire l'avantage en matière de succession en termes fiscaux : il n'y a certes pas de transmission, mais il y a tout de même des droits lorsque la valeur du bien dépasse (actuellement) 75.000 euros ! Petite astuce, échappent encore à ces droits (de la part du fisc, c'est une omission qui risque d'être réparée dans quelque temps...) les pactes tontiniers portant sur des parts de SCI au lieu de porter sur un immeuble en direct...

I have also heard, as mentioned in the above clip, that there is a risk that the laws on inheritance in the case of property held en tontine by spouses will changed eventually, as it may become considered as effectively constituting a Société Civil Immobilièr.

To protect our own property, on advice from our Notaire, we completed an Acte de Donation entre Epoux, also known as donations du dernier vivant, which seems to us to give sufficient protection of the family home for the surviving spouse. Inheritance taxes due depend on which of the choices offered is elected by the surviving party. It cost us 142€ in 2002.

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Hi Nomoss,

   The fact that IHT between spouses has now been abolished means that the advantage between spouses and PACS partners of the tontine is now unlimited.

    Problems can arise with the "dernier vivant "if the surviving spouse wishes to sell , and the chidren either are not in agreement , or want their part at the time of sale--it all depends on how well the family get on. 

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Hi Parsnips,

Thanks for that. So the (June 2005) extract I copied is out of date. Sorry, too much outdated info' on the net, a pity it stays there seemingly forever.

Since we are just about to buy another house, I will speak to the Notaire about a clause tontine on Monday. However, the family gets on pretty well (mais on ne sait jamais), and the "Donation" covers all assets, not just the house.

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[quote user="nomoss"]

Hi Parsnips,

Thanks for that. So the (June 2005) extract I copied is out of date. Sorry, too much outdated info' on the net, a pity it stays there seemingly forever.

Since we are just about to buy another house, I will speak to the Notaire about a clause tontine on Monday. However, the family gets on pretty well (mais on ne sait jamais), and the "Donation" covers all assets, not just the house.

[/quote]

Hi,

      As it is the house that can potentially cause most problems , and you never know what the future holds, and (I think) the tontine involves no extra cost, it might be as well to do it. The "donation" is more effective if you specify that any life-interest in non-real estate (bank accounts, investments etc.) should take the form of a "quasi-usufruit dans le sens de l'article 587 code civil". This ensures that the survivor has full control and disposal of the non-real estate assets, and not limited use, as under a simple "usufruit".  You can discuss with the notaire --I think you might be able to qualify the "donation" in a testament .

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[quote user="parsnips"]

Hi,
      As it is the house that can potentially cause most problems , and you never know what the future holds, and (I think) the tontine involves no extra cost, it might be as well to do it. The "donation" is more effective if you specify that any life-interest in non-real estate (bank accounts, investments etc.) should take the form of a "quasi-usufruit dans le sens de l'article 587 code civil". This ensures that the survivor has full control and disposal of the non-real estate assets, and not limited use, as under a simple "usufruit".  You can discuss with the notaire --I think you might be able to qualify the "donation" in a testament .
[/quote]

 

Hi,

Thanks for the suggestions. However, I just read [url=http://droit-finances.commentcamarche.net/faq/614-donation-les-avantages-du-quasi-usufruit]here[/url] that quasi-usufruit cannot apply to goods which cannot be used without being consumed, such as liquid money, but can be applied to e.g. a jointly owned portfolio of shares which could not be split up without selling it.

Elsewhere, I read that any portion of liquid assets enjoyed as usufruct which are "consumed" by a surviving spouse, become a charge against the surviving spouse's estate on his/her demise, in favour of the inheritors who own the nue-propriété

Any comments?

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[quote user="nomoss"]

[quote user="parsnips"]

Hi,

      As it is the house that can potentially cause most problems , and you never know what the future holds, and (I think) the tontine involves no extra cost, it might be as well to do it. The "donation" is more effective if you specify that any life-interest in non-real estate (bank accounts, investments etc.) should take the form of a "quasi-usufruit dans le sens de l'article 587 code civil". This ensures that the survivor has full control and disposal of the non-real estate assets, and not limited use, as under a simple "usufruit".  You can discuss with the notaire --I think you might be able to qualify the "donation" in a testament .

[/quote]

 

Hi,

Thanks for the suggestions. However, I just read [url=http://droit-finances.commentcamarche.net/faq/614-donation-les-avantages-du-quasi-usufruit]here[/url] that quasi-usufruit cannot apply to goods which cannot be used without being consumed, such as liquid money, but can be applied to e.g. a jointly owned portfolio of shares which could not be split up without selling it.

Elsewhere, I read that any portion of liquid assets enjoyed as usufruct which are "consumed" by a surviving spouse, become a charge against the surviving spouse's estate on his/her demise, in favour of the inheritors who own the nue-propriété

Hi,

     I think you have read it "back-to-front", cash by its nature will always be in a quasi-usufruit, a decision by the courts extended its use to portfolios of shares etc.  The whole point is that the "nu-proprietaires" get a creance (charge) against the estate of the deceased quasi-usufruitier. If the original assets have been consumed , the children (the nu-propietaires ) can take assets to the value of their "creance" from the estate -free of IHT- It is a method of passing assets not only to natural children , but also, properly planned with Life Assurance as well, to step-children.

Any comments?

[/quote]
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I think I have the hang of it; any cash from the childrens' inheritance which the spouse spends will eventually be charged to his/her estate, although I am still a bit confused by the sentence in the link I posted above:

En théorie, le quasi-usufruit ne peut pas s’appliquer sur des biens “dont on ne peut faire usage sans les consommer”, comme l’argent liquide. Mais d’après les juristes, il est parfaitement adaptable aux valeurs mobilières

I'm sure I'll sort it out with the Notaire. In any case, at the moment we have three properties and not a lot of cash, and there doesn't seem to much point in selling any of them immediately. We can probably get far more in rent than in interest on the proceeds, however we were to invest them.

But who knows what the situation will be in a year or two?

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[quote user="nomoss"]

I think I have the hang of it; any cash from the childrens' inheritance which the spouse spends will eventually be charged to his/her estate, although I am still a bit confused by the sentence in the link I posted above:

En théorie, le quasi-usufruit ne peut pas s’appliquer sur des biens “dont on ne peut faire usage sans les consommer”, comme l’argent liquide. Mais d’après les juristes, il est parfaitement adaptable aux valeurs mobilières

I'm sure I'll sort it out with the Notaire. In any case, at the moment we have three properties and not a lot of cash, and there doesn't seem to much point in selling any of them immediately. We can probably get far more in rent than in interest on the proceeds, however we were to invest them.

But who knows what the situation will be in a year or two?

[/quote]

Hi,

       The problem  stems from the double negative in the sentence , or may be a misprint. In fact quasi-usufruit originated as a way of applying a life interest to a consumable asset such as a growing crop or a cellar of wine. It was then extended to cash , which is of no value to the life-interest holder unless he can spend it. More recently as the quote says the courts extended its use to share portfolios and the like , which under a standard usufruit can only be used by the life-interest holder in a limited way, ie. taking the dividends. Under a quasi-usufruit he can buy and sell shares and use capital gains and , indeed spend the products of the sale of shares. In effect he becomes for all practical purposes the owner of the portfolio.

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[quote user="parsnips"][quote user="nomoss"]

I think I have the hang of it; any cash from the childrens' inheritance which the spouse spends will eventually be charged to his/her estate, although I am still a bit confused by the sentence in the link I posted above:

En théorie, le quasi-usufruit ne peut pas s’appliquer sur des biens “dont on ne peut faire usage sans les consommer”, comme l’argent liquide. Mais d’après les juristes, il est parfaitement adaptable aux valeurs mobilières

I'm sure I'll sort it out with the Notaire. In any case, at the moment we have three properties and not a lot of cash, and there doesn't seem to much point in selling any of them immediately. We can probably get far more in rent than in interest on the proceeds, however we were to invest them.

But who knows what the situation will be in a year or two?

[/quote]

Hi,
       The problem  stems from the double negative in the sentence , or may be a misprint. In fact quasi-usufruit originated as a way of applying a life interest to a consumable asset such as a growing crop or a cellar of wine. It was then extended to cash , which is of no value to the life-interest holder unless he can spend it. More recently as the quote says the courts extended its use to share portfolios and the like , which under a standard usufruit can only be used by the life-interest holder in a limited way, ie. taking the dividends. Under a quasi-usufruit he can buy and sell shares and use capital gains and , indeed spend the products of the sale of shares. In effect he becomes for all practical purposes the owner of the portfolio.
[/quote]

 

I see what you mean, maybe it should read "il ne peut que s'appliquer".

Anyway, in our case, with a "normal" family of husband, wife and our 2 offspring - maybe that's not normal any more [:)] , and all our own parents deceased, all the remaining assets will eventually go only to the children, so any calculation of depreciation of assets in usufruit, quasi or not, will be irrelevant.

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We completed the house purchase yesterday, with clause tontine duly added.

Regarding a French Will, the notaire drafted a Testament Manuscrite for each of us to copy, simply stating Je ........... etc..... lègue a mon épous(e) ........... le quasi-usufruit de l'ensemble de mes biens meublés et l'usufruit de l'ensemble de mes immeubles existant au jour de mon décès ...........

She said that this would supercede the Donation entre époux, but did not give any indication of if or how it might effect Inheritance Tax, - although at the rate things are going the total amount may well be below the total of the allowances for two children by the time we are both gone.

Since the new house is to be our main residence, the full ownership of which will pass to the survivor under the tontine, she/he will be free to sell it if wished.

I assume that the agreement of both our children would be required to dispose of any other real estate which might remain, and the proceeds would have to be shared at the time of sale, but if it were rented out, the rental proceeds (and expenses on it) would be to the account of the usufruitier ?

 

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Hi,

     If you already own french real estate then the survivor will need the agreement of the children to dispose of it. If you should buy any additional property in the future (to let for example) then you can buy that in tontine also. The will is exactly the same as the donation in regard to IHT.  The rent from a property in usufruit goes to the usufruitier, but major repairs are technically the resposibility of the nu-proprietaires--although that hardly seems fair, and I'm sure an suitable arrangement would be made.

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Thanks very much parsnips. It is good to have some reassurance that I have done something right - for once! Not like investing the proceeds of our Spanish house in an equity-based fund in 2000! Looking on the bright side of that, I didn't have to pay any CGT.
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