Why we are NOT buying in France

[Tourangelle]

[quote user="Phil the Francophile"]

As an example. If your partner died, and you had three children, and you were aged between 61 and 71, the value of the usufruct would be 50% of the total inherited value. Having three children means that they, and you would get 25% each of the inherited value. You would be liable to compensate the children for the difference between the inherited value of the property (25%) and the value of the usufruct (50%) if you wanted to stay in the house. As we seem to keep quoting a 300,000 euro value, in the case I have outlined this would mean 25% of 150,000 or 37,500 euro.

[/quote]

I don't understand this, I don't claim any expertise, but since my father in law died, a couple of years ago, my mil has has use of the house, with there being no question of the three children getting anything in terms of compensation (not that they would have wanted it).  They just had the regular marriage contract, the one you have by default, and they had been to a notaire and gone through the procedure of leaving each other the bank accounts (leguer les comptes).  And it has been modernised (double glazing), with no permission needed, and what's more she went through all the right channels, as it was deducted from tax.

[Beryl]

This is long but it explains the changes that were brought in in 2001, hopefully its right as it is from the Notaires website!     The Law of 3rd December 2001 finally gives the surviving spouse a place in inheritance law that is more in line with French aspirations. He/she is the sole heir taking precedence over grandparents, brothers and sisters or more distant relatives. In competition with children, his/her rights have been significantly increased. The poor relation of French inheritance law: until recently the surviving spouse had only a reduced legal title to succeed his/her husband/wife. Bloodline has always taken precedence over the marriage bond but this principle has now been significantly attenuated by the Law of 3rd December 2001 on the rights of the surviving spouse and children born from an adulterous relationship. It modernises various provisions of inheritance law. This law gives the surviving spouse a genuine boost. His/her inheritance title is facilitated and because of the accommodation right that the legislator gives him/her for the future, his/her lifestyle is preserved. It will come into force on 1st July 2002 with the exception however of certain provisions and in particular the granting to the surviving spouse of temporary habitation rights in the home and the right to use the furniture in it. The place of the spouse in the estate From now on, in the absence of last will and testament provisions or gifts between spouses, the rights of the surviving spouse are significantly increased regardless of the other heirs. Common children and descendants If the deceased person only leaves children or descendants of the marriage, the surviving spouse can opt for the usufruct of all the existing estate or ownership of a quarter of the estate. The option facility available to the surviving spouse is personal to him/her and not transferable. The law does not set any time limit for exercising this option. If the surviving spouse dies without having made a choice, he/she is then deemed to have opted for the whole estate in usufruct. The same holds true if, when invited in writing to exercise his/her option by any heir, the surviving spouse does not make a choice in writing within three months of being requested to do so. Non-common children and descendants The deceased person may leave children not stemming from the marriage, for example a child from a previous marriage, an illegitimate child, or a child adopted solely by the deceased. The surviving spouse receives ownership of a quarter of the estate calculated in accordance with new Article 758-5 of the Civil Code. He/she no longer has the option of selecting total usufruct, which may have disadvantages where the spouse is relatively young in relation to the children of a previous marriage. The father and mother Where the deceased person leaves his/her father and mother, each of them receives a quarter of the estate while the spouse receives half. If the deceased person leaves only one parent, he/she receives a quarter of the estate and the spouse receives the other three quarters. The presence of brothers or sisters of the deceased person does not change the rights of the spouse. By notarised will A married person may deprive his/her spouse of the right to lifelong accommodation by a will executed by two notaries or one notary in the presence of two witnesses. The purpose of this restrictive provision is to prevent a married person from taking such a serious decision lightly. Preferential collateral relatives This term is used to describe brothers and sisters and their descendants, in other words the nephews and nieces of the deceased person. From now on, the surviving spouse can cut them out of the succession. Thus, where the deceased person leaves no children or parents but leaves his/her spouse and brothers and sisters, the latter are excluded from the succession. Except for a right of reversion of half The legislator, however, wished to adjust this principle by allowing certain property received into the family by blood to be retained. From now on, full ownership of half of any property that the deceased had received from his/her father and mother by inheritance or gift and which appears in kind in his/her estate reverts to the brothers and sisters of the deceased or their descendants (these brothers and sisters must have come from the same deceased parent who originated the transfer) and the other half goes to the surviving spouse. Grandparents, uncles and cousins The spouse also excludes from the succession heirs of subsequent orders who are ordinary relatives in the ascending line, in other words grandparents, great grandparents… and ordinary collateral relatives : uncles and aunts, cousins… In these cases the spouse will inherit ownership of the whole estate. An allowance for grandparents These new rights granted by legislation to the surviving spouse are not without another side. The latter could be liable to pay support to any grandparents removed from the succession. This support will be charged against the estate and paid in the form of a pension. Points to be remembered Where the deceased leaves no relatives in the ascending or descending line, the spouse becomes the heir who cannot be disinherited in respect of a quarter of the estate. The right to temporary accommodation is immediately applicable. To enjoy a lifelong right to accommodation, the surviving spouse must express this desire within one year of the death. Only a non-divorced spouse against whom there is no separation judgement with the force of res judicata is an heir. Temporary accommodation right Regardless of the marriage scheme, the surviving spouse enjoys a free right of undisturbed possession of his/her home and the furniture in it. This only relates to the home actually occupied by the spouse as the principal residence on the date of the death. This explains the changes were made in 2001. It is quite long, but hopefully correct as it has come from the Notaires website !     From 4th December In respect of any succession opened with effect from the publication of the new law in the official journal, i.e. 4th December 2001, the surviving spouse enjoys free right of undisturbed possession of his/her home and the furniture in it for one year. This right is his/hers regardless of the heirs or legatees. The benefit of this right is granted by law and order and cannot be removed by a contrary wish of the deceased. Procedures This temporary right can be exercised regardless of whether the married couple are the owners or tenants of their principal residence. If they were joint owners or if the property came from the estate of the pre-deceased spouse, this right takes the form of free undisturbed possession of the home and the furniture in it. If they are tenants, the rent will be reimbursed by the estate to the surviving spouse as and when it is paid. Lifelong entitlement to accommodation In respect of any succession opened, this time with effect from 1st July 2002, the spouse may enjoy a free right to live in the home and use the furniture in it until his/her own death. If he/she is a tenant, the surviving spouse shall only enjoy the right to use the furniture. The surviving spouse must express the desire to enjoy these rights of accommodation and use within one year of the death. Charge against ownership rights received If the spouse requests it, the value of this lifelong accommodation right and right to use the furniture is deducted from the other rights received from the estate, particularly in the presence of children, from the owned quarter reverting to him/her. If the value of these rights is less than that of his/her inheritance rights the spouse may take the rest from the existing assets. If the opposite is true, he/she shall not be bound to indemnify the estate. Possibility of renting Finally, if the home encumbered by the accommodation right is no longer suited to the needs of the spouse, the latter may rent it for any use other than commercial or agricultural in order to generate the necessary resources for his/her new accommodation. With the agreement of everyone The lifelong accommodation right may even be converted to a life annuity or a capital sum but only with the agreement of the spouse and the heirs. The special inheritance rights of the spouse One of the major contributions of this new law is that, in certain cases, it gives the surviving spouse the status of an heir who cannot be totally disinherited. If there are no heirs in ascending or descending line, he/she enjoys an inheritance right representing one quarter of the estate. In order to secure this status, he/she must not be involved in divorce or separation proceedings. Thus, if there are no heirs in ascending or descending line, the pre-deceased spouse cannot freely dispose of more than three quarters of his/her assets to persons other than his/her spouse. Example of special inheritance rights The deceased leaves his/her spouse and one sister, general devisee and legatee. In the absence of relations in the ascending or descending line, the spouse is the heir who cannot be totally disinherited. He/she may take action to reduce the general legacy given to his/her sisterin- law. The latter can therefore only lay claim to three quarters of the estate while the spouse will receive one quarter by virtue of his/her status as an heir who cannot be totally disinherited. No special inheritance rights The deceased leaves his/her spouse, maternal grandfather and sister, general devisee and legatee. If there is a relation in the ascending line, the surviving spouse is not considered to be a rightful heir. He/she therefore cannot take action to reduce the legacy. The general devisee and legatee receives the whole of the estate except however for the temporary accommodation right granted to the surviving spouse. A few other provisions As under the old law, the estate of the pre-deceased spouse owes an allowance to the surviving spouse who is in need. The preferential allocation enabling the surviving spouse to secure the ownership or lease of the accommodation which is his/her actual home, within the framework of the sharing out of the estate, is now enshrined in law. And furthermore, it is extended to the furniture in it. The usufruct received by the surviving spouse legally, by will, or by gift between husband and wife, can be converted into a life annuity at the request of the heirs or the spouse. This conversion facility is a matter of law and order. However, with regard to the home and furniture, the conversion cannot be ordered against the will of the spouse. This conversion facility is a matter of law and order and cannot be ordered against the will of the spouse in relation to the usufruct of the home he/she occupies as a principal home and the furniture in it. Room for freedom The new law improves the situation of the spouse but leaves significant room to accommodate the wishes of the married couple. They are still able to improve the situation of the surviving spouse and tailor their provisions to their particular situation.

 

 

[Phil the Francophile]

The point I was making is in the above text, copied below:

Charge against ownership rights received

If the spouse requests it, the value of this lifelong accommodation right and right to use the furniture is deducted from the other rights received from the estate, particularly in the presence of children, from the owned quarter reverting to him/her. If the value of these rights is less than that of his/her inheritance rights the spouse may take the rest from the existing assets. If the opposite is true, he/she shall not be bound to indemnify the estate.

The usufruct has a value, and must be paid for.

[Espresso]

The quotes from the notaires' site bring me back to one of Phil's original points. He and his partner are not married. So there is no 'spouse'. This is the same in my situation, and - as far as I can ascertain - a PACS agreement does not give you "spouse's rights", such as they are (nor the same estate-tax rates).

[Tourangelle]

[quote user="Phil the Francophile"]

The point I was making is in the above text, copied below:

Charge against ownership rights received

If the spouse requests it, the value of this lifelong accommodation right and right to use the furniture is deducted from the other rights received from the estate, particularly in the presence of children, from the owned quarter reverting to him/her. If the value of these rights is less than that of his/her inheritance rights the spouse may take the rest from the existing assets. If the opposite is true, he/she shall not be bound to indemnify the estate.

The usufruct has a value, and must be paid for.

[/quote]

Right, but not in cash.  This is the point that was not clear to me.

[Sprogster]

I would like to say that Phil's post is one of the most informative and useful, that I have read on this forum.

I work professionally in Estate Planning and I can tell you from experience that the implications of forced heirship laws, are one of the least understood potential pitfalls of home ownership in civil law jurisdictions such as France, by individuals that come from common law jurisdictions such as England..

The other issue that Phil has very usefully highlighted is the fact that in France unlike the UK, transfers of assets upon death to a surviving spouse are not exempt from inheritance taxes.This can and does cause hardship.

There are no easy solutions to either of these potential problems, but the most popular advice we see being given to clients with second homes in France by a number of tax advisers, is to maintain a bank loan secured against the French property at a sufficient level to minimise the value of your French Estate. Then the capital that otherwise you would have used to buy the property outright, is kept outside France.

A simpler option to consider, is to take out life insurance to cover the inheritance tax risk, if health, age and funds permit.

 

[KathyC]

[quote user="Sprogster"]

There are no easy solutions to either of these potential problems, but the most popular advice we see being given to clients with second homes in France by a number of tax advisers, is to maintain a bank loan secured against the French property at a sufficient level to minimise the value of your French Estate. Then the capital that otherwise you would have used to buy the property outright, is kept outside France.

[/quote]

But if you have take out a French mortgage, you have to take out life insurance to cover the loan. In my case (and I assume this is normal practice) the policy is assigned to the lender to repay the loan on my death. Surely this would negate what you have said, or is it different with a mortgage from an English lender?

[Russethouse]

Shouldn't person A take out a life policy on person B, person B dies then person A gets the money (its not part of persons Bs estate) then A pays off the inheritance tax ?

There must be more to it than that ?

[Quillan]

I spoke to a person I know this afternoon who's wife died at Christmas here in France. To confirm what I thought and Tourangelle said he can live in the house till he dies or rent it out and rent a smaller one and keep the difference. He has had to pay no tax or anything else. He has been told the same as what I read (in the LF magazine) that if he sells the house he must pass over his wifes share to her children as it was their second marriage and they both had children by their first marriages but none between them.

Taking the above in to account I think this is down quite simply to the fact that the original poster is not and will not get married so obviously he will be in a different position. Before the law changed one way was to legally adopt your step children if you were married and then put a tontin clause in.

[KathyC]

[quote user="Russethouse"]

Shouldn't person A take out a life policy on person B, person B dies then person A gets the money (its not part of persons Bs estate) then A pays off the inheritance tax ?

[/quote]

In the UK , if you want the situation you describe to come about, you have to have the life assurance policy written in trust to the other person. If not, the insurance funds paid out become part of your estate. I don't know if this is the same situation in France. When I took out the policy as a requirement of getting a French mortgage, it had to be assigned to the mortgage company to pay off the mortgage when I die. In other words, my husband would not have the option of collecting the policy funds and then selling the house to repay the mortgage.

[Wendy]

Phil, I say, good on yer!. I, too, violently disagree with the concept of not being in control of who I'd like to leave my real estate to after I have worked half a bloody lifetime to earn it. But, however, I'm stuck here for the time being. And not for 'the dream' either. If the french already have ways of getting around this law, from what I have read,  then why the hell do they not just get out in the streets and yell their heads off until this ridiculously outdated and unfair law is changed? Just as the students did recently!!. Why do they accept rules and regulations so darn readily in this country?.

 

[Sprogster]

The mortgage option only works if you are French non resident and therefore your non French assets fall outside the scope of French inheritance taxes and forced heirship rules..

Then the insurance policy is written outside France and structured in such way that the lender only can benefit under certain default scenerios. Also some Banks will lend without life insurance when there is other security held by them outside France, such as cash deposits.

A French Bank recently launched an equity release mortgage product in France, which is unheard of in that country. This is being targeted specifically at non French resident second home owners, so they can increase the mortgage in line with house price inflation.

This type of planning tends to be more popular at the upper end of the property market, as an added attraction is to keep the net asset value of the French second home below wealth tax levels.

For those considering moving to France permanently, consider taking professional advice on establishing a Trust to shelter your non French assets before you go. A recent surprisingly positive French tax court ruling recognised a Trust set up by an individual BEFORE they moved to France, and ruled that income and gains arising in the trust are only taxable in France when or if those income or gains are distributed to the by now French resident beneficiary.

The use of Trusts to avoid forced heirship rules is becoming increasingly popular.But they generally only work for French residents in regards to non French assets, placed into a Trust whilst they were French non resident.

[KathyC]

[quote user="wen"] If the french already have ways of getting around this law, from what I have read,  then why the hell do they not just get out in the streets and yell their heads off until this ridiculously outdated and unfair law is changed? Just as the students did recently!!. Why do they accept rules and regulations so darn readily in this country?.

 

[/quote]

Perhaps because this situation is rooted, for many people, in their culture and thinking about society, families, blood, inheritance etc. It's not as though it's recent legislation imposed from on high. In the same way, our thinking about inheritance is rooted in our views on individual control and we would revolt if French type legislation were introduced. French society is changing, as are the laws on inheritance to reflect that fact. Students revolted recently because of new legislation which went against normal thinking about job security and everything that goes with it. In any society legislative change is best when it's gradual and reflects society's needs, rather than being imposed arbitrarily.

[dottylou]

Renting a house:This sounds like a great idea and one i'm beginning to think is the only safe way to go and live the dream, well for half a year at a time anyway. as im sure there are more rules a regs.as to how long you can stay before being considered a resident.Reckon i'll apply for  jobs as a housesitter/handy women/gardener!! Actually thats a great idea does anyone know of a job like this thats available?[:)]

[Phil the Francophile]

If you are in the country for more than 180 days you are deemed domiciled and therefore liable for tax and any other delights of residency!!

 

[hastobe]

Not necessarily - IHT is based on domicile not residence. The two are

not the same - though residence is normally a strong indicator of

domicile.

Kathie

[Will]

[quote user="Phil the Francophile"]

If you are in the country for more than 180 days you are deemed domiciled and therefore liable for tax and any other delights of residency!!

[/quote]

Phil, sorry, that response is far too simplistic. Have a look at IR20, the publication which attempts to explain the UK tax authorities' postion on residence and domicile - that takes 30-odd pages to do so. And that is only the British take on the subject - the French have totally different residency qualifications. And it is quite right to say that inheritance questions are governed more by domicile than residency, at least as far as Britain is concerned. Normally, one can only be domiciled in one country, whereas it is possible to be tax 'resident' in several places.

The essence of Phil's argument is quite correct though, if I understand it rightly, and that is that renting a house rather than buying is no way to overcome residency (or inheritance) rules.

[Phil the Francophile]

Thanks for expanding on the domicile versus residence position. Having gritted my teeth through the inheritance minefield, I was rapidly losing the will to live when I got to the domicillary rules and regulataions. Once I read that renting or buying made no difference, I gave up.

Sorry if I misled anyone.

[suzy]

hello all, sorry to drag this up again, but I've only just seen the post and it's depressed me no end !  My partner and I aren't married either. As the money with which we shall be buying in France is mine and his lovely children will not be expecting anything from that property we will stay as we are - simpler.  However, is it possible to buy the property in the names of my sons - and live there ? Would this avoid the problem of IHT when either of us died ? Or am I being a simple soul ?!

Suzy

 

[Phil the Francophile]

Sorry this depressed you Suzy, I just wanted to share our experiences (over the last 6 years), for what they were worth.

You asked about buying in your sons names. You could certainly do that, and if you or your partner died first then they would still own the place which may, or may not, be a good thing. You would avoid inheritance tax, unless one of your sons pre-deceased you. If that happened, and they did not have any children, then you would inherit their share of the property, and be laible for tax.

There are other implications, and I would certainly recommend speaking to a good French lawyer about all of this.

[Tourangelle]

[quote user="Quillan"]

I spoke to a person I know this afternoon who's wife died at Christmas here in France. To confirm what I thought and Tourangelle said he can live in the house till he dies or rent it out and rent a smaller one and keep the difference. He has had to pay no tax or anything else. He has been told the same as what I read (in the LF magazine) that if he sells the house he must pass over his wifes share to her children as it was their second marriage and they both had children by their first marriages but none between them.

Taking the above in to account I think this is down quite simply to the fact that the original poster is not and will not get married so obviously he will be in a different position. Before the law changed one way was to legally adopt your step children if you were married and then put a tontin clause in.

[/quote]

Quillian, glad you posted this, since my last post I've been talking about this to my (French) family, and the general concensus was that the marriage made all the difference!

[suzy]

Don't be sorry !  I'm really glad to have found this thread.  We have three years to get it sorted to as good as it gets.  Though obviously 6 years didn't make it happen for you.  I wonder whether we'll be able to afford to move after we've got all the legal advice !!!  Never mind, though I think as there are so many Brits moving to France, they should have a clause in your marriage vows which warns you of divorce and remarriage and having kids at all !!!

Oh well - keep drinking the Ricard !

Suzy

[B]

 

[KathyC]

[quote user="suzy"]

hello all, sorry to drag this up again, but I've only just seen the post and it's depressed me no end !  My partner and I aren't married either. As the money with which we shall be buying in France is mine and his lovely children will not be expecting anything from that property we will stay as we are - simpler.  However, is it possible to buy the property in the names of my sons - and live there ? Would this avoid the problem of IHT when either of us died ? Or am I being a simple soul ?!

Suzy

 

[/quote]

 

I think that this holds all types of risks (sorry about posting similar views elsewhere). However much you trust your children you have no control over the people they might become involved with and the influence they might exert. If  your children predecease you (unlikely but possible) you would have to pay IHT to inherit your own property and if they had their own children by the time this happened you would find yourself totally disinherited. If you buy in your name there will be no IHT when your partner dies and if you think it matters, you could cover IHT with life assurance.

[suzy]

Thanks Cathy,  I take your point.  I guess we'll just have to sort it as best we can and go with the flow.  I must admit the dream won't be much of one if we're worrying about it all the time. We have a three year plan and learning all the time !!

 

Suzy

[Phil the Francophile]

[quote user="Tourangelle"][quote user="Quillan"]

I spoke to a person I know this afternoon who's wife died at Christmas here in France. To confirm what I thought and Tourangelle said he can live in the house till he dies or rent it out and rent a smaller one and keep the difference. He has had to pay no tax or anything else. He has been told the same as what I read (in the LF magazine) that if he sells the house he must pass over his wifes share to her children as it was their second marriage and they both had children by their first marriages but none between them.

Taking the above in to account I think this is down quite simply to the fact that the original poster is not and will not get married so obviously he will be in a different position. Before the law changed one way was to legally adopt your step children if you were married and then put a tontin clause in.

[/quote]

Quillian, glad you posted this, since my last post I've been talking about this to my (French) family, and the general concensus was that the marriage made all the difference!
[/quote]

Without wishing to protract this I am not sure what is being said here. I have never said I would not get married, indeed I have referred elsewhere in this thread to the communaute universelle which is only available to married couples. In the case of a communaute universelle, then no IHT is payable. However, a communaute universelle is open to attack by stepchildren as French courts can decide that having such an arrangement is a deliberate attempt to disinherit those step-children. This is called the action en retranchement and is a right available to step-children, but does not need to be exercised. Beware!!