It is vitally important to write a French will if you live in France. French inheritance rules are relatively complex. Understanding how they work and what can be done to mitigate tax requires the input of various professional parties.
When someone dies without a will, the estate of the deceased is distributed in accordance with the rules of intestacy . In France, this means that the proceeds of the estate would be distributed in compliance with French succession law, irrespective of any personal wishes.
The French will and forced heirship
The separation of assets is linked to the relationship between the deceased and his/her heirs. France practices a system of ‘forced heirship’, wherein there can be no deviation from the rules in terms of how much can be passed on and to whom.
Let's take a simple example of a married couple with two children. Assuming all assets were jointly owned by the couple, only the half owned by the deceased would be subject to inheritance tax. The other half would remain the property of the surviving spouse. The estate of the deceased would thereafter be split along the following lines:
- ¼ to the surviving spouse
- 2/3rds to the children
- the remaining 1/12th would be distributed in accordance with the wishes of the deceased.
Where there is no expression of wishes, the court and family would have to decide what happens with the extra 1/12th.
French inheritance tax
No inheritance tax would be payable by the surviving spouse; the children would pay tax on amounts inherited above €100,000. A sliding scale determines exactly how much is payable. The amount of tax for estates of high-value can be considerable. It is important to prepare in advance and take advantage of allowances for both spouses.
Property related issues
The situation with regards to property can be complex. This is particularly the case when it involves the ownership of property overseas. However, there are ways in which the surviving spouse can be protected from either inter-family disputes or being forced to sell. This is where it is important to employ the services of a Notaire who understands international tax planning issues. The job of the Notaire is to ensure that the family are protected against any unwelcome surprises by writing an effective French will.
Use of Assurance Vie contracts
Parents can help mitigate future inheritance tax by making gifts. Those that don't wish to give away funds to their offspring, or have a need for money as a source of income or capital in their lifetime, should consider using Assurance Vie contracts in their tax planning.
Each child can inherit up to €152,500 from Assurance Vie contracts free of French inheritance tax. This figure is in addition to the allowance per child of €100,000. This means that €252,500 can be inherited effectively free of tax on the death of the first parent. It is important to note that each parent is taxed independently. The situation could be repeated on the death of the second parent. The key factor in this instance is to establish the Assurance Vie contract correctly. This can be achieved by setting it up as individual policies or on a joint life second death basis.
This is where your financial adviser can help. The adviser will liaise with the family and their legal representatives to ensure that the Assurance Vie is constructed in the most tax effective way possible. The advice needs to be personalised, as each individual's situation is different.
The example above takes a relatively common-place situation into account. Things may not always be as straightforward. Many people are on their second marriage and have step-children to be considered. The process is the same, although the allowances and fractional splits are different.
Here is a checklist to consider:
- Have you made a will in each country where you own assets?
- Does your French will note your wishes on how assets are to be distributed?
- Are you taking advantage of gifting rules?
- Are you taking advantage of Assurance Vie rules?
- Do you know what will happen to your house(s) in the event of your death?
- Have you considered which jurisdiction you prefer succession rules to apply to?
- Have you included your valuable possessions in your will?
As ever, any individual element of a financial plan needs to be considered in the context of your entire personal and financial situation.