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Important changes to inheritance laws in France are welcomed by residents and non-residents alike
An EU-wide regulation, passed by the European Parliament in July 2012 with effect from August 2015, will result in a drastic and welcome change to the inheritance rules governing real estate in France, for both residents and non-residents alike. Our summary follows.
The current rule : Forced heirship on French real estate
As it stands now, French inheritance law divides an estate into two types of property: movable and immovable. Movable property – personal property like money, furniture, or cars – is devolved according to the law of the country of residence of the deceased. Immovable property – primarily real estate – is subject to the law of the country where the property is located. This often leads to the application of two or more inheritance laws to one estate.
In France, the long-held view that children have the natural right to inherit property from their parents developed over time into a forced heirship system, or réserve héréditaire. If a person dies intestate – he left no written will – the surviving spouse receives either a life interest in the property or ¼ in full ownership (if there are only common children / whereas if the spouse is not the children’s parent, only ¼ in full ownership) , and the rest goes to the children. A written will is enforced as long as it does not disinherit the children, who must collectively receive a minimum of 75% of the value of the estate, and in equal parts to one another depending on the number of children e.g., ½ if one child, 2/3 if two and ¾ if 3 or more.
Real estate owned in France by non-residents is subject to these distribution rules. For a couple with children from different marriages, unmarried or childless couples, or individuals who wish to distribute their property in an alternative manner, French regulations can be quite restrictive. Even for traditional families, the surviving spouse must share ownership with the children, whose inheritance is taxable for the value above 100,000 euros, while a spouse’s inheritance is exempt entirely from taxation in France. Any of these results are usually an unwelcome surprise.
To avoid the effect of French inheritance laws, non-resident buyers can opt to form a real estate holding company – a Société Civile Immobilière (SCI) – that transforms the real estate into movable assets (shares). Because these shares are movable property, they are not subject to France’s forced heirship laws.
Starting August 2015, French real estate owners will be allowed to choose the inheritance law that applies to their property
Under the new law, there will no longer be a distinction between moveable and immovable property. Only one law will apply for all assets, both personal and real property. The default rule will be that the distribution of the estate will follow the law of the country of residence of the testator (the deceased). If the owner prefers the state to apply the law of his country of citizenship (for example, an American living in France), he can do so by drafting a French will to that effect.
Either way, the choice of law cannot be made selectively on the assets; only one law will apply to the entire estate. The new law applies both to new buyers and existing property owners.
“The effect of the new law cannot be overstated,” says Maitre Pierre-Alain Conil, a notaire specializing in wills and trusts and real estate with Morel d’Arleux, Hurel, Billecocq in Paris’ 6th arrondissement. “For most of my international clients, it eliminates the interest in forming an SCI to purchase real estate in France, since the buyer can choose the law of his home country without one. These property owners have the relief of knowing that their estate will be handled in line with the expectations that they and their family have with respect to the estate as a whole. That’s a big burden lifted off their shoulders.”
While the new regulation simplifies how international estates are handled, it remains critical to make the right choices about which law will apply. The new terms can be incorporated prospectively into a will, so current owners can prepare the groundwork now to take advantage of the new law as soon as it takes effect.
The EU regulation will take effect on August 17th, 2015.
The information in this article is provided for informational purposes and does not constitute legal, professional or financial advice.