Anybody who lives in England and owns property or other assets in France will know that there are many differences between the French and English legal systems, particularly when it comes to succession law and taxation. For many families French forced heirship rules can make it difficult to provide what they believe is a fair division of their assets on death. However, for English nationals, with careful planning it is possible to overcome the legal and language barriers and ensure that their French assets will pass on death in accordance with their wishes.
French forced heirship rules
Where the French forced heirship rules apply, the French Civil Code provides that the children of a deceased, whether legitimate or illegitimate but not step-children, are entitled to a minimum proportion of the estate (réserve héréditaire) calculated according to the number of children. Where the deceased has one child, that child is entitled to half of their parent's estate; two children are entitled to one third each; and three or more children to three quarters of the estate divided equally between them. The children of pre-deceased children are entitled to take the part their parent would have taken in equal shares. There are also rules to avoid this entitlement being overridden by lifetime gifts.
Where a deceased is survived by their spouse and children, the surviving spouse is not a forced heir but can choose either to take a usufruit (broadly a life interest) in the whole of the deceased spouse's estate (and so delay when the children receiving their forced shares) or to take outright one quarter of the deceased's estate. The rights of a surviving spouse differ when the deceased is survived by relatives other than children of the marriage and co-habitees have no fixed rights under any circumstances. Adult forced heirs can waive all or part of their forced heirship rights by written instrument (executed in the presence of two notaires) and the children of a deceased can agree that all or part of their share shall pass directly to their own issue.
The EU Succession Regulation (also known as Brussels IV)
Cross-border estate planning for French assets has become easier since 17 August 2015 when the European Succession Regulation came into force, notwithstanding that the UK opted out along with Ireland and Denmark. Under the Regulation, the law which applies to all aspects of a person's succession is the law of the jurisdiction where they were habitually resident at the time of their death unless they had expressly chosen the law of their nationality.
The applicable governing law applies only for succession purposes and does not affect how an estate is taxed so, subject to any relevant double tax treaties, inheritance tax remains payable in the usual way.
For British nationals seeking to avoid the effect of the French forced heirship rules it is necessary to make an express choice of English law rather than rely on the default position of being habitually resident in England at the time of death. This is because under an express choice of English law, English domestic law applies to the whole estate, wherever situated, whereas under the default position English international law applies under which English law applies to English assets but French law applies to any French immovable property. An express choice of nationality also provides certainty for internationally mobile persons who may not yet know where they will be resident at the time of their death.
The EU Succession Regulation expressly provides that the applicable law under the Regulation may be refused if it is manifestly incompatible with that country's public policy. Since the Regulation came into force there has been some debate in France as to whether it is contrary to French public policy to disapply their forced heirship rules, but this was settled when in September 2017 the French Supreme Court ruled that the application of Californian law, which does not have any forced heirship rules, to the administration of an estate located in France was not against French public policy, subject to a caveat that forced heirship should be respected when the heirs are minors or in a state of financial hardship.
Matrimonial property regimes
A matrimonial property regime is a formal binding contract usually entered into at the point of marriage to determine the parties' ownership of specific assets on both death and divorce. In countries such as France there is no marriage without one and if the parties do not enter into one there is a default regime. Prior to the EU Succession Regulation, one way for an English married couple buying French property to avoid the application of French forced heirship rules was to adopt the French matrimonial regime of community property under which their French property would pass automatically to the survivor on the death of the first spouse to die. By adopting this method not only were the French forced heirship rules bypassed on the first death but also a charge to French inheritance tax was avoided.
It is however no longer possible for English couples to choose to split their matrimonial regime in this way following a separate EU regulation in force since 29 January 2019. Those who chose to do so before this date are unaffected, but it is no longer necessary as the French forced heirship rules can now be bypassed by an express choice of English law and because transfers between spouses are now exempt from French inheritance tax.
French inheritance tax rates
Where a deceased person was resident for tax purposes in France, all their worldwide assets are subject to French inheritance tax . Non-French residents are only subject to such tax (subject to any applicable double tax treaty) on their property situated in France, whether movable or immovable.
Unlike the UK inheritance tax rules, rates of French inheritance tax are calculated on each beneficiary's share of the estate and taxed at progressive rates according to the beneficiary's relationship to the deceased. Since August 2007, transfers between spouses upon death are not subject to French inheritance tax. Direct descendants of the deceased benefit from a tax-free allowance of €100,000 and pay tax on the excess at rates rising from 5% to 45% on the value above €1,805,677. Where there is no blood relationship between the deceased and the beneficiary, tax is paid at the flat rate of 60% on the amount they inherit above €1,594.
Lifetime gifts are subject to gifts tax on a similar basis and lifetime gifts between spouses are taxable above a tax-free allowance of €80,724.
One will or separate wills?
Although an English will can cover French assets, it is often advisable to have a separate French will to dispose of assets situated in France. Where property is held under a French community property matrimonial regime, French wills may still be required to ensure the property passes on the second death in accordance with the owners' wishes.
Whilst an English will may be recognised in France, it may be unworkable because it employs, for example, English concepts of executors and trusts alien to the French. This can also lead to beneficiaries paying more French inheritance tax (at rates of up to 60%) where assets pass to a trustee who is not related to the deceased.
Having a separate French will for French assets usually facilitates the administration of the estate as the public officials and lawyers involved only have to consider and apply procedures and rules with which they are familiar and for which their legal system was designed. Separate wills may also speed up the administration of the estate as the French notaire will not have to wait until an English grant of probate has been obtained (and officially translated) before being able to deal with the French assets.
When having two wills, both wills should expressly include an election for English law to apply if it is desired to avoid the application of the French forced heirship rules and care must be taken, both at the outset and later if either will is updated, to ensure they do not overlap and that one will does not inadvertently cancel out the other.
Wills made prior to 17 August 2015 should be reviewed in light of the Regulation and especially if it is desired to take advantage of the ability to avoid French forced heirship rules,
Making a French will
The two most commonly used forms of French will are:
Handwritten or holographic wills must be entirely written out by hand (rarely longer than one side of A4), dated and signed by the testator but no other formalities are required. They can be written in any language, not necessarily in French, but must be handwritten and on an otherwise blank piece of paper. No other writing should appear on the paper and so they must not be formally witnessed.
Authentic wills more closely resemble an English will though they are considerably shorter. They are drawn up by a notaire according to the instructions of the testator and then signed by the testator in the presence of the notaire and two witnesses who must all also sign.
French wills can be registered at the Fichier Central des Dispositions de Dernières Volontés (French Central Wills Register) by a notaire who keeps the original in their safekeeping. Holographic wills can also be registered, but only by a notaire who will then also keep the original. Registration is not a condition for validity but guarantees that the will can be found and implemented as any notaire administering an estate will carry out a search against the deceased's name.
Testators may revoke their wills at any time by drawing up a new will or, in the case of a holographic will, by literally tearing it up.
Written by Edward Stone and Guillaume Cartier, Notaire, GRAF Notaires Paris SELARL
This article is drawn from an article written by the authors and published in The Gazette on 15 September 2020.