All You Need to Know about French Inheritance
Unlike in the United States, there are no free-form rules as to inheritance in France. Succession issues in France revolve around the concept of "forced heirship", a concept that has its roots in the Napoleonic Code.
What is a Forced Heir, you may ask? Essentially, it is the rule of law that a decedent cannot totally disinherit his or her child(ren). The specifics depend on the number of heirs, but at least 50% of the estate must go to the forced heirs, with some limited exceptions. In addition, the other 50% can only go to a person who is not a forced heir with a stranger to the bloodline such as a cousin, a sibling or a life partner (as opposed to a spouse).
For example, if someone has two children and dies with a net worth of $1,000,000, depending on how they passed away i.e. living together with a spouse or domestic partner, this will dictate who gets what. In the case of a death of two forced heirs – the children being the forced heirs – the spouse gets 25% of the estate , 50% goes to the offspring and the remaining 25% are divided between the spouse and the children, or if alive, are left to the children. In the example above, the spouse gets $250,000, and the heirs share the remaining 75% of the estate ($750,000). As a result, the surviving spouse receives $625,000; if alive, the forced heirs share the remainder (two children = $125,000 each).
If the forced heirs are not alive – for example, both children are deceased – then the spouse would receive the $250,000. The other 75%, or $750,000, will go to the surviving family members down the line, if one or more of the decedent’s siblings are alive; if not, to the grandchildren, and so on.
Contrarily, in the United States, a decedent can freely disinherit his or her children and bequeath as much of his or her estate as he or she wishes to whomever they wish. Further, it is possible to leave the entire estate to a foreign national, or to a total stranger for that matter.
Who is Subject to French Inheritance Law?
Both US citizens who own property in France and those who have French beneficiaries are subject to the provisions of the French Civil Code relating to successions and donations. Such rules apply without regard to the decedent or donor’s nationality, only the nationality of the benefiting party is in question.
As a consequence, the following categories of US citizens may be affected:
• US citizen beneficiaries of a will signed prior to the estate planning changes proposed by the French government (2014-627 Law in favor of European successions);
• US citizen beneficiaries of a donor, where the French tax domicile of the donor is in question (tourists and frequent visitors).
• US citizen parents, whose children are beneficiaries under the full or partial forced heirship rules of the Napoleonic Code (minors or those deprived of parental care).
• US citizen owners of real estate in France when the decedent has French tax domicile and applicable French succession tax liabilities (tourists and frequent visitors).
• US citizen owners of real estate in France, when the donor is tax domiciled in France and French gift tax rules apply.
• US citizen parents, whose child has moved to France within the last 5 years, whose parents and siblings may be presented under the forced heirship rules of the Napoleonic Code (minors or those deprived of parental care).
US – French Estate Tax Treaties
There are two double tax treaties relevant to United States citizens, which affect French inheritance tax. The most common is the 1990 Franco-American double taxation treaty and the other is the Franco-US estate abatement treaty of 1970, acceded to in 1971.
The 1990 treaty aims to prevent double inheritance tax by allowing persons who pay inheritance tax in France to credit the French inheritance tax against their eventual US inheritance tax liability.
There are three estate and gift treaties negotiated by the US with G7 countries that specify the allocation of taxing jurisdiction. These are the treaty with France, the treaty with the UK, and the treaty with Italy. It is particularly noteworthy that the original text of these treaties used a different form of language with regard to the French and Italian treaties, both drafted by the late Grenville Williams, former international tax adviser to the US Treasury.
The German and Italian treaties each allow a deduction of tax paid to the country of primary domicile up to the level of the maximum estate and gift tax allowed under the treaty.
Article 20 of the French treaty states:
‘The laws of both Contracting States shall allow a credit for estate taxes payable in the other Contracting State against the tax which may be due to each of them under the present agreement.’
Thus, it is clear that French tax and US estate tax are linked, but they are linked in such a way as to allow the state where the person who died was domiciled to collect the higher amount of tax. Thus, a US citizen who is domiciled in the US will always pay the higher amount of tax.
However, the French estate tax is payable on the net value of the property left, whereas the US inheritance tax is payable on the gross amount with no deductions for debts, funeral expenses, etc.
French Inheritance Legal Mistakes
For US citizens, dealing with a French inheritance can present myriad legal challenges. Whether it be dealing with real property located in France, moving funds out of the country, or attempting to avoid default French succession laws, legal challenges abound. While the US and France share a tax treaty, there is no treaty dealing with inheritance. Thus, it is imperative to understand the legal implications of transferring property to an heir in France.
Property is governed by the law of the land where it is situated. This means that any heir receiving property located in France must adhere to the rules of French law. For example, if you receive an apartment in Paris, it is not your duty to pay taxes and declare the property in the US. Rather, you are forced to comply with the rules of French property taxation. Likewise, if you choose to sell the property, you must follow French law in selling the property.
Obtaining funds from France can also pose a challenge for US heirs . French law requires that any gift transferred to an heir be sent through a French institution in the form of a cash wire transfer. However, this method may be blocked or delayed by banks or financial institutions in the United States. The only way to circumvent this issue is to have an attorney write a letter to the bank explaining the situation. Otherwise, your money will be tied up in France indefinitely.
A common mistake made by heirs receiving property in France is attempting to draft a will to undermine forced heirship. Many individuals, despite being married, will attempt to leave all of their property to their children. This action is not permitted in France. Forced heirship cannot be evaded by drafting a will in the US or any other country. It is important to obtain an expert opinion as to how to distribute your wealth across the US and France and carefully consider international estate planning opportunities before delving into succession process in the name of the "testator"/"defunct" in France.
Inheritance Steps for Americans in France
For Americans, there are a few steps to follow in order to manage an inheritance in France.
- The US citizen must file a legal declaration (eclaration légale) with the registry office (l’état civil) of his or her domicile (residence) to accept the inheritance.
- File a tax declaration with the French tax authorities using the Notary standard form 2705 (formulaire 2705) so that the tax authorities can determine whether there are any taxes to be paid.
- If there are taxes to be paid, the US citizen needs to remit the payments by cheque made out to the French tax authorities and "à l’ordre de la régisseure des impôts de votre domicile » or "régisseur de recouvrement".
- Give the copy of the cheque to the Notary for his files. The Notary will use the cheque to pay the inheritance taxes on behalf of the US citizen.
- The Notary will then provide a receipt (quittance fiscale) for the French tax authorities as confirmation that the inheritance taxes have been paid.
If the American dies without a Notary organizing the succession, the family can:
US Citizens’ and French Inheritance – Examples
To further understand the complexities of French inheritance laws for US citizens, let us consider a few examples.
Example 1
John is a widower with two children. He was married to his first wife for many years, from whom he divorced in 1999. Upon their divorce, John inherited half of their joint assets. John then remarried and moved to France, where his wife Cécile owned a house. Cécile passed away in 2018, leaving everything to John. Following Cécile’s death, John contacted his notaire to initiate the inheritance process. Upon review of the property and other assets, the notaire informed John that one fourth of his wife’s share of the joint assets would pass to her children, John’s stepchildren from his first marriage. When John protested, the notaire advised him to contact an attorney to discuss the specifics of the situation. Unfortunately, John thought that he could get away with taking the house and dividing it between his own two children, but after two years of litigation in court, the family had a hearing. The court ruled that one quarter of the house would pass to John’s stepchildren from the first marriage. This is the result when a couple jointly acquires property in France, and each spouse is considered a co-owner. John should follow the advice of his notaire and speak to an estate attorney in France.
Example 2
Dan and Ellen are a married couple. They purchased a property in France and plan to spend their retirement there. They have two children from previous marriages, but Dan has a prenup with his second wife that stipulates that all of his assets, including his half of the property in France, will pass to his children . Dan should consult an estate attorney in France to find out how his children can inherit his half of the house.
Example 3
Steve and Betty are married, but having no children together, they have wills in the US allocating their assets to one another, Steve’s son, and Betty’s daughter. Steve’s son, David, lives in Switzerland. They are considering making a probate proceeding in the purchase jurisdiction, to simplify the inheritance process. The couple should discuss other methods of estate planning, since the purchase in which Switzerland acknowledges the wills gives rise to an automatic reservation of the rights of the children at the time of an owner’s death. Therefore, Steve will not be able to bequeath or leave his half of the property to anyone but David. In that case, David will inherit his father’s portion of the property and will pay testamentary succession duties, which are much higher than a unilateral will or forced heirship laws. There are methods of circumventing forced heirship that must be discussed by the couple and their lawyer.
Example 4
Maria has a son, and owns a vacation home in France to visit once or twice per year. She is a US citizen and her son lives in France but, he will move out of France to Australia shortly. Maria is also considering giving her house in France to her son now, so he can live there and Maria can avoid the taxes associated with the property. But, she should realize that the French tax authorities will transfer two; the gift tax is based on the U.S. value of the house, plus any gifts made by Maria to her son in the past ten years. This is something to think very carefully about, and again the couple should meet with an estate attorney in France.