Droit de Succession

PETER HARRIS considers the effects of the French legislative change in the rights of the surviving spouse over French property.

THERE HAS BEEN a long debate in France over the status of the surviving spouse in relation to a deceased's estate, and this has resulted in a recent legislative change. The French régime uses the notion of forced heirship rights and reserves to protect the children and family of the deceased, and only gave a limited minimum legal right to the surviving spouse, who could even be entirely disinherited.

The surviving spouse's right was limited to a usufruit over one-quarter of the deceased's estate. This could be varied by several means, the most frequent being matrimonial property régimes such as the communauté légale or the communauté universelle avec attribution au dernier survivant. Gifts of after acquired property could also be employed within the limit of the quotité disponible.

Two proposals

There were two proposals before the French parliament, one proposed by the Senate, which was restricted to one quarter of the estate, and that proposed by Elizabeth Gigou in the Lower House, which was for the survivor to have as a minimum a usufruit over the whole of the estate.

La Loi du 3 Décembre 2001 relative aux droits du conjoint survivant et des enfants adultérins et modernisant diverses dispositions de droit successoral was published in the Journal Officiel of 4 December 2001. The surviving spouse has been elevated to a similar position to the children of the deceased, but with a minimum right limited to a one-quarter share of the estate. Elizabeth Gigou's proposal for a usufruit right over the whole estate was not adopted.

The law does not ban further increases of the estate to the survivor by estate planning using existing techniques.

Blood relatives

The French system has evolved over the last century from a system which gave the priority to the blood line, to coming to accept that the rights of the spouse also require attention to the extent that the spouse's family will not necessarily provide for him or her. It has developed to take account of changing social pressures on the family, and the expectancy and need for the estate of the deceased to provide for the surviving spouse.

At the risk of some simplification, but in order to understand the extent of the changes, let us bear in mind that where there are children, they take equally, subject to the rights of the spouse, and any dispositions made out of the quotité disponible, an unrestricted share of the estate. The surviving spouse now takes one quarter in full ownership, but is not a réservataire or protected heir.

Where the deceased has no children, the survivor takes the whole estate, unless one or both of the deceased's parents are alive, when each surviving parent takes one quarter of the property. This is a substantial departure from the blood line principle, in that the surviving spouse under such cases effectively has a right equivalent to a réserve. However, there is also a right given to ascendants who need to claim financial support from the surviving spouse taking up the new rights.

In the case of property comprised in the deceased's estate which is evidenced as having been given to the deceased by his family, the brothers and sisters of the deceased have a right to one-half of this, the other half going to the surviving spouse. This is an attempt to counter an excessive benefit to the surviving spouse to the detriment of the deceased's family which provided the capital in question.

Where there are children involved, and they are from the marriage, then the surviving spouse can opt for a usufruit over the whole of the deceased's estate. A usufruit is not a life interest, but it does have the effect of providing for the spouse, and retaining the underlying capital for the children, i.e. remaining within the blood line.

The law provides that the usufruit may be changed into a rente viagère, or annual payment, on the initiative of either party, or into capital by agreement between the surviving spouse and the children of the deceased. In effect, it was usual practice for such a usufruit to be claimed and then capitalised, and finally paid out of the estate.

Rented or owned property

A distinction has to be drawn here between the residence which the survivor occupied at the time of the death and the remainder of the estate. Where the survivor lived in the property at the time of the deceased's death, whether or not they owned it, the survivor retains a right to live in the home for one year, free, and the estate pays the charges. This right applies to estates of individuals who have died after 4 December 2001. While this is intended to apply to rental property, it raises certain questions for persons living in properties owned by offshore structures.

Where the property is owned by the couple, or by the deceased, the surviving spouse now has the right, exercisable during the year following the deceased's death, to claim both a right to live in the property, un droit d'habitation, and a right to use the furniture, un droit d'usage. This is a considerable improvement on the previous position, where the spouse could be ejected by the children.

It is, however, subject to the deceased's intention, as this right can be annulled by a notarial deed, i.e. a will, gift or other deed passed before a notary.

This flexible approach appears to go some way towards fulfilling the legislator's intention of improving the surviving spouse's position without entirely disrupting the blood line principle.

It is perhaps useful to see the questions of the unrestricted share or quotité disponible as being firstly the specific rights between spouse and children, and then secondly as the general relationship between the children and third parties. The effect of the change has been to increase the advantage of gifts of after acquired property between spouses, in that the spouse may be given the following over and above the minimal share of one quarter:

• one-quarter in full ownership; and three-quarters in usufruit; or
• the whole in usufruit.

This is equivalent to the maximum quotité disponible, the free section of the estate, available to the spouse which is one quarter in the presence of three children, and a further allocation of a usufruit over the remainder by way of gift or legacy.

Matrimonial property régime

It certainly also increases the value of using the correct matrimonial property régime. In effect, the law has transferred what were certain of the possibilities of granting a spouse further rights from the law of gifts, to a fixed right under the law of succession for those couples who do not take the initiative of ensuring the survivor's position.

The effect of the law is now to render the use of certain matrimonial property régimes even more essential for foreign purchasers of French real estate, particularly those married under English law, which is treated in France as equivalent to the French séparation des biens. Advice should be taken from a competent English lawyer who knows the French system, prior to signing any document of purchase. It is possible to modify the manner in which a property is held in France by a court declaration, but it is cheaper and simpler to choose the appropriate régime before purchase.

The tax issues

From the estate duty point of view, where a couple purchases a property under certain types of matrimonial property agreement or régime, there will be no estate duty to pay. If, they do not choose one of these régimes, having neglected to take advice prior to the purchase, the new legal rights will probably determine the basis on which estate duty will be payable.

It is still possible for a couple to purchase jointly, provided that they are not married under what the French perceive to be a community régime. They may use what is known as a convention d'indivision at the time of purchase, and even after that, to ensure that the property passes to the survivor at a lower rate. This is possible where a couple is unmarried, or where one or both spouses have children from previous unions. Again, advice from a competent English lawyer with the appropriate experience is necessary to ensure success here, as not all notaries are aware of the use of these arrangements, or the fact that their Cridons (local institutions run by the Chambre de notaires) have acknowledged these as valid.

So, where the couple has opted to rely on the law, as it is now modified, or has not made further provision by way of gifts or wills, the estate duty position is as shown in Table 1.

Table 1: French rates of estate duty (2002) in Euros

By way of comparison, and relying simply on the survivor's minimum rights, the difference between the two systems under 2002 rates is not inconsiderable.

Assume that the surviving spouse is aged 65, that the deceased's French estate is one-half of a property worth 1 million euros, which the couple owned separately in equal portions, giving a right to a usufruit valued at 2/10 of one quarter of the deceased's estate. Under the previous rules, the calculation would be as shown in Table 2.

Table 2: French estate duty - previous rules

In summary, the total charge to estate duty would have been:

Under the new rules the calculation would be as shown in Table 3 below.

Table 3: French estate duty - new rules

The new rules actually reduce the tax on the estate in this example, as the survivor's allowance is more fully employed owing to the greater value of the right.

It would be very rare that a well organised and planned estate would take this route, so the potential for planning is substantial.

Peter Harris, barrister, is a member of 3 Temple Gardens Tax Chambers.

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