In our article dated 18 November 2021, Me Marie-Claude Bessout (former Notary) and I alerted our foreign readers to the consequences and uncertainties brought about by the “law against separatism” of 24 August 2021 with regard to international successions.
We regretted that the wording of the new Par. 3 of Art. 913 of the French Code civil is too broad and imprecise, while it sets up a rather radical mechanism of compensatory levy, in favour of heirs dispossessed under foreign law. We also worried about the likely incompatibility of these new provisions with those of the European Regulation on successions. We anticipated that, if a dispute between heirs were to be brought before the courts, the incompatibility of this compensatory levy with the provisions of the European Regulation would be usefully raised by a well-informed counsel. We thus hypothesised that this reform, although anxiety-provoking, might in fact have a short life span.
In any case, in the absence of authoritative case law, useful preparatory work or convincing doctrine on the subject, we could only alert our readers to the need to ascertain, on a case-by-case basis, the consequences of the reform on the estate plans already in place.
More than a year has passed since we wrote this article. This is obviously too short a time for decisions to have been handed down by the courts of appeal or, a fortiori, by the Cour de cassation. In the meantime, however, we have assisted a number of Anglo-Saxon expatriates who were concerned about the effectiveness of their estate plan.
Typically, our clients had validly chosen their national law to govern the settlement of their estate. Accordingly, they had freely made bequests (e.g. to the spouse) in excess of the available portion that would have been theirs under French law. Unfortunately, our analysis has shown, in every case so far, that these previously normal and well-accepted estate plans fell within the scope of the new par. 3.
Unfortunately, some expatriates have been tempted to sell everything and leave France as a result… To avoid this becoming a recurrent choice, concrete solutions had to be sought. This article, following on from the previous one, presents some possible solutions, to mitigate the risks of the reform. This article, written as a follow-up to the previous one, presents some avenues for reflection.
1°) The early waiver of the action en réduction
Although French law generally prohibits anticipated agreements on future successions (Art. 722 of the French Code civil), there are some exceptions. In particular, Art. 929 of the French Code civil states that:
“Any presumptive reservatory heir may renounce an action in reduction in an unopened estate. The renunciation must be made in favour of one or more specified persons. The renunciation is binding on the renouncing party only from the day on which it is accepted by the person he is entitled to inherit.
The renunciation may concern an infringement on the whole of the reserve or on a fraction only. It may also concern only the reduction of a liberality relating to a specific property.
The act of renunciation may not create obligations for the person from whom one seeks to inherit, or be conditional on an act of the latter”Free translation of Art. 929 of the French Code civil
In other words, French law allows the heirs to voluntary forbid themselves from initiating an action in reduction to be reinstated in their reserve héréditaire.
Given the seriousness of the waiver, it must be drawn up in the solemn form, before two notaries (one of whom is independently designated) and be signed separately by each renouncer (French Code civil, Art. 930). The waiver must be granted on a purely gratuitous basis (i.e. without any consideration, in the legal, financial and/or material sense).
Such a solution could be particularly useful for estate plans (fairly classic in America or the UK) whereby spouses leave everything to each other, pending the second death, when everything is finally passed on to the children. In such a scenario, it is quite easy to imagine that these latter, designated as the ultimate beneficiaries of the spouses’ assets would agree to respect, in a family spirit, the last wishes of their parents. A special mention could be inserted in the deeds of renunciation, to specify that the waiver covers the specific levy of the new par. 3 of Art. 913. This solution naturally implies the unanimous and informed consent of all the heirs.
Although the formalism of the notarial deeds is rather heavy (double intervention of notaries, special clauses of information in the deeds…), this first option appears to be the simplest. It allows the testators to maintain their estate plan and ensures that the succession is settled according to their wishes. It is therefore a question of consolidating what already exists.
This first option, however efficient, is nonetheless far from being the magic solution. Although satisfactory from a legal point of view, it is not always tax-efficient. This is particularly true when children from a previous union are among the heirs. French tax law can be quite severe (with rates of up to 60%) when there is no direct family relationship between the deceased and the beneficiaries. Depending on the tax residence of the parties, the bilateral conventions specifically applicable to successions, the location of the assets, etc., it may be fiscally risky to allow the entire estate of the couple to devolve to the children, only upon death of their stepfather/mother.
2°) The special available share between spouses
Although French inheritance law is undeniably rigid compared to that of common law countries, it does nonetheless offer some flexibility for inter-spousal devolution. This flexibility is found especially where the surviving spouse is in “competition” with other heirs.
Let us remember that, far from wanting to punish or totally disinherit their children, the Anglo-Saxon estate plans which contradict the French hereditary reserve aim, most of the time, at protecting the surviving spouse. It is therefore easy to understand the distress felt by these foreigners, who feel unfairly affected by the new provisions.
Art. 1094-1 of the French Code civil states that:
“If the spouse leaves children or descendants, whether or not from this marriage, he may dispose in favour of the other spouse either of the assets of which he could dispose in favour of a stranger, or of one quarter of his assets in bare property and the other three quarters in usufruct, or even of all of his assets in usufruct only. Unless otherwise stipulated by the settlor, the surviving spouse may limit his emolument to a part of the assets disposed of in his or her favour. This limitation cannot be considered as a gift to the other successors”.Free translation of Art. 1094-1 of the French Code civil
This is known as the quotité spéciale entre époux, which is actually an option between three different modes of inter-spousal inheritance. The children’s legal reserve therefore varies correlatively, depending on the choice of the settlor or, if he/she has delegated it, to his/her surviving spouse. This is one of the few cases where the French legislator wished to establish a form of freedom of disposition. This option does not require the early waiver described above to be effective. Indeed, the inter-spousal share is said to be special: it leads to an adaptation of the reserve of the protected heirs; not to an infringement of it.
Here is a concrete example of how it works (“FO” meaning full ownership; “BO” bare ownership; and “US” usufruct):
|Number of children||Global reservatory rights of the children||Special available share between spouses|
|1||½ FO||½ FO|
|¾ BO||¼ FO + ¾ US|
|100% BO||100% US|
|2||2/3 FO||1/3 FO|
|¾ BO||¼ FO + ¾ US|
|100% BO||100% US|
|3 or more||¾ FO||¼ FO|
|¾ BO||¼ FO + ¾ US|
|100% BO||100% US|
The testator can either indicate directly in the will the option he/she wishes to retain for the surviving spouse, or, on the contrary, leave this choice to the latter.
In French law, “usufruct is the right to enjoy things owned by another, like the owner himself, but with the obligation to preserve their substance“. It can basically be instituted on all sorts of assets, whether movable or immovable. With regard to savings and investment products, “the usufructuary has the right to enjoy any kind of fruit, whether natural, industrial or civil, that the object of which he has the usufruct may produce” (Free translation of Art. 582 of the French Code civil).
Taking advantage of the provisions of Art. 1094-1 can be an interesting solution to many problems, including the tax problem identified above:
- The stepfather/mother can retain the use of all assets until his/her own death;
- The children inherit only the bare ownership of all assets that used to belong to their mother/father; and
- The stepfather/mother can, in turn, grant them the bare ownership of his/her assets during his/her lifetime.
When the heirs receive only the bare ownership of one of their parents’ assets as part of an inheritance, the same taxes on gratuitous transfers (same rate and exemptions) apply, but only over the value of the bare ownership (French Code general des impôts, Art. 669, I). This leads mechanically to a decrease of the inheritance tax. Indeed, the market value of the bare property is lower (depending on the age of the usufruitier, as per a legal rating scale) than that of the full ownership of the same assets.
Furthermore, in principle, no taxation applies to the automatic combination of bare ownership and usufruct upon death. This can significantly reduce the duties that the heirs would have to pay as a result of the transfer of the entire marital estate to them.
This option could therefore be interesting for expatriates who are worried about the consequences of the reform. In many cases, however, it will be necessary, before implementing it, to ensure that it is effective and/or consistent with the foreign law that would remain applicable to the estate as a whole.
In conclusion, the quotité spéciale entre époux really deserves to be known. Not only can it be useful in mitigating the risks implied by the reform, but it is also a formidable tool for tax optimisation.
3°) “Sticking to” the réserve for French assets
As we have seen, one of the main problems of the reform is its vagueness as to the actual scope of the compensatory levy. In particular, where assets are located on both sides of the border, which ones should be taken into account for the determination of the reserved share?
Let’s imagine an American widow with three children, who all live in the United States. This gentleman owns a house, of fairly low value, in France where he spends his retirement. He has accumulated significant savings and assets in his home-country. In accordance with his national law, he chose to disinherit two of his children, leaving everything to only one of them. Upon his death, the French notary in charge of the estate informs the two disinherited children of their rights under Art. 913. Now, how do they calculate the amount of the compensatory levy?
Pursuant to Art. 922 of the French Code civil, ”the [default] reduction is determined by forming a mass of all the assets existing at the death of the donor or testator” (Free translation). Does this mean that the disinherited heirs are now entitled to ¼ each of their father’s global estate, notwithstanding their father’s valid choice to have his estate governed by his national law?
Assuming this interpretation (a view that is apparently held by a majority in doctrine, but which does not convince us) is correct, how, in practice, are they supposed to “use” the only assets existing in France to make this levy? How can one believe that an American judge would authorise a French decision to produce its full effects on assets located in the United States, despite the fact that French law had never been chosen by the deceased and the disinheritance in question complied with American law?
We have been asking ourselves these questions since the reform was adopted. The fact is that the legislator has not provided an answer. This legal uncertainty as to the actual settlement of the estate is problematic. Especially when we know that the notary will have a legal obligation to inform the dispossessed heirs.
This lead me to consider the drafting of specific wills aimed solely at reducing the risk of “contagion” from the French levy to global assets. This option results in particularly unusual, meticulously drafted wills, confirming the choice of foreign law, while expressing the intention of the testator to respect French mandatory rules. It is therefore an exercise in clarification, not revocation, of previous wills. It is also a work of geographical and legal delimitation.
In my view, this option, which is naturally much less regulated than the two previous ones (as it is an invention), deserves to be considered. However, it requires a very precise analysis to confirm its interest and potential effectiveness beforehand.
4°) Does the chosen foreign law offer relevant solutions?
Where the testator is not resident in France, but the new Par. 3 of Art. 913 is applicable because of the nationality or habitual residence of the heirs, as well as the presence of existing assets it France, then it may be relevant to check whether the chosen foreign law offers effective inheritance solutions, notably to protect the assets located abroad.
Readers may have notice that this article is deliberately drafted in the sense of a consolidation, by the testators, of their estate plan. For the second time, I have, so to speak, taken the side of the testators, and not their ‘disinherited’ heirs. The reasons for this position are as follows:
- Consistency: I have taken a critical view of this reform, which appears incompatible with the applicable EU Regulation; it is thus proper to maintain doctrinal and judicial consistency;
- Internationality: in my view, international comity, or at least axiological relativism should govern private international law. It seems rather unfortunate that the perfectly legal estate plans of many expatriates are disrupted by the indiscriminate imposition of values that are not universally shared. A more sophisticated approach could, and should, have been taken by the legislator.
For the sake of clarity, it should be made clear that the options detailed above are only avenues for reflection, in view of a reform that raises multiple uncertainties. This article is not a substitute for personalised legal advice. Should you need such advice, to consolidate and/or ensure the efficiency of your international succession, contact us so that we can carry out a thorough analysis of your situation.
Article written by Me Simon Deceuninck on 31 March 2023