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French holiday home and French succession laws

18 November 2011

We are currently considering purchasing a holiday home in France. My husband John has 2 children from a previous marriage and he hasn't seen or heard from them for more than twenty years, so we don't want them to have any more than we are leaving them in our UK wills, which is less than they would receive under French succession laws.  John and I don't have any children of our own. As we understand it, if we  bought a property in France, either holiday or permanent residence [i.e. mobile home or bricks and mortar], and have a tontine placed on  these options and I die first, then the property is not subject to French succession laws and Johns children are disinherited. Is this correct? If John dies first, then what would happen? Would the property then be subject to the succession laws and Johns children would then become entitled to their shares ? Also there is no mention of investments or any money in the estate, is this also taken into account when talking about French succession laws? We really would appreciate some further information, as we are finding it very difficult.

Sarah Bogard advises:

You are correct to be considering the ownership structure before you buy a property in France. Your research thus far has clearly flagged up the issues you need to take into consideration.

To answer your last question first, the scope of application of French inheritance law depends upon your domicile and residence status at the time of death. It sounds as though you are only intending to use the property as a holiday home, rather than making a permanent move to France.  As such only the distribution of the property (an “immovable” asset) will be governed by French law. However if you are resident in France at the time of death then French law could also apply to other assets.

You should consider all the possible ownership structures before you buy to decide which one is most appropriate for you. It is not always the case that one option will completely fulfil a couple’s objectives. Tontine is one option. It is a contractual agreement between the buyers inserted into the purchase deed, so you must decide if you want to buy this way before you complete your purchase. On the death of an owner the surviving co-owner becomes the sole owner, and so French inheritance law is side-stepped. If your husband dies first under French law you will be considered as the sole owner retrospectively from the date of purchase. However, be aware of circumstances in which his children could question the validity of the tontine agreement – for example if you are of differing ages or health such that the chance of survival of either of you is weighted more towards one, or you don’t equally contribute towards the purchase price.  You are right in pointing out that if you die before your husband then on his subsequent death his children will be entitled to inherit at least part of the property (their reserve légale) under French law. He will be free to leave part of his interest in the property to whomever he chooses under the terms of his Will (the quotité disponible).

There are some other options to consider. You could weigh up the pros and cons of the property being bought in your sole name. Stepchildren do not have legal inheritance rights in respect of a step-parent’s estate. Also if the property was to be your main residence at the date of your death, your husband would automatically benefit from a lifetime right to occupy the property as his main residence.

Alternatively you could consider buying the property within a company property holding structure, such as an SCI (société civile immobilière). The asset in your estate would be a shareholding rather than the property. You would not avoid the application of French inheritance tax but English succession law could then apply to the distribution of the shareholding on death, leaving you free to distribute it to whomever you choose. The legal and tax implications of the use of a corporate structure need to be  taken into account, as well as any management costs of the company and any restrictions in the use of the property.

If your step-children do inherit a share of the property you may want to consider a change to the distribution of your UK estate to take this into account.

These are only a few pointers for you. It is important that you consider all your options taking into account your objectives, and also associated issues such as inheritance tax.

For further information contact Sarah Bogard.

 

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