Having to deal with the administration of an estate after you have lost a relative or close friend can be challenging, even more so when there is a foreign element.
There are similarities and differences between estate administration in England and Wales, and France. Here are some of the main points.
Wills and inheritance rights
English law allows you to leave your assets to whomever you choose under the terms of a Will (the concept of testamentary freedom). The Inheritance (Provision for Family and Dependants) Act 1975 allows certain people to claim against your estate if they consider they have been inadequately provided for, but it would be up to the aggrieved person to bring such a claim.
If you don’t leave a Will, or your Will (or combination of Wills) doesn’t cover the distribution of all your estate assets, then if English intestacy law applies, a set order of family members would be followed to work out who inherits, starting with the closest surviving relatives (eg spouse and children). You should take advantage of the freedom English law gives you by making a Will.
French law doesn’t give complete testamentary freedom. Even if you have a Will dealing with the distribution of your French assets, French law says you are not allowed to disinherit certain family members, primarily children.
Prior to August 2015, French succession law applied to a property (an immovable asset) and also to movable assets (eg bank accounts) if you were domiciled or habitually resident in France on your death. However, with the introduction of the EU Succession Regulation 350/2012 it is now possible for you to instead declare in your Will that you want the succession laws of your country of nationality to apply in France. This Regulation has made a significant impact in the way that the French assets of a British national can now be distributed on death. This is a very good reason to carry out a review of your Will if you own assets situated abroad (the Succession Regulation covers the distribution of estates across the EU Member States).
The General Process
In both countries, the first steps following a death are to:
(1) locate any valid Will (there is a central Wills Registry in France, and there are voluntary registers in England);
(2) ascertain the assets and liabilities in the estate; and
(3) identify the beneficiaries due to inherit (whether under a Will or by law).
In France all family members with legal inheritance rights must be identified. The legal documents will specify each beneficiary’s “état civil” (their “civil status”, including details such as full name, date and place of birth, marital status).
If there is a French marriage contract, it will be dissolved first and dictate the distribution of the assets covered by the contract.
The Roles of Personal Representative and Professional
English law specifies that the personal representative (“executor” if appointed in a Will or “administrator” if appointed by law) is in charge of administering the estate. He carries out the steps above and will be responsible for accounting to the beneficiaries in respect of the assets in the estate.
French assets vest directly in the heirs. The role of an executor in France is much more restricted and he does not have the same powers as a personal representative in England and Wales.
A beneficiary under English law can choose to accept his inheritance or disclaim it. In France a beneficiary has a third choice, which is to agree to receive his inheritance following full inventory of the estate (“l’acceptation à concurrence de l’actif net”). This option may be taken if the debts in the estate are likely to exceed the assets – French law specifies that a beneficiary inherits his share of the assets and he becomes responsible for his share of the liabilities.
An heir can also choose to renounce part or all of his inheritance rights before death occurs.
Does a professional have to be involved?
An English solicitor can be appointed to act either as executor, or to assist with the administration of the estate. Whilst it is not obligatory, there are considerable benefits in instructing one. For example, a solicitor can advise on ways to re-structure the distribution of an estate post-death to minimise inheritance tax; a personal representative may need assistance in obtaining Grant of Probate; and a solicitor can help to account correctly to both HM Revenue and Customs (for the tax) and the beneficiaries (to confirm correct distribution of the estate).
A French Notaire will be instructed in certain circumstances, depending on the size of the estate and the assets in it. If there is a French property, there have been lifetime gifts, or there is a Will, a Notaire will be instructed.
A UK solicitor with a good knowledge of both French and English inheritance and tax law can be invaluable in helping a beneficiary make the best choices under French law. For example, where there are children, a surviving spouse has a number of choices regarding his/her inheritance (perhaps to take the portion he/she is entitled to by law, or to take a “usufruit”). The choice should be made taking into account both the UK and French inheritance tax positions both at the deceased’s death and on the spouse’s subsequent death.
The solicitor can also liaise with the Notaire to ensure the beneficiary understands the legal documents he will be required to sign.
The English Grant of Representation confirms authority to the personal representative to collect in the assets and distribute the estate. In France, an “Acte de Notoriété” is prepared. It’s longer than an Oath as it includes the terms of an existing Will, details of all the beneficiaries and how the estate will be divided between them. It’s important to note that even if a Grant of Representation is not required in England (perhaps because the value of the estate assets are low and they can be distributed in a simple manner) a Notaire may still require one for the French estate administration.
The Assent transfers property in England and Wales into the beneficiaries’ names. In France, an “Attestation Immobilière” will confirm which beneficiaries have title to the property.
An English inheritance tax account is form IHT400 or IHT205. The French account is the “Déclaration de Succession”.
Inheritance Tax (IHT)
Be aware of French inheritance rights and your options to instead choose the application of the succession laws of your country of nationality instead. The choices can in some cases have a significant impact on the French inheritance tax position.
If you die domiciled in England or Wales your worldwide estate will be chargeable to UK IHT and only those assets located in France will be chargeable to French IHT (with some exceptions where your beneficiaries have French residency). If you die domiciled in France then French IHT will be chargeable on your worldwide assets.
Under UK tax law if the assets in the estate exceed the available nil rate band allowances UK IHT is charged at a rate of 40% on the excess. There is an exemption on transfers between spouses or civil partners.
French IHT is calculated by looking at the relationship of each beneficiary to the deceased. Each beneficiary is entitled to a nil rate band allowance (an “abattement”), which changes each year. The closer the relationship, the higher the allowance. For example there is a full exemption between spouses, and each child’s allowance is €100,000. The allowance for an unrelated beneficiary (note: including a stepchild) is only €1,594.
The rate of French IHT on assets which a beneficiary receives exceeding his “abattement,” again, depends on his relationship to the deceased. There is an increasing scale of rates for a child beneficiary, starting at 5% and going up to 40%. There is a flat rate of 60% for unrelated beneficiaries.
UK IHT is payable from the estate by the personal representative and to avoid interest, it should be paid within 6 months from the end of the month in which death occurs.
The beneficiaries are responsible for payment of French IHT (unless the Will specifies otherwise), and within 6 months of the date of death if the deceased was a French resident (otherwise within 12 months).
In certain circumstances, both countries allow payment by installments.
It can be seen that the two countries have quite different approaches not only to succession law itself but also to the administration of an estate on death. For an estate where there are both English and French assets, careful estate planning during lifetime is absolutely key, and beneficiaries should seek legal advice on their inheritance after death to make the best use of any choice available.
Please note that the above is not a substitute for detailed advice on a specific matter. It is for general guidance only, and specific advice should be sought from an expert.
For further information contact Sarah Bogard, Senior Solicitor & Chartered Tax Adviser on 01227 763939.