AARO hosted a packed room at Reid Hall on October 26, 2015 to hear Tim Ramier, lawyer and member of the AARO board, and Pierre-Alain Conil, notaire, present the changes in the E.U. law. The presentation addressed only the effects of this law as it concerns U.S. citizens and France.
To start, Tim reminded us all that the key is organization. He handed out a summary with some key definitions: "intestate" means without a will; "testate" means there is a will; "limits" signifies that there are certain limits which the will cannot override, such as marital regimes, surviving spouses, for, in France, forced heirship based on degree of blood relationship and limits for non-resident owners of French property.
Pierre-Alain (see his handout) first told us what the previous law was: French inheritance law (with forced heirship) applied to all real estate (immovable) property in France and for the other assets, called moveable property (cash, bank accounts, stocks, furniture, etc.) the law that was applicable depended on the country of residence. Forced heirship means that the children have a right to a certain percentage of inheritance, followed by parents, siblings, and finally, nieces and nephews. According to the degree of relationship, a given amount of that inheritance is tax-free and then the rest is taxed, more or less heavily according to degree of relationship. The surviving spouse pays no tax on his or her share. Many Americans in France, who wish to decide for themselves who will inherit their estates, are uncomfortable with the French system of forced heirship.
The first change to note is that, by default, the law of the country of residence will apply and that there is no longer any distinction between movable and immovable property. The law of the country of last residence will apply to all property (At least among E.U. member states.)
The second change is that you may choose to have the law of your country of citizenship to apply instead. Even dual nationals can choose which country. Couples of two different nationalities residing in a third country of the E.U. can decide among the three.
These changes only concern the laws governing the distribution of your property upon your death. They do not change the taxes that apply. Property in the U.S. will be taxed according to the state and federal tax rules that apply—and the current exempt amount for federal taxes is $5,430,000. Property in France will be taxed according to the French rules of a certain amount exempt and the rest taxed based on degree of relationship, from 20% for a child to 60% for a non-relation. Property held elsewhere will be taxed according to the rules in that country.
As a resident of France, the default law is the forced heirship rules of France.
If you want to have the rules of the U.S. to apply, you must say so in a will. You must decide on which state in the U.S. you want to have your estate probated. You must have some connection to the state—it can be where you were born, where you lived, or where you own property, for example. Take into consideration the rules governing wills—some states will accept handwritten (holograph) wills; others will not.
Make a will. In France, lawyers and notaires can advise you on how best to draft your will and on the tax consequences. The French notaires Bar has set up a national will registry but registration is not obligatory. The national database is consulted upon death. If you live in France and want your estate to be governed by U.S. law, then you should have a will that says so. It is usual and advisable to consult a lawyer with knowledge and experience of the laws of your country of residence and those of the U.S. when you decide to put together your estate plan. Many aspects of simple U.S. estate planning may become frustrated by the application of your resident country’s rules and regulations.
Also, should you choose to have your estate governed by the laws of a State of the U.S. and you leave your estate to your personal trainer, for example, and you have your entire estate in France and children or a spouse, they more than likely will attempt to apply French forced heirship rules. As these new European regulations have so recently come into effect they have yet to be put to the test as concerns France’s long engrained culture of entitlement.