Tim Ramier, chair of the AARO tax committee, presented the American side of estate planning and Xaviera Favrie, notaire at K. L. Associés, presented the French side of the matter.
Changes from the US side
The total lifetime gift and estate exemption from Federal taxes has been doubled to $11,180,000. Tim gave a short history of the exemption from the pre-1997 exemption of $600,000 (the rest taxed at 47%) through to the 2017 tax bill that has raised it to $11,180,000. The laws that set these exemptions are sunset laws, which mean that after a period, if no other bill redefining the exemption has been voted, the exemption reverts to the previous amount. For the current amount, the sunset provision lasts until 2025. If it is not redefined, the exemption will revert to $5,500,000, with adjustment for inflation. Tim expects there will be a new bill before then.
The exemption from Federal taxes does not affect state estate taxes. If you have an estate executed in the United States, it must be done in a state where you or the executor of the estate has some connection – a secondary residence or birthplace, for example.
The annual exclusion for gifts (per person per year) is now $15,000, up from $14,000 previously. These gifts are included in calculating the total lifetime gift and estate exemption. These gifts are exempt from US taxation but may create a tax liability in France.
Under US and French tax rules, gift transfers between spouses are totally exempt from US tax. There are some limits when a US spouse’s estate passes to a non-US spouse though, by treaty, a non-US French resident spouse is entitled to receive a marital exclusion equivalent to the life time exemption, $11,180,000 plus the life time exemption amount thus up to almost $22.4 million tax free. The limit of an annual excluded gift to a non-American spouse is currently $152,000 annually.
Organize, Organize, Organize
Tim emphasized the need to organize. This is especially important if there are assets in the United States and if the beneficiaries are not in the United States.
- Name an executor. Without an executor, it will be difficult in the United States to obtain the transfer of title or of bank accounts. In the US the estate is an entity (like a corporation) and has an executor (the CEO).
- Create an estate file. Keep it secure but make sure someone knows where and how to access it. The executor will need it.
◦ What: Inventories – value and location of assets
◦ List: Passwords to access social media, email and other internet accounts
◦ Where real estate, bank accounts, etc. are located – state, country, contact people
From the French side
To start, Xaviera explained what a notaire is. A notaire is a “public officer.” What they verify and sign is recognized as true. A notarial act, or deed, is, therefore, a true act, called an “acte authentique,” a document drafted and signed by the notaire and the clients, with the notarial seal embossed on the document.
In France, only a notaire can establish a property deed, which is then published in the Land Registry. Only a notaire can prepare a deed of heirship. When someone dies in France, a French notaire must be notified and will inform the family of the different administrative and tax liabilities, although they are free to consult with their own estate attorney.
The notaire also records the prenuptial contracts, “Matrimonial property regimes,” which are the first step in family estate planning. There are standard regimes, but the notaire can modify them to the specifications the couple may require. The property regime is the key to the succession
- “Communauté de biens réduit aux acquets”: In the absence of a prenuptial contract, this is the regime that applies automatically in France. It means that what is yours before the marriage remains yours; what is your spouse’s before the marriage remains his or hers. Whatever is received as inheritance or gifts during the marriage remain yours or your spouse’s personal property. Everything else acquired during the marriage is community property.
“Séparation de biens”: If the spouses choose to have a separate property regime, they must have a contract. All property, whether acquired before or after the marriage belongs to one or the other spouse.
Married in one place, living in another, which law applies?
If there is a prenuptial contract, it applies.
To determine which law applies if there is no contract depends on several factors: the date of the marriage, the first habitual residence after the marriage (two years’ residence), nationalities.
Married before 1 September 1992
Without a contract, the applicable law is that of the first common domicile (2 years) after the wedding. There is no automatic mutability allowed. Examples were given:
- Wedding in a “community property” but domiciled in a “separation of property” state for several years, then a move to France, where one of the spouses has died. The applicable law will be that of the “separation of property” state.
- Wedding in a “separation of property” state, domiciled in France... The applicable law will be that of France, post-wedding “community property”.
Married between 1 September 1992 and 29 January 2019
Without a contract, the general rule is the same as for marriages before 1 September 1992. However, exceptions are allowed.
- If there is no habitual residence, then the law of the country of common nationality of the spouses is applicable.
- If there is no habitual residence and no common nationality, then the law of the country where the spouses are most closely connected is applicable.
- Automatic mutability may occur, meaning that the law of habitual residence is applicable if the couple share a common nationality or if they have resided in the country/state for 10 years or more.
With a prenuptial contract, the spouses may specify in their contract which law will be applicable and this law will apply to their entire property:
- The law of one of the countries of which either of the spouses is a national.
- The law of the country in which either of the spouses is a resident.
- The law of the country where the couple determine is where they will set up their habitual residence.
With a contract created during the marriage, which applies to their entire property and can apply retroactively to the date of their marriage, the law also permits a different choice for immovable property. They can choose:
- The law of a country/state either spouse is a national at the time of the contract.
- The law of the country/state either spouse maintains his or her habitual residence at the time of the contract.
International couples, couples with previous marriages and children often opted for this kind of contract after settling in France as it allowed them to escape the forced heirship to the children by contracting universal community for the immovable property in France.
Take note of the end date of this regime – 29 January 2019! It is important to act before that date if the couple wishes to apply universal community for immovable assets in France.
From 29 January 2019
It will no longer be possible to create different provisions for certain property.
It will no longer be possible to choose which law to apply in absence of a contract. The law that is applicable will be the that of the spouses’ first habitual residence after the wedding, or, if there is no first habitual residence, their common nationality, or, if there is no first habitual residence and no common nationality, the place where they have the closest ties together.
The spouses will be able to designate or change the law applicable to their property regime and make it retroactive to the date of the wedding.
Automatic mutability will apply.
The message was clear: have a contract.
Successions in France
Forced heirship is the rule. If the deceased was single, first, the children. Depending on how many children there are, they inherit between 50% and 75% of the estate. If there are no children, the parents inherit. Next in order are siblings, then nieces and nephews. If the deceased was married, the children inherit their share, but the surviving spouse usually has usufruct rights and the remaining share (at least 25%) full ownership. If the deceased had children from a previous relationship, the surviving spouse may only claim his or her 25% share.
Spouses may gift more to the survivor. However, the beneficiaries of forced heirship cannot be denied their share.
The matrimonial property regime is key to how a succession is handled. There are differences between US laws, dependent on the state in which the will is probated, and French law. Many US citizens living in France may choose to have their will executed in the US under US terms.
The EU regulation came into effect in August 2015, throughout Europe, except in the U.K., Ireland, and Denmark. It applies if the deceased was a habitual resident in Europe or if he or she owned assets in one of the member States of the EU. Without a will, the law of the last habitual residence is applicable to the entire estate. However, if the deceased had stronger connections to another country, then the law applicable there will apply. This can mean that the law of a non-EU country can apply when the last residence was not in Europe, even if there are assets in the EU This can be complicated in the case of international families.
When drafting a will, there is choice. According to the EU regulation, the person can choose the law of succession in the country of nationality. In the case of more than one nationality, he or she can choose which one. If you reside in France but you are American, you can choose for your will to be executed in a state of the US. (There must be some connection to the state: you were born there, you own property there, or your designated executor lives there, for example.) This can be a means to bypass the forced heirship issue if the habitual residence is not in France, but there are assets, such as a vacation home, in France.
Wills that predate this 2015 regulation, that were drawn up in the United States, for example, are valid as fulfilling the nationality choice.
Draw up a will. If you live in France and have a will in the United States and you want that will to apply, then have a French will stating that the will in the US is applicable and who the executor is. If you live in France and have assets in the United States, and you choose to apply the French law of succession, draw up a will and name the executor to facilitate the transfer of assets in the US.
This article is contributed by AARO member Ellen Lebelle