Inheritance in France – take it or leave it?
“Why wouldn’t a beneficiary accept an inheritance?” you might ask. It isn’t always going to be the case that a beneficiary will want to accept an inheritance. This can be true for a UK estate for a number of reasons, and the same considerations can be relevant for a beneficiary inheriting a French estate.
We will explore here some issues a beneficiary might think about when making a decision whether or not to accept the inheritance of an estate in France, and the process of disclaiming.
Reasons why not to inherit
Just because the deceased person had connections with France (maybe he was living there, or he had a second residence) doesn’t mean to say that the beneficiary also has such connections. Descendants and close family members may well expect to have to take on the task of administering a French estate, but we have seen many instances where the deceased person didn’t have close relatives and has left the estate to a distant relative or friend, who could have little knowledge of the estate.
Having to deal with the process in France can be rather daunting, especially with no prior experience of the country’s laws. The procedure is very different, not to mention the fact that if a friend or distant relative inherits, their French inheritance tax liability will be charged at a flat 60% on almost all their inheritance – payable within 6 months of death (if the death occurred in France). Very often the main asset in the estate will be a property and the beneficiary is then also faced with trying to sell it to pay the tax bill.
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It can also often be the case that either the rules of intestacy or the application of a Will might not fulfil the deceased person’s wishes. This is quite possible where the fixed inheritance rights of close relatives apply under French law. A disclaimer might help to better achieve the person’s real wishes for the distribution of their estate.
Generation skipping might also be advantageous – a child could disclaim the estate in favour of their own children and avoid a generation of inheritance tax becoming payable.
All these points alone can lead to a real consideration to renouncing an inheritance.
There are three main options in respect of an inheritance under French law.
- You can choose to simply accept your inheritance, and this can be manifested by an express acceptance (such as a statement in the succession deeds) or it can be implied by a person’s actions. If a person is considering a disclaimer, it would be important for them to be extremely careful about what action they do take initially, pending making a decision, as some actions may lead to the conclusion of an implied acceptance.
- You can accept an inheritance but subject to an inventory of assets and liabilities. This might be used where there may be concern that there are debts in an estate which may not be known at the outset, or there is a possibility that the estate might be insolvent, such that a beneficiary would not want to accept it. This is because in French law a beneficiary inherits assets and also takes on the burden of estate liabilities. A formal process must be followed to publicise the estate so as to fix the beneficiaries’ responsibility for estate debts.
- You can renounce. The renunciation has retrospective effect and the initial beneficiary is deemed never to have had inherited.
A renunciation is all or nothing. That said, it’s going to be important to ascertain which country’s succession laws apply to the estate administration, particularly since the EU Succession Regulation 650/2012 which has applied since August 2015.
How to renounce
There are two ways to complete a renunciation.
- To submit a declaration to the local court in France. There is a set form that is used and this must be accompanied by relevant documents such as identification documents, a copy of the Will (if applicable) and the death certificate. There are no formal Court proceedings, but it is a recorded statement of wish to renounce. A Notaire is not required in order to complete the process.
- To make a declaration before a Notaire in France. The Notaire would then lodge the renunciation with the local Court. One reason why a renunciation before a Notaire may be used is where there are multiple beneficiaries who are all potentially relying on each other for renouncing and so that this could be completed at the same time.
No such formal procedure is required to renounce a specific gift in an estate (legs particulier), and in fact the legatee can simply have an implied renunciation. However, it will be preferable for the renouncing legatee to send formal written notification to the residuary beneficiary in order to ensure they have been notified and are aware of the consequences.
Renouncing before death
It is possible for a legal reserved heir (eg a child) to renounce their right to their fixed inheritance entitlement before the person has died. This might be appropriate where, for example, a disabled sibling would benefit from receiving more from the parent’s estate to cater for their needs. The renouncing child would confirm, before the parent’s death, that they will not claim their right over all or any of their reserved portion. This deed must be completed in the presence of two notaires and can be later revoked only in limited circumstances.
Timing of renunciation
The option to renounce cannot be taken before the administration of an estate has opened (ouverture de la succession). After that, the law provides that a beneficiary can have a four-month period of reflection during which time no one can force him to choose between accepting or renouncing.
Who inherits in place of the renouncing beneficiary?
Renunciation has retroactive effect, such that the beneficiary is deemed never to have inherited. If the beneficiary is represented by his own descendants (eg a child renouncing would have his children step into his shoes), then those descendants themselves could also decide to either accept or renounce the share of the estate.
Notwithstanding that a beneficiary who renounces takes no further part in receiving assets of an estate or indeed being responsible for any corresponding debts, there are some exceptions. In French law, a renouncing heir might assume debts borne by heirs due to the family links. For example, this could include contributing towards outstanding hospital costs where there are maintenance obligations, and having some responsibility for funeral costs of an ascendant or descendant if the estate assets are insufficient. A renouncing beneficiary can still retain the right to receive some family heirlooms.
Revocation of renunciation
There are some limited circumstances in which a beneficiary who has renounced can seek to retract their renunciation. He can renounce in favour of full acceptance of the succession provided no other heirs have accepted in the meantime. Revocation can only take place within 10 years of the death.
Inheritance tax position
The renouncing beneficiary will not have a liability to inheritance tax.
There are some situations which could be argued to be an abuse of the law and could be considered as nul and void by the court. An example would be where the renunciation of a beneficiary’s inheritance leads to a reduced liability to inheritance tax but then the estate assets revert back to the original beneficiary.
Clearly the decision of whether to accept or renounce an inheritance requires some serious consideration, particularly for a beneficiary who is not used to French law, or indeed the ownership of assets abroad. The high tax rate in France for an unrelated beneficiary could be cause for concern, particularly with the deadlines for paying the tax or facing late payment penalties. It’s also going to be useful to be able to renounce in circumstances where an estate is insolvent, or if it is advantageous to skip a generation and pass the estate down straightaway. A beneficiary whose renunciation leads to minor children inheriting will need to think carefully as it could make the administration of the estate more complicated.
Like many aspects of private client law, this is again another example of having to consider each case on its own merits in order for a beneficiary to make an informed decision.
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