Protecting a surviving spouse

Q. I am enquiring about the use of a donation entre époux. We understand that the basic idea of this is to guarantee that if one spouse dies the other one can continue to enjoy the standard of living that they had while their partner was alive without having to ask any authorisation from other heirs.

We understand that this is necessary when a couple have children who might demand their share of the estate on the death of one of the parents. We have been married only once (and for many years) and both children are ours.

We do not wish to disinherit either child and realise it is not possible under French law but wish to protect the standard of living of the survivor following the death of one of us. Is the Donation entre époux our best method?

M .D.

A. The standard position is that on someone’s death in France, the estate of that person is divided into two parts - the reserved part and the unreserved part. The reserved part is now only for the children, and its amount is dictated by the number of children you have - in your case, having two children, it would amount to 2/3 of the deceased’s estate.

The remaining 1/3 can then be left at will, presumably to the surviving spouse but, as a result, the spouse would inherit a lot less than when possibly compared to the position in the UK. In addition, and contrary to the UK where inheritances between husband and wife are tax free, here, in France, they are not necessarily so.

Therefore, what can be done? Well, the ‘donation entre époux’ is certainly one of the several alternatives, but it is not without a consequence to inheritance tax if the value inherited by the surviving spouse is in excess of the allowances available to the spouse.

Another possible alternative is to change your marriage regime.

The marriage regime is a contract which dictates the legal and fiscal rules that apply to a couple. As a general point for other readers, it is, however, very important to note that some of the regimes can only be applied in certain circumstances and so these are not suited to everyone.

However, in your case of having only children from the one current marriage, then it would seem - but only from the information provided - that you may be able to change your current ‘séparation de biens’ marriage regime to one more suitable. As an EU citizen coming to France, you are deemed to have a regime that is effectively similar to what in the UK is referred to as ‘tenancy-in-common’ - in other words, all your assets are yours, and you own half of any assets that are owned in partnership with your spouse. In the French version of this regime, the ‘séparation des biens’, you will be taxable on what is inherited from the deceased.

One alternative is what in the UK is referred to as a ‘joint-tenancy’ status, or the ‘communauté universelle’ in France, where assets are held jointly as one party. Under this regime, upon the death of one of the spouses, the deceased’s share of the estate automatically reverts to the survivor. Another advantage of this regime, too, is that this transfer to the surviving spouse can be made totally tax free.

But, things are not at all simple as, just taking one example, under the French ‘communauté’ regime, even if, for example, a bank account has been included as one of the assets covered by the regime, and that account is in the name of only one of the spouses, then the bank account is nonetheless considered to be an asset of both spouses. While it seems at first sight that you may be better served by in fact changing your marriage regime to one of the ‘communauté’ versions, it has to be said that is not possible to state which version will be best for you as many, many, more issues need to be considered.

In addition, you need to consider which of your assets should be included, or excluded. There is also the issue of actually effecting the change, as, while there is a ‘fast-track’ method for EU citizens moving to France, finding a French notaire who actually knows how to concoct the contract correctly is something else.

As always with questions like these seeking advice, it is important to talk with a professional.