When I left school, I knew more about Shakespeare than I did about personal finance. While we gain academic knowledge through education, and professional knowledge through work, there is no formal channel for learning the key life skill of money management. Most of us pick it up in the same way we acquire our wealth – very few have a strategy, even fewer have a plan.
The problem is that personal finance can be complex, sometimes very complex. Mistakes can be costly. This is especially so in France, even for the French themselves. How much more so then for those of us whose first language is not French. And one of the most complicated areas of personal finance in France is estate and inheritance planning.
Successful personal finance is not just about organising our financial affairs so that, while we work hard for money, our money works hard for us. It is also about putting in place arrangements to transmit that resultant wealth in the best conditions to the chosen ones we leave behind.
The passing of a loved one can be one of the most stressful moments of our lives, one where our families are at their most vulnerable. It is then that we need to rely on the robustness of the arrangements that we have already put in place. In spite of this, most of us do not have even a basic will.
The starting point of any successful estate planning starts with defining the ultimate goal. There are three aspects: –
- The capacity to transfer at death whatever assets remain to your preferred beneficiaries in proportions of your choosing
- In the most cost efficient and tax intelligent manner with the minimum amount of deductions
- While ideally retaining and maximising as much control as possible during your lifetime
The bad news is that in France ‘forced heirship’ succession law and inheritance tax rates of up to 60% can make this difficult to achieve. For families with complicated situations, such as step children, this can be especially problematic and UK arrangements will not necessarily function in France and may have unpredicted results. Moreover, finding a proactive English speaking French lawyer prepared to take the time to fully understand your situation and needs can be both challenging and expensive.
The good news is that there is also a complexity of legal and financial planning strategies that can be used when defining your plan to help you achieve your goals and get you nearer to the ideal goal, as defined above. Here are some examples: –
- A will with the possible addition of a ‘clause d’attribution intégrale au survivant’ or ‘clause de préciput’. Given Brexit, hand written wills in English should not be relied on in practice.
- A change of marriage regime, typically from ‘séperation de biens’ to ‘communauté universelle’ to protect the surviving spouse
- Brussels IV (EU Regulation 650/2012) allows you to avoid French succession law (not tax) by opting for the law of your country of nationality rather than of your residence
- Adoption of step children
- Gifts (‘donations’)
- A strategy of dismemberment (‘démembrement’) of real estate into life interest (‘nu-propriété) and usufruct (‘usufruit’). This can significantly reduce the inheritance tax bill, especially if done sooner rather than later via a will at time of death
- Use of assurance vie as tax optimisation wrapper for financial assets, ideal for transmitting inheritance to distant relatives, friends or third parties
- Careful editing of the beneficiary clause within an assurance vie policy
- A strategy of dismemberment can also be applied to certain assurance vie policies.
- Use of inheritance tax free allowances –the standard 100,000 EUR per child per parent and a second one via assurance vie adds another 152,500 EUR per beneficiary.
So make it easier on your lawyer and help him to help you. Given the complexity of both the issues and the solutions, ask for a free holistic review of your situation from your financial adviser so you can already begin to define your needs and goals, and have an idea of what strategies are possible.
Thus prepared, you will make your lawyer’s job easier and so less time consuming. As well as achieving peace of mind, you might even save yourself some fees!