August 6 - 12, 2010
Money & Business 7
Multiple marriages, multiple children… inheritance problems
in business La Défense – the Russians are coming
Bill Blevins, Financial correspondent, Blevins Franks, offers some solutions Dear Editor, One problem we have living here is the archaic French inheritance law. We and many others are married for the second time and, as our notaire added, so are 50% of the French. I arrived with one son who does not wish to be part of the family and my wife contributed three daughters who are much more my ‘family’. Our English Will divides equally between the four but in France it is complicated by the law and we need to die in the right order! Alternatively, I can donate half of my share of our house to my wife now and retain the use of it (I don’t think I can donate the bills though). We’ve been married 22 years and I still cannot leave anything to my daughters without a 60% tax penalty. I’m starting from trying to have four equal shares but reducing my son’s is not beyond consideration. BE, by email
rench succession law dictates how all assets – except for real estate outside France – must pass on the death of those domiciled in France. ‘Domicile’ under French law basically means longterm French residence, as opposed to the notion of ‘connectedness’ under UK law. Under French law, a single child automatically inherits 50% of the deceased’s parent’s estate as of right, while three children inherit 75% of it. A surviving spouse is only entitled to 25% of the estate. These rights cannot be overridden by Will, and if you try, the Will will be discounted in favour of French law.
Tontine The first thing to consider is the ownership structure of the property, and many couples in your position own their property via a tontine arrangement, a form of joint-ownership which allows the deceased’s share of the property to pass to the survivor as of right on the first death. However, this will not help you if you already own the property, as tontine can only be arranged when buying it; nor will it prevent your son taking 50% of the property should you survive your wife. As regards the property, even if you do not have a tontine, you can still make
plans. You can each sell the other your half of the property, while retaining a lifetime interest, a usufruit in that share. In France, ownership is split into two parts: the usufruit, a lifetime interest, and the nuepropriété, the underlying interest – often called the reversionary interest in English, because on the cessation of the usufruit, full ownership reverts to the holder of the nue-propriété. Each has a separate value, and the older the holder of the usufruit is when they acquire it, the lower its value. So, you carve out your usufruit on your share of the property, and sell or gift the nue-propriété in that share to your wife. There should be no capital gains tax on this transaction, as the property is your main home. If you gift the nue-propriété to your spouse, and its value exceeds slightly more than €76,000, gift tax may be payable in France, as gifts between spouses are not exempt from tax, although inheritances are. If your wife dies first, she can leave you a life interest (usufruit) in her half-share of the property, and her children can inherit the nue-propriété in the whole property, leaving you a life interest in both your original share and your wife’s share, so that you cannot be evicted. If you die first, your life interest simply ceases, and your
wife owns the property outright.
Gifting property Alternatively, you could gift or sell the girls the nuepropriété in your share (although they would pay 60% tax on such a gift from you), as could your wife now. On the first death, the girls take ownership of half of the property outright, with the survivor occupying the property for the rest of his/her life under the usufruit. The only trouble with this is that the survivor will need agreement from your wife’s daughters to sell the property. However, it is a way of avoiding your son inheriting any part of the property should you die first. As you say, you cannot gift half of the bills to the underlying owner.
Assurance vie For other assets, there is little you can do, except for a life assurance policy, an assurance vie. You name the beneficiaries of the policy, and these can be anyone, so such a policy circumvents French succession law. In terms of tax, as you already appear to be resident in France, each beneficiary can receive up to €152,500 tax-free (provided you are both under 70 when setting up the policy), and only pay 20% tax on any balance received. This would benefit your wife’s daughters, and you could still leave something within the policy to your son, should you choose, although he will, as of right, inherit 50% of all your moveable property, cash, investments etc. This is a specialist solution, and while French banks provide such policies, everything will be in French. A bespoke wealth planner can often help you find a policy specifically suited to your needs and contracted in English.
The governing body of La Défense, L’Établissement public d’aménagement de La Défense (EPAD), has confirmed the agreement signed with Russian developers Hermitage for building two giant new towers. Everything about the project is big. It will cost €2 billion and the luxury flats will cost €12,000 per square metre to build. There will be 40,000 m2 of offices, a concert hall for 1,300 people, an art gallery, a fitness and thalassopherapy centre, student accommodation, as well as a five-star hotel and a shopping centre. It is the biggest Russian investment in France to date. La Défense is one of Europe’s wealthiest business centres. Jean Sarkozy, son of the President, and an administrator of EPAD, denied accusations that the development would be at the expense of council flats which are to be demolished. He pointed out that the developers are to build 250 new flats, and that all tenants are to be relocated locally, in some cases, to larger homes. In one area at least, the Russian developers have shown exquisite tact: the towers are to be 323m high – one metre lower than the Eiffel Tower.
Credit card fraud up According to the bank card safety watchdog (Observatoire de la sécurité des cartes de paiement), consumers are nervous about making payments on line…with good reason it would seem. The percentage of fraudulent transactions for 2009 was 0.072%, amounting to €340 million, a return to the levels of 2004. In 2008 it was 0.06%. An Observatoire enquiry reveals that the public will generally accept tighter security to ensure that the person paying with a card is the rightful owner.
French banks pass easy stress tests Stress tests on 91 European banks found only seven unable to face up to a surprise economic shock. The failed banks were five Spanish, one German and one Greek. Christian Noyer, President of the Banque de France, said that all four major French banks passed “with success”. Critics said that the test was too gentle, envisaging a fall of only 3% in GDP. Commenting on the results from outside Europe, Al Jazeera’s economics analyst Samah El-Shahat said: “It is good news that some banks have failed, as it will reassure the market of the test’s vigour.” But she added, “Europe’s banks are exposed to $2.6 trillion in sovereign debt. What we need to see are the balance sheets.”
More Champagne Despite doubts in some quarters, vignerons and négociants have decided to increase production this year by 8% to 301 million bottles. After two tough years, sales are up by 20% in volume for the first five months of the year – 9% up in France, 25% in the European Union and 69% in the rest of the world. Not everybody is optimistic: Dominique Pierre, director of the Coopérative Nicolas Feuillate, pointed out that the real test is at the end of the year when most sales are made: “You can’t talk about an end to the recession. With the imposition of financial restrictions in Western Europe you have to be realistic.”
Peugeot Citroën do well but are cautious Philippe Varin, President of PSA Peugeot Citroën, has announced profits of €680 million for the first half of the year, compared with losses of nearly a billion euros for the same period last year. But he was cautious for the short term. The European market is expected to shrink by 7% with the end of ‘cash for clunkers’ (primes à la casse) schemes in France and elsewhere. Varin predicted that strong sales in China, Russia and South America will not be enough to offset the weak European market. The latest figures are worse than he feared. Sales fell by 15.4% in July.
Oil – you get what you pay for There is no shortage of oil in the world, according to a financial seminar in Vancouver, so that’s a relief. There is just a shortage of oil at €40 a barrel but there’s plenty at €200 a barrel… More worrying, the current spot price is a lowly €60.
Strange UK statistics For the first time in modern history, UK bank lending to the private sector fell last quarter. It actually went into reverse. This is assumed to be because of the complete drying up of securitised funds – money raised by the banks against previous existing loans. Whatever the cause, it seems to signal that the recession/ depression is far from over and for now we should be worrying about deflation not inflation. Records began in 1963. However, at the same time, the UK economy grew by an unexpectedly strong 1.1% in the quarter to June. The surprise improvement was supported by the fastest growth in construction since 1963 and the very strong British service sector. Borrowing less but doing more? Very odd.