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What happens if inheritance debts outweigh assets in France?

Barbara Heslop of Heslop & Platt answers a reader query on succession options for French residents leaving estate to UK family.

Question

We are French residents and want to plan our succession to leave our estate to family in the UK. What happens if taxes and other liabilities are more than the value of the estate? Is there an option to defer tax obligations until the point of sale if our house was put on the market?

Answer

One of the first steps in any succession is to establish assets and liabilities in the estate. This enables the beneficiaries to make an informed decision as to which of the following succession options they wish to choose, if French law is applying:

Accept the succession in full (acceptation pure et simple). Under this option, beneficiaries are responsible for the deceased’s debts, even if they exceed the amount inherited.

Accept the net inheritance (acceptation à concurrence de l’actif net). The beneficiaries are liable for payment of the deceased’s debts only up to the value of the assets inherited, and not liable for debts which exceed this. An inventory of assets must be drawn up to establish the net estate, and there is a requirement to advertise for creditors.

Renounce (renonciation). If it is clear debts exceed assets, beneficiaries can renounce their entitlement under the succession. They will not receive any estate assets, but will also not be liable for the estate debts.

Where a person’s estate includes a house in France, a notaire must be involved.

Their fees are usually in the region of 7% of the value of the estate.

Most of their fees are fixed by statute, so your beneficiaries should be able to confirm at the outset what the legal fees will be.

If there are not sufficient liquid assets in the estate from which beneficiaries can pay their inheritance tax liability, they can seek agreement from the French tax office to pay in instalments over a period of up to three years.

The tax office will usually require some form of guarantee, which could be by way of a registered charge over the house in France.

This article was first published in response to a reader query in The Connexion - February 2021.

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