When dealing with a cross border probate case, it is important to have an understanding of what the Foreign law involved, provides. This is the reason why, with the increasing number of probate cases involving French nationals residing in Hong Kong, we have made a brief introduction to the French inheritance process.
There are many differences between Civil and Common law Jurisdictions, and without going into too much detail, here are the three main differences, that any practitioner should be aware of when dealing with a Probate involving French Law.
First it is important to stress that France is one of the jurisdictions, where there is no Probate. So what is the equivalent of the grant of Probate or the Letters of administration in France? (1)
Second, unlike Hong Kong, France is a jurisdiction where you cannot dispose of your estate freely. This is due to the forced heirship rule which aims at protecting some categories of heirs, who as a result cannot be excluded from the inheritance, even by way of a will (2)
Finally, whereas Hong Kong has abolished estate tax in 2006, it is not the case in France where all beneficiaries of an estate will have to pay inheritance tax, with the exception of the surviving spouse. (3)
(1) Probate or lack of in France
In France the person you turn to is the Notary, a legal officer appointed by the French Government who is granted powers by Statute, especially with regards to probate issues. He/She will deal with the whole inheritance process. The services of the Notary are only required if the estate is composed of real property.
When there are only bank accounts, the beneficiaries can by themselves determine the value of the assets and fill in the forms (tax declaration).
The Notary has first to verify whether or not the deceased had made a will. This is easily done by searching on a special register[1] , where all wills executed before Notaries in France are entered.
Even if the deceased had made a will, the Notary must determine:
Who the legal beneficiaries are: this is done based on the law, with the help of the members of the family or sometimes with the assistance of Genealogists.
What is the estate composed of? The Notary will start with documents and information provided by the family. In some cases, he/she will be the family Notary, and will have dealt with the family affairs (acquisitions, gifts, deeds), thus he/she will have all the information required. With regards to bank accounts and life insurances the Notary can rely on national registers to find all the accounts under the deceased’s name. In some cases, he/she may be required to make an inventory of the estate.
What shares of the estate are the beneficiaries entitled to? Once the beneficiaries and the value of the estate are established, the Notary will have to determine the shares that each beneficiary is entitled to. Under French Law there are “protected” heirs, namely the children of the deceased and the surviving spouse. Other beneficiaries such as parents, brothers and sisters, are not protected by the law. The Notary must take into account the matrimonial regime chosen by the spouse as well as any gift made by deed to any beneficiaries during the deceased’s lifetime.
Once all the research and calculations made, the Notary will draft a document entitled “acte de Notoriéte” which is an Affidavit of Law in which he/she will state the name of the beneficiaries and theirs shares in the Estate. This document can be regarded as the equivalent of the Grant of Probate or Letters of Administration. It will, for instance, be provided to the Probate Registry in Hong Kong, usually accompanied by an Affidavit of Foreign law to explain the contents of French law.
The next step would be to establish the Declaration of succession, for tax purposes, declaration in which the Notary will state the value of the Estate, the debts and liabilities, the shares of each beneficiaries, and the taxes to be paid. This declaration must be filed withing 6 months of the date of the death, if the deceased lived in France. A 6 months extension is granted if the deceased lived abroad. This deadline is strictly applied, and penalties will have to be paid.
(2) The Rule of forced heirship, a common rule in Civil Law jurisdictions.
The French Civil Code in its article 912 and the following articles, provide for the protection of some categories of heirs, namely the children and the surviving spouse. This means that they cannot be excluded from their inheritance.
There is only a small share of an estate that can be disposed of freely[2].
By opposition, the “reserve” is the share of an estate that cannot be freely disposed of. The protection of this share is provided by article 918 and the following articles of the French Civil Code.
The freely disposable portion can be used to increase the share of the surviving spouse or that of another beneficiary. It can also be used to gift a charity, which will be exempted from taxes. Should this portion be left to a friend for example, they will have to pay a heavy inheritance tax. This is why it is usually divided between the protected heirs.
Some French nationals do try to benefit from the rules of Common law to dispose freely of their estate. Until recently, the trend for French Courts was to exclude the application of a Will when its main goal was to exclude protected heirs. The Courts were very careful to ensure that the “reserve” was not reduced. There has been an increasing number of cases related to this issue.
The French Supreme court[3] ruled for the first time, in September 2017, that a foreign law could be used to exclude
protected heirs from their inheritance. The case involved the inheritance of a famous French musician, Maurice JARRE, who had been living in California for quite some years at the time of his death and who had excluded the children of his first marriage in favour of his children of his second marriage. The question that remains is would the Supreme Court’s ruling have been the same if the excluded protected heirs has not themselves been so wealthy. There is another famous ongoing case in France, of the late Johnny Halliday a famous French Rockstar, which has the French public firmly divided in two teams.
(3) Taxes
French nationals residing in Hong Kong often get confused and believe that if the inheritance law applicable to their estate is Hong Kong Law, then their beneficiaries will not have to pay inheritance tax in France. This is far from the truth.
The criteria to be taken into account to determine whether or not the beneficiaries will have to pay inheritance tax in France are as follow: whether
The deceased was residing outside of France when he died
The assets are situated outside of France
The beneficiaries are not residing in France
There will be no inheritance tax in France only if the three criteria are met.
As mentioned before, the surviving spouse is exempt of inheritance tax but not the children.
It may be important to state that a civil partner is not an heir by law. In order to benefit from the Estate, the civil partner will have to be designated in the W
ill. In that case, the partner will be exempt from inheritance tax.