A challenge to French succession planning? Key takeaways for those with assets in France

In November of this year, the German Supreme Court made a shock decision that impacts on cross-border European estate planning. They ordered that even when an election has been made to apply foreign law to assets situated in Germany (as is permitted under European legislation), in some cases, German succession law would still apply to German situs assets. This ruling contrasts with the position as set out in the European succession regulations.

This follows on the back of the promulgation of France’s loi républicain law year – this law affects those with assets based in France. We have looked back at that law and consider that for UK based advisors, there are a number of considerations that must now be taken into account in order to ensure that clients are properly advised (I have dealt with these considerations below) and for those new to French succession law, I have briefly summarised how the law developed.

Brief history of French succession law

Prior to the French Revolution, different laws governed inheritance in France: the South of France applied le droit écrit (written law derived from Roman law) whereas the north of France applied le droit coutumier (generally non-written, customary law). Primogeniture (ie the devolution of the entire family estate to the eldest son) prevailed in France as in elsewhere in Europe.

During the French Revolution, succession law was harmonised and following the creation of the Code Napoleon (a codification of French civil law), France aimed to regulate the distribution of estates on death to ensure that children of the deceased each receive a minimum share of the estate (collectively defined as la réserve héréditaire). La réserve héréditaire is subject to the wishes of the deceased’s spouse (for the most part, the deceased’s spouse can either take a usufruit over the estate - this is the right to ‘enjoy’ the assets of the estate during their lifetime (which delays the distribution of the estate) - or to take a portion of the estate outright with la réserve héréditaire passing to children at that point). A person would only be able to distribute a portion of their estate (la quotité disponsible) to whomsoever they want under the terms of their will. This forced heirship regime inserted the Enlightenment principle of equality between the sexes into French succession law.

In 2015, French succession law and assets based in France became subject to the European Succession Regulation (commonly known as the Brussels IV regulation) (“the Regulation”). The Regulation provides that:

• the law of the jurisdiction in which the deceased was habitually resident would apply to all aspects of the succession of the deceased’s estate within the European Union (with the exception of assets situated in the United Kingdom, Ireland, and Denmark who opted out of the Regulation); or that
• the deceased could elect for the law of the jurisdiction of their nationality to apply to all aspects of the succession of the deceased’s estate within the European Union (again, with the exception of assets situated in the United Kingdom, Ireland, and Denmark).

Estate planning for French assets

The introduction of the Regulation allowed many individuals and families to avoid France’s forced heirship regime. Frequently, and if possible, owners of French situs assets (e.g. property in France) would elect to have a less restrictive succession law apply to the succession of their assets in France. For example, an individual who had French and British citizenship could elect for English law to apply to the succession of assets based in France, as English law has testamentary freedom (i.e a testator can leave their estate to whomsoever they want).

The ability to avoid the French forced heirship regime caused consternation in France; the ability to rely upon the Regulation seemed to go against French public policy. However, in 2017 the French Cour de Cassation (Supreme Court) confirmed that the application of the Regulation within France did not go against French public policy.

Recent developments

There has been a push to ensure that French republican principles are applied to the division of estates on death. The application of Sharia Law (where there is not an equal division of assets between the sexes) and of the Regulation in France has resulted in a new law, which was promulgated in France on 23 July 2021.This new law is controversial and aims to strengthen republican principles, from a succession context, by:

• amending the French civil code to direct that in estates where the Regulation has been applied and a different legal system is elected, beneficiaries can claim ‘compensation’ for the portion of the estate that they would have inherited under the forced heirship rules (la réserve héréditaire) - the beneficiary would receive the compensation from French situs assets;
• directing that notaires (who administer estates in France) are obliged to inform beneficiaries (whether living in France or not) of their ability to make a claim to reduce any legacies that impact on their ‘reserved rights’; and that
• the law applies within three months of being officially published (i.e 1 November 2021).

It is currently unknown what view the Court of Justice of the European Union will take of the new law.

UK advisors’ considerations

From a UK advisor’s standpoint, this law requires consideration.

1. Clients with French situs assets need to be aware that those assets might be subject to a claim in future. The litigation resulting from this new law is likely to be slow and time-consuming. Depending on the circumstances, it might be sensible altogether to avoid a claim over French situs assets by reaching an agreement with potential beneficiaries of the estate or providing for them.
2. Choice of law clauses in wills have less efficacy. Numerous European succession regimes have forced heirship provisions (styled on the French civil code) which are avoided with the application of the Regulation. Other jurisdictions might introduce similar legislation to follow this new development in France.
   The administration of estates with French situs assets is likely to take significantly longer. This is because notaries must now contact all beneficiaries who are entitled to claim ‘compensation’ from the estate – some beneficiaries might not be known.
3. It might be sensible to advise clients to opt into a French matrimonial regime (which governs how assets are owned during the marriage, on divorce, and on death) to protect the testator’s spouse.
4. The ownership of French situs assets should be considered and, where appropriate, it might be worthwhile ensuring that assets pass by survivorship where possible (eg using the clause de la tontine to own French property, which is similar to a joint tenancy within the UK) – this option might have risks associated with gifting and so would need to be considered carefully.
5. Clients may want to consider the option of relocating surplus assets to the UK – again, this approach would need to be considered especially by those who pay tax on a remittance basis.