France decided to re-introduce an old rule used as a safekeeper of the French reserved share of children under French succession law. This new piece of legislation goes directly against EU directive 650/2012 and will surely be challenged in European Court in the future. For now, there are ways to avoid or mitigate the application of the forced heirship rule using a few tools available under French law.
What is the rule?
Article 913 third paragraph of the French civil code introduced in 2021 :
“Lorsque le défunt ou au moins l’un de ses enfants est, au moment du décès, ressortissant d’un Etat membre de l’Union européenne ou y réside habituellement et lorsque la loi étrangère applicable à la succession ne permet aucun mécanisme réservataire protecteur des enfants, chaque enfant ou ses héritiers ou ses ayants cause peuvent effectuer un prélèvement compensatoire sur les biens existants situés en France au jour du décès, de façon à être rétablis dans les droits réservataires que leur octroie la loi française, dans la limite de ceux-ci.”
English translation :
“When the deceased or at least one of his children is, at the time of death, a national of a Member State of the European Union or habitually resides there and when the foreign law applicable to the succession does not allow for any mechanism to protect the children’s rights under the law of reservation, each child or his or her heirs or successors may make a compensatory deduction from the existing property situated in France on the day of death, so as to be re-established in the rights under the law of reservation granted to them under the law of reservation.”
This new rule applies to successions opened after the 1st of November 2021.
If you have a/ assets in France and b/ either you or one of your children is a national of a EU member State or habitually resides in a EU member State , the 2021 forced heirship rule will apply to your succession. You may want to adapt your estate planning accordingly, bearing in mind this rule goes directly against EU directive 650/2012 on successions and will certainly be challenged in European Court in the future.
Why is the rule against EU directive 650/2012 ?
Article 22 of the EU directive 650/2012 of 4th of July on applicable law in matters of succession provides that individuals are allowed to elect their national law as the sole applicable law to their entire succession .
The intention of the creators of the EU directive 650/2012 was to simplify the settlement of international successions and avoid the application of several different laws to a single succession. If one chooses to elect English law to his/her succession, the French forced heirship rule comes down to applying French law to a fraction of the succession otherwise supposed to be treated under English law as a whole according to EU directive 650/2012. This question will undoubtedly by raised in EU Courts in the future.
How do I adapt my estate planning ?
There are several ways you can adapt your estate planning to circumvent or mitigate the 2021 forced heirship rule. Let say you are a British or an American citizen and you have prepared a will in favour of your surviving spouse excluding your children from your succession.
First, you need to make a choice of law in compliance with article 22 of EU directive 650/2012. You would choose your national law and make this choice of law explicit in your testament. If you have more than one nationality, you can choose the law of any of the State you possess the nationality, even if it is not a EU member State.
Nota : the forced heiship rule consists in the right for the children to apprehend the assets located in France to an extent corresponding to what they would have received should French law apply to the succession. In other words, the children can only claim the application of the forced heirship rule on assets located in France.
Knowing this, one way to successfully circumvent the application of the 2021 forced heirship rule is to make all your real estate investment in France through a holding structure (LLC, SPV etc..) domiciled outside of France.. It is also possible to move a real estate property you currently own individually to a foreign holding structure. These kind of operations require particular care as they can trigger the application of several taxes in France and abroad (Capital Gain Tax, 3% annual tax etc..).
There are more simple and just as efficient solutions using a set of classic yet rarely used legal tools available under French law. I strongly encourage you to contact me for a complete study of your case.