Donations, the Swiss army knife for sharing your wealth

A well-ordered succession means anticipation and preparation. And there's no better way to do that than with a gift. They avoid worrying about your spouse's material comfort, limit the risk of disputes between your children and enable you to benefit from tax advantages. So don't deprive yourself of this highly effective means of transmission. To make a donation is to pass on property or money to someone free of charge, without expecting anything in return. But above all, this gesture of pure generosity enables you to distribute all or part of your assets between your heirs during your lifetime, and/or to favour the people of your choice instead of waiting for the estate to be settled. The donor optimizes the transmission of his or her assets while preserving family harmony. Not forgetting the tax aspect.

To protect your spouse
Gifts between spouses

Spouses inherit from each other without paying inheritance tax. But the survivor's share is not always sufficient to meet his or her needs. That's why it's so important to make a gift to improve the surviving spouse's material situation, by enabling him or her to receive more than the law allows. Gifts between spouses have many advantages. Particularly in the case of children (especially those from another union). If there are descendants, you can give your spouse a maximum of :

• either one-quarter of your estate in full ownership, and three-quarters in usufruct
• all of your estate in usufruct
• or the available portion of your estate in full ownership, depending on the number of children at the time of your death:

- if there is one child, half the estate
- if there are 2 children, 1/3 of the estate
- if there are 3 or more, 1/4 of the estate.

Gifts between spouses of up to €80,724 are tax-free.

Interesting: unless otherwise stipulated and if he so wishes, the surviving spouse can choose only those assets he considers useful or necessary for his protection, and leave the remainder to his children. This is known as "cantonnement". For tax purposes, this "abandonment" to the other heirs is not considered a gift made by the spouse. The assets received by the heirs as a result of the "cantonnement" are deemed to have been transferred free of charge by the deceased.

A helping hand for your estate
Mr. and Mrs. S. are married under the community of acquests regime, and have made a gift to each other. They have two joint children, Martin (50) and Lise (46).
Mr S. dies. His estate consists of his own property (inherited from his parents) and half of the community property.
The husband's own property (totalling €500,000) consists of a rental property worth €200,000 and securities worth €300,000. The joint assets (for a total of €1.4 million) include the main residence valued at €800,000, a second home worth €400,000 and cash and cash equivalents worth €200,000. In other words, estate assets of €1,200,000 (€500,000 own property and €700,000 representing half of the community estate).
Mrs. S.'s assets total €1,000,000 (€300,000 own property and €700,000 joint property). She would like to own the entire principal residence, with the remainder going to their children. She therefore chooses to limit her emolument to half of the principal residence belonging to the estate (€400,000). The remainder of the assets will devolve to the children (for a total of €800,000). Mrs. S. will not be in joint ownership with her children of her principal residence, and will not have to pay any taxes.

Giving with reservations. The law imposes certain limits to ensure that children are not adversely affected. Whether born to married or unmarried parents, or adopted, all children are entitled to the reserve portion of their inheritance. Since the law of December 3, 2001, the spouse is also a reserved heir, on two conditions: that the deceased has no descendants (children, grandchildren, etc.) and that, at the time of death, the spouses are not divorced. If these two conditions are met, the law allocates a quarter of the estate to the spouse. The other three quarters can be freely bequeathed to the persons of your choice. It is, however, possible to increase the spouse's share of the estate by means of a spousal gift (also known as a last living gift) or a will. The division between the reserve and the share varies according to the number of children.

To pass on to your children
Shared gifts

Many parents decide to divide their estate between their children during their lifetime, whether to organize their succession or to give their children a financial boost. They can choose between a simple donation and a shared donation. The former can provide one-off assistance to a child, in advance of his or her inheritance. It is also possible to give a child an advantage over others. In this case, the gift is made "outside the inheritance". The gift must remain within the limits of the rules governing the available portion and the hereditary reserve. If the gift encroaches on your siblings' share of the estate, they will be able to challenge the gift when your estate is opened. But if you want to be sure of avoiding conflicts without harming any of your children, a shared gift is the ideal solution.

The tax break
? Mr. and Mrs. A., who are married under the community property regime and have an only daughter from their marriage, decide to give her a property worth €208,000. The donee (their daughter) benefits from a double allowance (2 x €100,000) as the gift is made by both parents.

• 50% of the father's property: €104,000 ? €100,000 allowance = €4,000 taxable share.
• 50% of the mother's property: €104,000 ? €100,000 allowance = €4,000 taxable portion.

Each taxable share (€4,000 x 2 = €8,000) is subject to gift tax. As the €8,000 corresponds to the first taxable portion after the allowance, the tax rate is 5%. The amount of gift tax is therefore estimated at €8,000 x 5% = €400 (excluding notary fees)
? Another example is that of Sandrine (65), with two children (Nathalie and Stéphane). She owns a house worth €500,000, a rental apartment valued at €80,000 and a stock portfolio worth €80,000. By making a shared gift (of her savings and the rental property) to her two children, she enables them to manage the inheritance as they see fit. Sandrine also allows them to benefit from a deduction of €100,000 each on the amount of tax to be paid. She can even renew the operation every 15 years, still within the €100,000 limit. Her children will be exempt from tax each time.

All gifts must be drawn up by a notary. His intervention provides a number of guarantees (the deed is indisputable, there is no risk of it being lost or destroyed, etc.). Donations may include specific clauses to protect the donor's interests, depending on the circumstances and objectives involved. Examples include gifts with encumbrances (obliging the donee to perform certain acts if he or she wishes to benefit from the gift), gradual gifts (enabling the donor to give full ownership of a property to a first beneficiary, who is obliged to sell it to a second beneficiary).who is obliged to keep it until the end of his or her life, and to pass it on to a second beneficiary designated in the deed of gift), a gift with usufruct reserved...

Helping loved ones
Gifts of money

Until June 30, gifts of money to a child, grandchild or great-grandchild are tax-exempt up to €100,000 per donor, if the sums received are earmarked for specific operations. The sum of money must be paid in cash (cheque, transfer, cash remittance) between July 15, 2020 and June 30, 2021. The same beneficiary can receive several donations of €100,000 (for example, one donation from his parents and another from his grandparents) without being taxed. The donation must finance the construction of the beneficiary's principal residence, or the carrying out of energy-related work eligible for the energy transition bonus in the beneficiary's principal residence. It can also be used to invest in the capital of a small business with fewer than 50 employees. The company must have been in existence for less than 5 years, and must not yet have distributed any profits. Its balance sheet must be less than €10 million. The recipient of the gift is responsible for its management for a period of 3 years. In all cases, the sum received by the donee must be used within 3 months of its payment. In addition to this temporary measure, donations of sums of money are also encouraged under certain conditions.

The tax break
Christine (55) donates a sum of money worth €20,000 to her son Benjamin (28) as part of a special scheme for family gifts of money. As this type of gift is tax-exempt up to €31,865, no tax will be applied. Over the next 15 years, Christine may, if she wishes, make a further gift of money to her son, up to a limit of €11,865 (€31,865 - €20,000), as well as a gift of movable or immovable property or a cash donation of up to €100,000 (subject to the direct line allowance), i.e. €111,865, with no gift tax due.

To preserve family assets

Donations can have another objective: to preserve the family heritage and prevent it from being dispersed and the heirs from being taxed at full price. This is often the case when transferring a family business. With this in mind, the Dutreil Pact offers business owners a favorable tax framework for passing on the business. It provides a gift tax exemption of up to 75% of the value of the shares or business, with no limit on the amount. This exemption can be combined with the €100,000 allowance on gift duties, valid every 15 years. If the donor is under 70, an additional 50% reduction is added to the 75% exemption. To benefit from the exemption under a Dutreil pact, a number of conditions must be met. The company must carry on an eligible operational activity (commercial, industrial, craft, liberal or agricultural) and must have been owned by the deceased or the donor for at least two years. Your children must undertake to keep the assets allocated to the business, and at least one of your children must undertake to continue running the company for 3 years from the date of the transfer.

The tax break
- Pierre wishes to pass on his business, valued at €2,000,000, to his two sons. He will give each child €1,000,000 worth of company shares. The Dutreil allowance represents €750,000. After application of the 75% exemption, the gift amounts to just €250,000. Added to this is the standard allowance of €1,000 per child. The taxable value is therefore only €150,000. The gift tax payable per child is €28,198. By comparison, without any special provision, the gift transfer tax would have been €212,962.
- Another case in point: the absence of a spouse or close family. Michel, aged 75, is a widower whose only family are 3 nephews, all in their thirties. He has a substantial real estate portfolio and numerous financial investments. Michel knows full well that the inheritance tax his nephews will have to pay on his death will be high. To avoid them being taxed too heavily, Michel plans to make a gift to each of them. As part of a family gift, also known as a Sarkozy gift, they will benefit from a tax exemption of up to €31,865. Michel can also make a donation of up to €7,967 each. And this every 15 years.

Words to help you understand

- Usufruct: the right to use and receive income from property belonging to another person (the bare owner).

- Nue-propriété: right allowing the owner to dispose of the property, but preventing him/her from using it (living in it) or receiving income from it.
- Full ownership: a complete right combining all the attributes of usufruct and bare ownership.

Marie-Christine Ménoire