We're already familiar with the four-beat waltz, so why not give in two beats, passing on the gift over several generations? In this case, a gradual or residual donation opens up new possibilities for passing on the legacy. Stéphanie Swiklinski, a qualified notary, opens up new perspectives for passing on the baton.
What are the differences between gradual and residual gifts?
This type of gift enables a donor to organize the transmission of his or her estate in general, or of a specific asset in particular, in two stages. In this case, two beneficiaries are successively benefited. At the time of the deed of gift, the donor will designate two successive donees. They will each receive the asset at two different times; this is why the operation is called a gradual donation. With this type of gift, the first beneficiary has a double obligation:
- he or she must keep the property for life,
- on his death, he must pass it on to the second beneficiary.
In the case of a residual gift, the first beneficiary has no such conservation obligation. He/she may dispose of the property as he/she sees fit, but is obliged to pass on what remains of the inheritance at the time of his/her death.
When is it a good idea to use a gradual or residual gift?
It's a good idea to use a gradualgift to keep an asset in the family. In this way, you can control its destiny. This could be a family home, for example, or a business... Similarly, if you are remarried and wish to pass on a property to your new spouse, before giving it to your children from your first union, a gradual gift is a possible option. It is also used to protect a disabled child, while ensuring that the property is passed on to other family members at a later date.
A residual gift, on the other hand, is more suitable if you wish to pass on a portfolio of securities or other movable assets.
In all cases, the gift must be made by notarial deed. Once accepted by the first beneficiary, the name of the second will be indicated in the deed, but it is not necessary for him or her to give his or her agreement in order to benefit immediately. As with any gift, if it involves real estate, it must be published at the land registry office.
What tax advantages can I expect?
Whether the gift is a gradual one or a residual one, it reduces tax. Each donee must pay gift tax, but not at the same time. At the time of the initial donation, the first beneficiary is liable for tax on the value of the assets received, depending on his or her relationship to the donor. So far, nothing revolutionary! Then, on the death of the first beneficiary, the second will pay the tax reduced by that paid on the first donation (even if it was paid by the donor). They will be calculated on the value of the property at that time, after deduction of the allowance and the gift tax scale determined according to the relationship between the second beneficiary and the original donor, whether or not the latter is still alive. This is particularly useful when the second beneficiary is not a direct descendant of the first.
Stéphanie SWIKLINSKI