Gifts, donation and inheritance tax
A gift means to gratify one's friends and family, or a charity, association or congregation that one supports. In all cases a gift is a serious act, as, unless the circumstances are exceptional, it is final.
What is a gift?
Giving means transferring title to an asset that one owns to another person, during one's lifetime. It is therefore an important act by which the donor (the person who makes the gift ) divests or gets rid of a portion of their assets (one or more individual items). The parties must agree on what is given and its value by respecting the presence of reserving heirs. In order to ensure that the donor is fully informed of the consequences of this act, the gift must be recorded in a notarised instrument (except for gifts handed over in person).
Why make a donation?
Giving makes it possible to gratify the donee (the person who receives the asset).
However, it is also a means:
- to anticipate one's succession by helping one's children, grandchildren or family (brother, sister, nephew, niece) during one's lifetime;
- to optimise the transfer of assets in terms of the tax liability, tax allowances being renewed every 15 years;
- to avoid any difficulties that may arise in connection with the division of one's death estate;
- to organise the management of the family assets: for example a gift may be granted in consideration for rent. In such case, the home can provide a very useful supplementary pension.
- to considerably reduce one's tax liability, particularly in the event of the transfer of a business, agricultural holding or building.
Gifts, donation: how can one protect oneself?
There are several forms of gift : ordinary gifts ; the division of the estate among the presumptive heirs in the inter-vivos division, etc. Each of them may be recorded in special clauses in order to take account of the specific family, asset and tax situation in which the gift is made. It is essential to seek the advice of a notaire at this stage.
There are several specific clauses, including:
Right of reversion clause:
A clause of this type makes provision for a scenario in which the donee predeceases the donor without leaving any descendants. In this case the item given returns to the donor's estate. The return is then done without tax.
Allocation to the marital community of property clause from the community (or exclusion) :
If the donee child is married under the French matrimonial property regime in which the matrimonial assets are held jointly, a clause of this type will enable the donor to specify to whom the gift is to be allocated. Depending on the case, the asset will be incorporated in the personal assets of the donee (exclusion clause) or the couple's joint assets (allocation clause). The donor may therefore choose to gratify their child's spouse on this occasion, or not.
Residual gift clause:
If, on the day of the donee's death, the asset given is still included with their total assets, the donor will have named the person who is to become the owner. If, as a result of this clause, the asset passes to the donee's sister, for example, the transfer of ownership will, nevertheless, be considered to have been effected by the donor themself (from parent to child) and not by the donee (from brother to sister), which, for tax purposes, offers not insignificant advantages. Note that this clause does not prohibit the donee from selling or bequeathing, but such acts would cancel the mechanism of transmission to the second person.
Two-step gift clause [gift to two individuals in succession]:
A clause of this type allows for the same type of transfer as a residual gift clause, but prevents the donee from selling or giving away the item received, since it has an obligation to retain it.