The French Parliament is currently debating a new bill that, if adopted as is, would question many estate-planning strategies in a French-American context.
Current Rules
In contrast to common law jurisdictions, which generally allow testators a broad latitude in the distribution of their estate under the principle of freedom of testation, France succession law provides rigid rules in the allocation of one’s property on death. Under the French civil code, children are entitled to a portion of their parents’ estate (called “réserve héréditaire” or reserved portion) of which they may not be deprived. Only the remainder of the estate (called “quotité disponible” or free portion) may be freely disposed of by the decedent, the size of which depends on the number of children left by the decedent: one-half in the presence of one child; one-third in the presence of two children; one-fourth in the presence of three or more children. The free portion is further reduced by gifts granted during the lifetime of the decedent.
In the context of cross-border planning, individuals living or owning property in France face the possibility of having French law – and its rigid succession rules – applied to some or all of their estate. Fortunately, EU Regulation 650/2012 (commonly referred to as “Brussels IV”), applicable in most EU Member States including France, outlines the rules for determining the law applicable to an estate. In substance, Brussels IV provides that the law governing an estate as a whole is, in principle, the law of the state in which the decedent was habitually residing at the time of death, unless the decedent expressly opted, by will, for the law of the state of which they’re a citizen.
The effectiveness of such an election remained to be demonstrated, as it was debated whether French forced heirship rules could be construed as of a matter of French international public policy. If that were the case, French courts would refuse the application of the foreign law designated by the testator and substitute instead French law (the law of the forum). This issue has been settled in 2017, as the Court of Cassation (that is, the French supreme court for civil matters) ruled that French forced heirship rules aren’t, in principle, a matter of international public order. In this decision, the Court upheld the application of California law against French law in a French-American context.
As such, under current rules, it’s become current practice for U.S. citizens living in France to avoid French forced heirship rules and regain their freedom of testation, simply by mentioning in their will that the law governing their estate shall be the law of the U.S. state with which they have the closest ties.
This planning is however at risk of becoming ineffective in many cases.
Proposed Change
French Parliament is currently debating a bill meant to “strengthen the respect of the principles of the French Republic,” which deals with many subjects, including succession law. As such, Article 13 intends to reinstate disinherited children in their rights, should they be deprived of their reserved portion because of the application of a foreign law.
More precisely, this bill (re)creates a specific mechanism (called “droit de prélèvement” or collection right), which allows disinherited children to obtain a compensation, enforceable against any property located in France, equivalent of the reserved portion they would have been entitled to if the estate were subject to French succession law.
This collection right is applicable subject to the following conditions:
1. either the decedent or one of their children is a citizen or resident of the EU,
2. the estate is subject to a foreign law, and
3. this foreign law doesn’t provide any forced heirship mechanism in favor of children.
Given that most common law jurisdictions don’t know a forced heirship mechanism, for estates governed by the law of such a jurisdiction, the second and third conditions above are automatically met. In such case, the collection right is applicable as long as either the decedent or one of their children is a citizen or resident of the EU. In other words, this bill undermines the objectives of Brussels IV, which is to allow testators to choose their national law.
Such a collection right used to exist in French law until it was scrapped in 2011 by the French Constitutional Court on the grounds that this right was reserved to French nationals only, which amounts to a discrimination based on citizenship. The new mechanism avoids this pitfall by ensuring that, as long as the conditions above are met, the collection right is granted to any of the decedent’s children (no matter their country of residence or citizenship).
In practice, the introduction of this collection right amounts in many cases, for citizens of a common law jurisdiction, to raise French forced heirship regime as a principle of international public policy. If this bill is adopted as is, it would question many estate planning strategies, both current and future, laid out in a French-American context.
The bill specifies that Article 13 will apply to estates open three months after the adoption of the bill.
Michel Dayanithi is an associate in the Tax group at Sekri, Valentin, Zerrouk in Paris.