I OWN A PROPERTY ABROAD: HOW CAN I PLAN MY ESTATE?
- How many wills should be drawn up?
- What rules apply for the applicable form to the drafting of a will?
- Which civil law is applicable to determine the rights of heirs when assets are located in different countries?
- Are the tax authorities bound by these principles or does each country apply its own tax rules for the taxation of inherited assets?
- Are there laws restricting the acquisition of real estate by a resident of a foreign state?
- Tax rules in the context of a french-swiss estate.
Many Swiss residents own real property in France, particularly as a secondary residence; and reciprocally, many French residents own real property in Switzerland, having acquired it as their principal residence or received it by inheritance.
Thus, at the time of death, the inventory of goods will list real property assets in different countries and this reality must be properly taken into account when planning one’s estate.
Without claiming here to deal exhaustively with the consequences of such a state of affairs, a few essential rules must be kept in mind. It is recommended to consult a specialist who will be able to implement the most appropriate solution, taking into account the characteristics of each case.
The few principles set out below are therefore not intended to provide an adequate response for all the complex situations that may arise in practice. This brief presentation concerns in priority the cases involving France and Switzerland.
By favouring a first concise approach to the subject, it does not include systematic citations of the laws applicable in these two countries respectively. It mainly concerns the European regulation on successions of 4 July 2012 and the Swiss law on private international law of 18 December 1987.
1. How many wills should be drawn up?
A single will may be sufficient to deal with the entire devolution of goods; it is a mistake too often encountered in practice to assume that one will per country should be drafted, as if two successions in parallel should be prepared simultaneously. In that case, the last testament will be taken into account for both countries, despite the presumed will of the testator, with the consequence that the second t testament drawn up will be ignored.
However, it is obviously possible to draw up several wills as long as the testator takes care to specify that the second text completes the first, without cancelling it. The challenge is then to properly coordinate these two wills, taking into account all the assets of the estate.
In addition, it is important to consider the potential debts to determine who will have to assume them.
2. What rules apply for the applicable form to the drafting of a will?
If there is a will, which law of succession must be applied when checking whether the rules of form have been respected (rules applicable to the writing and signing of the will)?
The evolution of legislation in the European countries has resulted in a widening of the applicable rules: the tendency is to multiply the range of potentially applicable laws, in order to ensure, if possible, the formal validity of the will.
In particular, a will is accepted as valid in form if it respects either the requirements of the inheritance law of the testator’s principal residence, or of his national law, or of the place where the will was drawn up.
If a deceased American national leaves a will drawn up in the American form (typed with two witnesses) while residing in France (or Switzerland):
• A will of this type is not recognized by French (or Swiss) domestic law, but each of these two countries will nevertheless recognize it as valid in form if it is recognized as such by the national law of the deceased,
• On the other hand, French (or Swiss) law will be applied as to its contents: the testament will, therefore, be executed only within the limits of what is allowed by the law of succession, more precisely according to the reserved portions established in France (or respectively in Switzerland).
Thus, if the deceased American and unmarried person appoints his partner as single heiress in the presence of an only child, in a will drawn up in the form of American law, the testament will be recognized as valid on a formal point of view (by application of American law) but the partner will only receive part of the estate, i.e. the share available according to the rules of French (or Swiss) law, after calculating the obligatory share which will be allocated to the child.
3. Which civil law is applicable in determining the rights of heirs when assets are located in different countries?
The civil law is the decisive factor in determining the rights of the heirs to the estate. In this context, the trend in Europe is now to take into account as a criterion the inheritance law of the country of the testator’s main residence at the time of his death. However, if he prefers, the testator may nevertheless declare in his will that he wishes to submit his succession to his national law (“professio iuris “) ; Switzerland applies a restriction to this rule : binational with Swiss nationality are not authorised to submit their estate to another national law (“professioiuris“).
The inheritance law of the principal residence is intended to apply to all assets, regardless of their location. In particular, real estate assets are now in principle subject to the single law of succession, which applies to the entire estate, whereas previously quite a few European countries provided, by exception, to apply the law of the place of location for real estate located on their territory (“lex rei sitae“).
4. Are the tax authorities bound by these principles or does each country apply its own tax rules for the taxation of inherited assets?
Each country is free to determine the tax rules applicable to inheritance tax levied on death. This means that all the above principles determining civil law, and in particular that of the application by default of the law of the testator’s principal residence, remain without any effect towards the tax authorities.
For example, the estate of a person residing in Switzerland will be subject to the applicable Swiss tax provisions; but French tax law may also claim its application on the occasion of the transfer of property to French residents or of assets (movable or immovable) located in France.
There is currently no applicable treaty between France and Switzerland to avoid cases of double taxation by the French and Swiss tax authorities.
5. Are there laws restricting the acquisition of real estate by a resident of a foreign state?
There are no legal provisions in France that would limit the acquisition of real estate by non-French citizens.
Switzerland, on the contrary, has adopted a restrictive legislation on the acquisition of real estate by persons abroad, particularly in the case of housing (“Lex Friedrich” or “Lex Koller“). However, in the context of an inheritance, this legislation provides that the transfer of real estate to the legal heirs of the deceased is in principle not subject to a prior authorization procedure.
6. Tax rules in the context of a French-Swiss estate.
It should be noted that the taxes due in France are calculated according to French rules. In particular:
• the assets are estimated by the heirs under the control of the administration, at their market value (and not the cadastral value),
• in order to be deducted, the liabilities must have existed on the day of death.
Which assets are taxable in France?
• if the deceased was a French resident: assets located in France and Switzerland will be taxed in France,
• if the deceased was a Swiss resident:
. the principle: only property located in France is taxed in France.
. exception: if the heir or the legatee was domiciled in France and had been domiciled in France for at least 6 years during the last 10 years, the heir or legatee will be taxed on the property located in France and Switzerland.
What is the deadline for the tax payment?
• if the death occurred in France: within 6 months of the death,
• Otherwise, within a year of death.
What are the penalties in case of delay?
• Late payment interest is due at a rate of 2.40% / year, each month started being due in full,
• if the duties are paid more than one year after the date of death, a penalty of 10% will be payable in addition.
Beware: if the administration sends a formal notice to file a declaration which is not filed within the limitation period, an increase of 40 % will be due.
It is therefore advisable to contact the French notary as soon as possible and to keep him/her immediately informed of any correspondence received from the tax authorities.
In Switzerland inheritance tax is levied by the cantons; the confederation has, therefore, no competence in this area, and there is no federal law dealing with this issue.
It is therefore not possible to give an exhaustive answer here, but only to set out a few principles that are taken up by most Swiss cantons.
The Swiss Tax Conference has published a systematic analysis of the various cantonal tax laws, available at this address: Inheritance tax in Switzerland.
Which assets are taxable in Switzerland?
• if the deceased was a Swiss resident: movable assets and bank assets will be taxed in Switzerland (i.e. in the canton of residence), regardless of where they are located in the world,
• Real estate is taxed only in the Swiss canton of the place of location, excluding the canton of residence of the deceased.
What is the deadline for the tax payment?
The legislation of the canton concerned should be consulted to determine the deadlines for payment and submission of the inheritance tax return.
Most of the time a procedure is set up to allow the payment of an inheritance tax instalment to avoid interest on arrears.
What are the penalties in case of delay?
Here too, each canton has established its own provisions.
Dominique NAZ, notary in Douvaine
Etienne JEANDIN, notary in Geneva