Numerous tax incentives encourage families to pass on their assets as early as possible. But it’s essential to maintain financial freedom to meet the expenses of old age, or to continue investing without being held accountable.
74% of French people consider inheritance taxes to be too high1. For these reasons, they are getting organized and passing on as much of their wealth as possible during their lifetime.
Inheritance: There are many incentives to pass on your estate as soon as possible
There are a number of tax measures available to cushion the cost of a transfer when it is initiated during the donor’s lifetime. For example, tax allowances can be applied to gifts between parents and children. Amounts up to 100,000 euros are exempt from gift tax. The allowance is renewed every 15 years.
When it comes to transferring property, there’s also the option of property dismemberment.
Under this system, the parent gives bare ownership of a property to his or her children, while retaining the usufruct.
The usufruct entitles the parent to enjoy the property, i.e. to live in it or rent it out.
When dismemberment is applied to a securities portfolio, the usufructuary continues to receive the income from the portfolio.
The advantage of dismemberment is that you don’t have to completely divest yourself of your own assets.
What’s more, bare ownership has a lower economic value than full ownership: gift taxes are calculated on a reduced basis.
They are therefore lower.
The value of full ownership increases with the age of the usufructuary.
The earlier the donation, the lower the tax payable.
However, as life expectancy increases, it is essential for donors to preserve part of their savings for the 4th age.
At this stage of life, men and women are faced with ever-increasing health and dependency expenses.
Did you know? 14,596 euros a year, or 1,126 euros a month: that’s the average cost of aging with dignity in your own home from age 65 to over 85, according to the 2023 baromètre “Combien ça coûte d’être vieux en France?” (How much does it cost to be old in France?), conducted by Silver Alliance and Retraite.com.
We need to preserve our freedom of action by preserving our assets.
Against a backdrop of high costs for senior citizens, prudence and foresight recommend retaining a portion of one’s assets into old age. These provisions preserve freedom of disposal in case of need, or in the event of disagreement with (or between) descendants. It is therefore useful to retain at least full ownership of your principal residence. Reselling or renting it out can help finance the cost of a retirement home or a new life project. In this respect, when property is held through a Société Civile Immobilière (SCI) set up with the children, the main residence should not be included. What’s more, direct ownership of a principal residence is eligible for a 30% tax allowance for the Impôt sur la Fortune Immobilière (IFI).
Investing can be done at any age
The same reasoning applies to liquid assets. With advancing age, the ideal solution is to continue investing in a liquid medium, preserving the availability of funds. A life insurance policy offers this guarantee. Premiums paid before the policyholder’s 70th birthday are tax-advantaged. Each beneficiary can benefit from an allowance of 152,500 euros before tax on the accumulated capital. However, the policy remains attractive for those over 70. Premiums paid after this age are subject to inheritance tax, after an overall allowance (for all contracts and beneficiaries combined) of 30,500 euros. In this way, the beneficiaries of the contract receive funds and benefit from an allowance. However, the senior citizen retains access to his savings at all times, until his death.
Good to know: Only a complete estate audit can define the most appropriate strategy for each situation. This step must be accompanied by an estate and tax simulation, to build a succession plan that preserves the freedom to act.
Key points to remember
- There are many incentives to pass on wealth to your children early.
- At the same time, parents need to keep a portion of their assets in full ownership, so as to preserve their purchasing power and freedom of investment.
