Focus on Wealth Planning #13: Gifts: legal and tax considerations
Gifts: legal and tax considerations
Preparation is key to effective estate planning.
As a starting point, you need to determine
what you would like to transfer (capital, future capital, an income stream),
the nature of the asset(s) in question,
your planned time horizon, and
your beneficiary or beneficiaries, and
of course you must take into consideration your family context.
Keep in mind that thinking about others does not mean forgetting about yourself.
What are the best legally-compliant and tax-efficient options for asset transfers in your lifetime?
If you have more than one child, we recommend lifetime gifting (‘donation-partage’). With a deed of gift, and subject to certain conditions, you can gift your assets and divide your estate in your lifetime. This approach not only secures your transfers, but also reduces the risk of disputes between your heirs when you pass away.
Lifetime gifting is also a way to provide for your grandchildren instead of their parents — a very useful generational leap at a time when people are inheriting much later in life. This intergenerational lifetime gifting covers current assets and includes, where applicable, gifts previously made to your children in order to redistribute assets to your grandchildren — naturally, with the consent of both children and grandchildren. It may also be tax-efficient, as only partition duties are due (currently 2.5%).
In blended families, you can protect both the surviving spouse and the children of a previous union. Provided the rights of the reserved heirs are respected, your gift can be gradual or residuary. In this scenario, the transfer is made to the first beneficiary, who:
holds the asset and, on their death, transfers it to a second beneficiary (gradual gift);
enjoys the asset and, on their death, transfers whatever remains to a second beneficiary (residuary gift).
How can I transfer my assets while maintaining an income stream?
In this case, you can split ownership of the asset by awarding bare ownership to your heir(s) and reserving usufruct, the right to use and enjoy the asset.
As the usufructuary, you can then earn income from a rental property, for example. The bare owner will gain full ownership of the property, usually on the death of the usufructuary.
Gift tax will be calculated only on the value of the bare ownership transferred, which in turn is based on the usufructuary’s age on the transfer date.
For a 57-year-old donor, the bare ownership value is 50% of the full ownership value.
In principle, no additional tax is due on the usufructuary’s death.
However, if the plan is to transfer an income stream (for example, to a child at university to pay their tuition fees), you can gift usufruct of a rental property for a fixed period of time.
Under this arrangement, the child becomes the usufructuary and earns the rental income. At the end of the usufruct, you regain full ownership of the property and the income from it.
How much does gifting cost?
Gift tax is calculated against a progressive scale based on the family relationship between donor and beneficiary.
Allowances are also available to reduce the taxable amount, which also vary depending on the family relationship. Allowances can be used every 15 years and are currently set at €100,000 for transfers between parents and children.
Depending on the type of asset, you can combine tax exemptions, such as:
tax-free family cash gifts made to children, grandchildren or great-grandchildren for amounts up to €31,865,
temporary exemptions of €100,000 (introduced by the Finance Act for 2025) and capped at €300,000 per beneficiary for descendants or, in the absence of descendants, nephews or nieces, when the sums are used to purchase a new or off-plan main residence, or for energy upgrades, and
the Dutreil scheme for family businesses, which currently allows for a 75% gift tax exemption on the value of certain company shares.
How we help you
These are just some of the solutions available to you. We encourage you to review them with your advisors to ensure that they fit in with your clearly-defined succession plan.
Our wealth planners at Societe Generale Private Banking work with you and your advisors to analyse and structure your estate, and offer you solutions for your specific goals and needs.
Find other articles:
Focus on Wealth Planning #11: How to use life insurance in Wealth Planning
Focus on Wealth Planning #10: International mobility of people and assets
Focus on Wealth Planning #9: Transferring your real estate assets
Focus on Wealth Planning #8: Estate planning for blended families
Focus on Wealth Planning #7: Financing your lifestyle
Focus on Wealth Planning #6: Protection for vulnerable people
Focus on Wealth Planning #5: Structuring and managing your wealth
Would you like to discuss this subject further with us?
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