
Focus on Wealth Planning #9: Transferring your real estate assets
Estate planning for blended families
Whether transferring real estate for personal use or income, it is crucial to plan early to avoid tensions and strained family relationships due to co-ownership and disparities among children.
Planning ahead is the best way to secure your legacy, though it can be complex.
Division of estate
Testators can opt for a ‘testament-partage’ Will to decide how their assets will be divided among their next of kin. The testator alone determines the division of their estate among heirs presumptive, who must accept the terms if they wish to inherit. For multiple undivided assets, and subject to compliance with French inheritance law, namely the reserved portion of the estate, this form of Will can help avoid disputes related to co-ownership.
Lifetime gift and division of assets
Gifting is the most effective solution for passing on part of your real estate assets to your heirs presumptive in your lifetime. You can transfer your assets while benefiting from tax allowances, renewable every 15 years: €100,000 between parents and children.
The early transfer of a property can reduce the inheritance tax amount. You can gift full ownership with usufruct, meaning you continue to use and earn income from the property while preparing its transfer.
If the property is subsequently sold, the value used to determine the gift tax will be used to calculate the capital gain, thus reducing the capital gains tax.
When there are many children, lifetime gifting with division among heirs (‘donation-partage’) provides a legally secure framework for the transfer. As the gifted assets are not included in the estate, they are excluded from the assets to be shared. Lifetime gifting also locks in the value of the assets on the day of the gift. This value is used to calculate the reserved and disposable portions of the inheritance and is fixed irrespective of the amounts gifted over time.
However, for the lifetime gift to be recognised as an early division of the estate, the beneficiaries may not receive undivided shares of the same asset. Each asset must be given in full to a single beneficiary. If there is only one property, it can be given to one child, who must then compensate their siblings accordingly.
Family buy-out
For longstanding and lucrative properties, an alternative solution is to create a real estate company (société civile immobilière), the capital of which would be held primarily by the adult children. By selling the property to the company, you can pass on a portion of your real estate and receive cash.
The capital gain realised at the time of sale is subject to a flat income tax rate of 19%, an exceptional surtax on high income, tax on high real estate capital gains where applicable, and social security contributions of 17.2%. There are tax allowances based on the duration of ownership. For example, a property held for more than 30 years will be exempt from all tax.
The real estate company can take out a loan to finance the acquisition, repaying it with the income generated by the property and shareholder current account advances. The property’s profitability and the choice of loan are crucial to this kind of operation.
While it’s important to understand tax and estate planning, you must not overlook the economic soundness of the transaction.
You can combine the sale of a property to a family real estate company via loan financing with a partial lifetime gift of cash to continue the transfer, support your children and ensure the transaction makes economic sense.
How we support you
Passing on a real estate asset is a major undertaking that takes planning. You need to find the right solution for you and your loved ones, and manage the tax implications with complete peace of mind.
Our wealth engineers at Societe Generale Private Banking are here to assist you, alongside your advisers, accountants, notaries and lawyers, to structure and anticipate the transfer of your property assets.
Would you like to discuss this subject further with us?
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