A donation is an act by which a person transfers ownership of an asset to another person, free of charge, during his or her lifetime. However, there are a few rules to follow in order to prepare a valid donation.
Preparing a donation: steps to follow
Living wills: a personal choice
Deciding during your lifetime to organize the division of your estate can be a wise decision. Particularly if you own several prestigious properties. In certain cases, this act can also open the possibility of passing on one’s inheritance to beneficiaries of one’s choice. Such as grandchildren or a third party outside the family. Before taking any steps, it’s important to understand the ins and outs of a living gift.
What is a living gift?
Anyone of sound mind and capacity can voluntarily decide to pass on all or part of their estate during their lifetime, to the person of their choice. Unlike a will, in which the legatees benefit from the property on the death of the person, a gift allows immediate enjoyment.
What types of property can be donated?
All types of property can be included in a donation.
“The donation may involve a château, manor house, prestigious residence or luxury apartment.”
Donors can pass on both their primary and secondary residences.
Who can benefit of the donation?
Children and grandchildren are the main beneficiaries. However, in the case of a gift, the donor can choose a beneficiary from outside the family, while respecting the rules governing the protection of the children’s share.
Which donation to choose?
There are many different types of donations to suit different situations:
- Gift with usufruct reserved: The donor retains enjoyment of the house during his lifetime (this is known as usufruct). The donee will have the use of the house upon the donor’s death. This is also known as bare ownership.
- Donation of full ownership: The house belongs to the beneficiary as soon as the deed is signed.
- Shared donation: The donor distributes his house, apartment, etc. in separate lots to his heirs, and to each of his children.
- Gift between spouses (or “last living gift”): On the death of one of the spouses, the surviving spouse inherits a larger share of the estate than is allowed by law.
- Residual or gradual donation: The donor chooses the first beneficiary and the second beneficiary who will succeed in the event of the first’s death.
How to donate?
Above all, both parties must agree. In the case of a gift of real estate, the donor and donees must have the deed drawn up by a notary (article 931 of the French Civil Code). The cost of the deed (including the notary’s fees) is determined by the value of the property donated (between 1.5% and 3%). To this must be added any transfer duties payable to the State (20% to 30%), which are calculated according to the value of the property donated.
The benefits
Freedom of choice
The donee can choose the beneficiary from within the family. They can also designate a person outside the family, but only under certain conditions. They can decide to give part of their estate to younger generations who need financial support to build their future. Buy an apartment or invest in a house with character, for example. This choice is even more important as life expectancy increases.
“Keeping property within the family”
Donations can be a solution for avoiding conflicts and dividing up possessions in such a way as to avoid the dismantling of land or property. More flexible but complex taxation. Death imposes substantial inheritance costs on the heirs, which could lead to the forced sale of family property at short notice. In contrast, a gift offers less onerous taxation. And with it, the guarantee that the assets can be retained by the heirs. It is possible to safeguard family assets by avoiding, or at least limiting, inheritance costs.
“Pay lower costs”.
To repeat the notaries’ motto on endowment, we could sum up the experts’ advice as follows: “The younger you give, the less you pay.
Disadvantages
In the case of real estate transfers, the deed is immediate and irrevocable. In other words, the donor no longer owns the property. It is essential to seek the advice of a notary to select the best type of contract: shared donation, donation between spouses, donation of bare ownership with usufruct reserve…
Mercure Group’s advice
Today, it is possible to renew a donation every 15 years. These successive donations enable you to pass on part of your real estate assets, while benefiting from substantial tax allowances and without exceeding the tax ceiling. If you wish to implement this schedule, it’s best to start as early as possible.
Passing on your assets: 2 scenarios
No donation
Let’s take the example of a person who dies without having donated during his lifetime and leaves a château valued at €1,000,000. His only child will benefit from an allowance of €100,000, which will be subtracted from the total value. Inheritance tax will then be calculated on €900,000. In this case, with a tax rate of 30%, they will amount to €212,964.
With donation
If, during his lifetime, the donor had made a gift of the bare ownership of the property, the value of the donated property will be reduced by the value of the usufruct, which is determined according to the donor’s age. For example, if the donor is 72 years old, the value for tax purposes is only 70% of €1,000,000, €700,000 minus the €100,000 allowance. The transfer tax would then be just €122,964, a considerable saving of €90,000.
