Tax advice: the “Donation-Partage” (“Gift with distribution”)

The donation-partage is an original institution of French law.  It is a deed by which a person gifts and distributes his assets between his children during his lifetime. The person therefore sets the contents of the share, which will go to each of the children.  He may create unequal shares, provided that such “inequality” does not exceed the amount of the freely bequeathable share which exists in any estate, in other words provided that the principle of equality between children with respect to their reserved shares is not breached.

One of the main advantages of the donation-partage is that, if all the children accept it prior to death, it will normally avoid quarrels between them upon death, although legal action will still be possible in certain cases.  The donation-partage avoids the situation where the heirs will be the joint owners of all the deceased’s assets and a possible lengthy distribution procedure (‘partage’) in case of disagreement.

It also has an essential advantage in that it enables to avoid a pitfall relating to the valuation of the assets given.  As a matter of fact, once the donor has passed away, the assets given under the donation will be valued at the value retained at the time of the donation, as opposed to the time of the distribution of the estate after death.  This is so while to the contrary, when valuing the share to which each child is entitled, gifts made outright during lifetime will be taken into account at their value at the time of the death, which can create discrepancies in the treatment of children depending on what was given.  Let us consider an example: during his lifetime, a father makes gifts to his two children, one of a real estate property and cash to the other in equal values or two equal sums of cash, one of which is later invested by the child in the purchase of a property when the other spends his gift without buying anything.  Then on the death of the father, the value of the gift taken into account in order to assess the share of the estate that needs to go to the child having bought the property will be the market value thereof at the time of death, while the gift received by the other one (and who has spent it all) will be taken into account at its nominal value, meaning that this child will benefit from the increase in value over time of the property purchased by his sibling.  This can seem quite unfair and the donation-partage remedies that situation by ‘freezing’ the valuation at the time of the gift.

Process to follow to make a donation-partage:  like any gift, a donation-partage needs to be signed before a Notaire.  Two parents can give their respective personal assets but if there is a community between spouses, it is best to do a joint single deed of gift by which each spouse gives his own personal assets and both spouses give their joint assets at the same time.

In order for it to be valid, all the beneficiaries must accept the donation-partage, although if one refuses, then it will remain valid for the others.  The one who has refused will not be able to take advantage of the above-mentioned rule on valuation and if the assets left in the estate are not sufficient for him to receive his full reserved share of the estate, then he will be entitled to challenge the scope of the donation and have it reduced (‘action en réduction’).

Assets gifted within a donation-partage may consist of specific assets existing, or by way of reintegration of previous outright gifts made.  In that case, however, it is to be noted that the value to be retained for the outright gift will be the value at the date of the donation-partage, not the value at the time of the outright gift.  It is therefore recommended to do a donation-partage in the first place rather than outright gifts.

One does not have to give all of one’s assets under a donation-partage and in case of partial gift, then the surplus of the assets are distributed according to default applicable rules of successions.

Once the donation-partage has been accepted, it is normally impossible to come back on it.  There are exceptions in very exceptional cases, for instance if the gift was made subject to an obligation which was not carried out.

It is possible to provide, in a donation-partage, that should the beneficiary die before the donor, then the donor will get the asset back.  If this is not provided, then on the death of the beneficiary, the assets given will benefit his or her heirs.  However, if the intention is to receive the asset back in case of death of the child or children, it is essential, in case there are several children, not to give them the same assets jointly, in other words in case only one dies, then the assets cannot be returned in full.  It is possible to give assets of unequal value to different children but in that case, the child who has been advantaged will need to pay back the difference in value over and above his reserved share to the estate.

The consequences of the donation-partage on title: as the assets have been gifted, the children can in theory sell them even prior to the death of the donor.  However, should there be a claim in reduction by the other heirs in case they did not receive their rightful share, the purchaser of the asset could be forced to return it or indemnify such heirs.  Only if the donor and all the heirs consent to the sale will that not be possible.

The donation-partage is therefore a very useful tool but it is also a very technical subject and people interested in going down this route should use caution.

Hervé Blatry
Avocat
TEE FRANCE
STANLEY TEE LLP
High Street
Bishops Stortford
Herts CM23 2LU

Tel 01279 710621 and 01279 710654
[email protected]