This is a deed used by people wishing to gift and distribute their assets between their children during their own lifetime.
An original institution of French law, the donation-partage is at the same time a gift during lifetime and a succession by anticipation. It is especially important in a legal system in which forced heirship rules in favour of children (and of the spouse in the absence of children) are in force, contrary to the U.K., in which such rules do not exist.
The donation-partage is a very useful tool but it is also a very technical subject and people interested in going down this route should use caution and seek independent specialist legal advice.
One of the main advantages of the donation-partage is that, if all the children accept it prior to death, it will most usually avoid quarrels between them upon death. 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.
Another significant advantage of this legal device is that death duties will not apply with respect to assets already gifted by way of a donation-partage.
The person decides 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. For example, if the French estate is worth 300,000 euros and there are two children, each is entitled to a minimum share worth 100,000 euros, but the remaining 100,000 euros can be divided unequally between them, or even with someone else.
It also has an essential advantage in that it avoids a pitfall relating to the valuation of the assets given. Once the donor has died, 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.
In contrast, when valuing the share of the deceased’s estate to which each child is entitled, gifts made outright during lifetime will be taken into account at their value at the time of death, which can create discrepancies in the treatment of children depending on what was given.
Here’s an example: during his lifetime, a father makes gifts of equal value to his two children, in two equal sums of cash. One child uses the money to buy a property, the other spends his cash without investing in anything.
On the death of the father, the value of the gift taken into account to assess the share of the estate that needs to go to the child who invested in the property, will be the market value of the property at the time of death. The gift received by the other child, who 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.
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. The French legal system comprises various matrimonial regimes between which one can choose. These range from full separation of assets to full community. This is similar to pre- or post–nup agreements in the UK.
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 existing assets, or by way of reintegration of outright gifts made earlier. 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 followed later by a donation-partage, to avoid losing out (including from the tax point of view) due to fluctuations in valuations.
Once the donation-partage has been accepted, it is normally impossible to come back on it. There are exceptions in only very exceptional cases.
Should the beneficiary die before the donor, it is possible to draft the document so that the donor will get the asset back. If this has not been provided for, 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 the case of death of the beneficiary, it is essential, in case there are several children, not to give them the same assets jointly; if 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.
As you will see if you’ve read all of this article, donation-partage is not simple but it can be very useful. If you want to have one drafted, do get in touch.