Setting up a French ‘community fund’

Setting up a French ‘community fund’

Agreements known as marriage contracts have been in use in France and other parts of the world for a very long time. They enable married couples to express how they wish their assets to be held during marriage and divided in the event of a death or divorce. UK married couples intending to purchase a property or to relocate to France can enter into such an agreement.

The contract is ‘partial’ if it covers only the French property. Whereas those who intend to move to France or have already established their domicile can set up a full community fund for all of their assets.

What is a community fund?  A community fund called “communauté universelle” can be compared in some ways to a UK joint tenancy agreement. Under such an agreement spouses can specify that all property acquired or received during their marriage will be deemed to be communal and belong to a common fund, administered jointly and with joint powers over these assets.

Legal implications

1. The community fund can specify amongst other conditions that upon the death of a spouse, the entire fund accrues to the survivor even in the existence of children

2. By transferring the couple's assets into the fund there will be limited probate on the first death.

For this reason the children from a previous relationship are entitled to claim against the surviving spouse (who will be the sole owner of the fund), for what they should otherwise received under French law on their parents’ death (ie their French compulsory rights). This might be effectively dealt with as part of a global arrangement in a Will in some other territory, perhaps England when some other assets remain there. Also, a waiver can be signed in France.

Tax implications - The cost of this agreement is that French Inheritance Tax will apply upon the second death on the whole aggregated estate of the surviving spouse. Therefore any tax-free threshold per parent and per child will be used once on the second death only.

How do you create this?  The setting up of the community agreement can be undertaken by a Notaire. For those who have existing properties that need to be transferred into a community fund it is important to remember that it can be signed in the UK. There should also be no French legal Court Procedure costs.  

This article is not a substitute for detailed advice on specific transactions and problems and should not be taken as providing legal advice on any of the topics discussed.