What is the distinction between a gift of use and a direct gift?
The distinction between a manual gift and a customary gift is therefore important under civil law, since the former will be subject to clawback from the estate of the person making the gift, while the latter will not. Explanations by Stéphane Jacquin, Managing Partner and Head of Wealth Engineering at Lazard Frères Gestion.
Article 843 of the Civil Code provides that any heir to an estate must return to his or her co-heirs everything he or she has received from the decedent. This rule of return to the estate applies to inter vivos gifts. It is intended to ensure equality among the heirs.
Article 852 of the Civil Code, on the contrary, provides that customary gifts need not be returned.
The distinction between a manual gift and a customary gift is therefore important under civil law, since the former is subject to clawback from the estate of the person who made it, while the latter is not.
This distinction is also important from a tax perspective, since a manual gift is subject to gift tax under Articles 757 and 784 of the General Tax Code, whereas a customary gift is not.
Therefore, it is worth considering the distinction between the two. Below what amount does giving money to a child constitute a gift rather than a manual gift? Is there a maximum value that must not be exceeded for the transfer of an item (jewelry, a car, a work of art) to be considered a gift rather than a manual gift?
Before examining whether there is a monetary threshold distinguishing a customary gift from a manual gift, it is important to note that for a gift to be considered customary, it must be given on the occasion of an event where it is customary to give a gift (birthday, Christmas, wedding, passing an exam, etc.). A gift given outside the context of a specific event cannot be classified as a customary gift.
This principle is reaffirmed in a ruling by the First Civil Chamber of the Court of Cassation dated September 25, 2013. In that case, the Court of Cassation overturned a decision by the Court of Appeals, which had classified a gift as a customary present without specifying on what occasion or for what purpose it had been given.
With regard to the amount of a customary gift and its value, Article 852 of the Civil Code specifies that “whether a gift is considered customary is determined as of the date it is made, taking into account the grantor’s assets.”
First, it follows from Article 852 of the Civil Code that the value of a gift must be determined as of the date the gift is made, and not at a later date.
This principle was reaffirmed by the First Civil Chamber of the Court of Cassation in a ruling dated May 10, 1995. In that case, the Court of Cassation upheld an appellate court ruling that had held that a father’s gift to his daughter of eight watercolors with a total value of 70,000 francs (approximately 11,000 euros) on the occasion of her wedding in 1975 constituted, given the father’s wealth and the value of the paintings at that time, a customary gift, even though seven of the eight watercolors had been sold by the daughter, 10 years after her marriage, for 5,620,000 francs (approximately 860,000 €).
Second, it follows from Article 852 of the Civil Code that, in determining whether a gift is a customary gift or a manual gift, one must take into account the financial circumstances of the person making the gift.
The principle established by the Civil Code is therefore that the wealthier a person is, the more substantial gifts they can make without impoverishing themselves and, consequently, without such gifts constituting a manual gift. It should be emphasized that if a customary gift is not included in the giver’s estate, it is because it does not constitute a gift—that is, it does not result in a reduction of the giver’s estate.
Based on the principle of proportionality set forth in Article 852 of the Civil Code, the Paris Court of Appeals, in a ruling dated April 11, 2002, held that checks for 100,000 francs (approximately €15,000) given by a mother to each of her two sons during the Christmas holidays—for them and their respective families—constituted customary gifts, given her wealth. In that same case, at the trial court level, the judges of the Paris District Court had held that the checks given by the mother to each of her sons could be considered customary gifts up to 30,000 francs (approximately €4,500) but should be regarded as manual gifts for the remainder.
Unfortunately, a review of various court decisions rendered in disputes between heirs or with the tax authorities does not allow for the establishment of a rule of proportionality based on the donor’s income or assets. In the aforementioned case, the checks given by the mother to her sons represented 2.4% of her estate. This seemed excessive to the trial court judges but not to those of the Court of Appeals.
The tax authorities do not establish any further principles of proportionality. On the contrary, they state in their official guidance that “the classification of a gift as a customary gift (…) results from an examination of the specific circumstances of each case, which is incompatible with the application of preestablished normative criteria” (ruling dated April 3, 2013).
Furthermore, it appears from the case law of the Court of Cassation that the requirement for proportionality between the income and wealth of the person giving the gift and the value of the gift is not without limits. Indeed, in a ruling dated December 6, 1988, the First Civil Chamber of the Court of Cassation held that customary gifts are gifts “not exceeding a certain value” without reference to the financial situation of the giver of the disputed gift.
Overall, it therefore appears that it is not possible to draw a clear line between a customary gift and a manual gift. In the event of a dispute, it is up to the judge to determine whether a gift given on the occasion of a particular event constituted a customary gift or whether, on the contrary, given its significance, it resulted in a financial loss for the donor and must be classified as a manual gift.
