Simplified Probate: Passing on Your Estate to Your Nephews and Nieces.
When it comes to passing on one’s estate to nieces and nephews, French tax rules are particularly strict. Here’s why.
Unlike bequests to children, which are heavily tax-exempt, those to nephews and nieces are heavily taxed: after a small exemption of €7,967, the remaining amount is taxed at 55%. In this context, careful planning is essential to reduce the estate tax bill. Here’s an overview of the main solutions with Patrick Prugnaud, a wealth management specialist at La Financière d’Uzès.
Life Insurance: An Essential Tool
Life insurance remains one of the best tools for passing on one’s estate under favorable tax conditions. By paying premiums before age 70, you can provide your beneficiaries—including your nieces and nephews—with an individual tax exemption of €152,500. Beyond this exemption, the transferred funds are taxed at a rate of only 31.25%, far lower than the standard 55% rate for inheritances outside the direct line of descent.
Please note, however: for premiums paid after age 70, only the portion exceeding a total exemption of €30,500 will be subject to the 55% inheritance tax. The gains generated by these premiums are exempt from this tax and are subject only to social security contributions of 17.2%, thereby preserving the benefits of this arrangement.
Gifts for the Purchase of a Primary Residence
Another way to optimize your tax situation: gifting money. Before turning 80, a donor may give up to €31,865 to an adult nephew or niece, with this exemption renewable every 15 years.
Since 2025, a new tax deduction of €100,000 has been introduced to facilitate the purchase of a new primary residence. This program allows the recipient to benefit from significant financial support to become a homeowner. In addition, the recipient may receive up to an additional €200,000 from other donors, thereby expanding financing options.
Gifting Bare Ownership: Preparing for a Smooth Transfer
Gifting bare ownership is an effective strategy for transferring real estate or financial assets to one’s nieces and nephews while minimizing the taxes owed. By donating only the bare ownership of an asset—whether it is an apartment or a securities account—the donor retains the usufruct, that is, the right to use and receive income from the asset until their death.
Upon the termination of the usufruct, full ownership is automatically transferred to the bare owner, without any additional rights. This is a significant advantage, especially since the tax liability is calculated on a reduced basis at the time of the gift.
Acquisition through division of ownership: a nuanced approach to estate planning
Another, more sophisticated solution is to purchase property through division of ownership with a nephew or niece. The donor acquires the usufruct of the property, while the young person acquires the bare ownership, financed by a prior gift. This arrangement allows for the automatic transfer of full ownership upon the usufructuary’s death, without inheritance tax.
Patrick Prugnaud explains that this strategy also makes it possible to avoid the presumption of full ownership under Article 751 of the General Tax Code (CGI) by proving that the division of ownership is genuine. Furthermore, at the time of purchase, the usufruct can be valued economically rather than by applying the traditional tax scale set forth in Article 669 of the CGI, thereby optimizing the allocation of value between the usufruct and bare ownership.
Planning Ahead Is Still the Key
Whatever strategy you choose, one thing is certain: planning ahead is essential. Passing on an estate to your nieces and nephews without proper preparation exposes you to heavy taxation, which significantly reduces the final value of the estate passed on.
From life insurance and tax-exempt gifts to property disestatement and complex estate planning strategies, there are several tools available to ease the tax burden. However, they must be put in place in a timely manner—sometimes well before the occurrence of an estate-related event.
