Trusts and the SCI

(This is not a legal document – it is a layman’s understanding of the law. If a legal opinion is required, please contact the writer who will refer you to his advocate, a recognised expert in the field)

Q.
Should I buy property in the South of France in my own name, in the name of my offshore trust, or should I create an SCI?

A.
It was bad before but under new legislation (August 2011) it just got worse for trusts in France if the constituents or beneficiaries are French resident, or if they own any asset in France.

Constituents or beneficiaries will be taxed under common law.
If the constituent dies and the beneficiaries are not known (or remain anonymous) then the estate will still be taxed at 60%.

After death the beneficiaries automatically become the ‘new constituents’ of the balance of the estate after taxes, and the same law applies.
Therefore it perpetuates itself down the generations.

The problem is that Trusts are not recognised under French law, being regarded as a foreign juridical creation specifically for the purpose of placing assets under an administrator in the event of the constituent’s death, in the interests of one or more beneficiaries, and for the realisation of the single objective – tax avoidance.

So it’s a very bad idea to transfer property in France into a trust, or to buy property in the name of a trust. Period.

Q.
But there’s an apartment for sale in Cannes at the right price, in the right location, what should I do?

A.
The SCI is another story, and used properly it is the perfect vehicle for property ownership in France including shares and investments. It can hold all classes of assets under the same conditions.

• One is able to dilute the ownership by allocating shares in the SCI amongst family or other interested parties / partners.
• The constituents of an SCI need only own a very small percentage of the “nue propriete” or “bare ownership”, even as little as 1%.
• In a typical example parents might own 5% each and their three children own 30% each on the assumption that the parents are likely to pre-decease the children. (That is of course an individual choice and calculation.)
• If any one of the parents were to die taxes are calculated on their share of the “nue propriete”.
• In most cases their 5% wouldn’t even reach the threshold, so their assets would pass free to their children.
• After death the children are free to bring their children in to the SCI on the terms below.

Important point – it is not advised (although not illegal) to bring minors into an SCI if there is a loan – if the SCI owes money it might be deemed that the risk of leaving the children with debt is too great.

However if the SCI doesn’t owe money (or if the children are older) one can donate 156 000€ per parent, per child completely free of any tax. So each child can receive 312 000€ free, providing the parents are less than 61 years of age.

The calculation of the value of any property is done on a simple market valuation (by a registered estate agent).

The total cost of the exercise of bringing in the children might reach 5 000€ but may be less, and it is comprised of notary fees, transfer fees, registrations and some admin.

The parents are able to retain 100% of the usufruct of the SCI until death, so all decisions are theirs to make, and they have lifetime use of the properties, total jurisdiction over them, and the sole use of their fruits. i.e. they have 100% of the vote.

If there are any specific questions please ask – I will get answers from the advocate if I don’t know the answers myself.