A Capital reader wonders what is the best way to pass on one’s assets to one’s children. Is it better to invest in investments whose capital will be bequeathed to them upon one’s death or to give it to them during one’s lifetime? And, in the second option, from what age should one start?
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– Inheritance or donation? What is the best strategy for passing on to your children?
Christian, a reader of Capital, asks us the following question: “Hello, aged 60, I am beginning to wonder about the best way to pass on my assets to my two children. I own my house, I have a contract oflife insurance with my insurer for over 20 years, a Livret A and an LDDS, both full. I also have a PEL and a Perp for over 20 years. Do you advise me to wait or to start passing on, at least partially, this heritage to my children?
Hello Christian, and thank you for your question which allows us to come back to the different strategies which exist in terms of donation and inheritance. In your case, the objective will be to transmit the maximum, during your lifetime or at your death, all while leaving as little as possible in taxes (for you) or inheritance rights (for your children).
Beware of the 61-year limit for donations with retention of usufruct
First of all, you should know that at 60, you are at a pivotal age if you want to start giving part of your assets to your children. For example, if you want to give a property while retaining its usufruct – that is, the right to live in the home, rent it out, etc. – this will be less tax-efficient after the age of 61: “If, for example, you give away a house worth 200,000 euros while retaining the usufruct, you will only be taxed on 50% of its value, or 100,000 euros. But after the age of 61, this reduction drops to 40%.”points out Nathalie Couzigou-Suhas, notary in Paris. The same logic applies in the case of a donation of a financial portfolio of which you would like to retain the usufruct (dividends), such as a securities account.
On the other hand, if you are simply considering making a gift of money or property to your children from which they will benefit 100% (without usufruct reserve), you still have a little time. Until you are 80 years old, your children, if they are adults, can receive up to 131,865 euros from you without paying duties, by combining the deduction on the family cash gift of 31,865 euros and that on the gift of goods (money, jewelry, real estate, etc.) of 100,000 euros. “But be carefulnotes Nathalie Couzigou-Suhas. This tax exemption is replenished every 15 years. If you let your children benefit from it at age 60, you will have to wait until age 75 to use it again.” In other words, the longer you wait, the more likely you are to only benefit from the reduction once.
Do not neglect payments made before the age of 70 on your life insurance
Finally, in addition to donations, there is the succession strategy. The assets you hold in your various investments can also be passed on to your children. But be careful here too, among the savings products you mention, only life insurance and PERP have a tax reduction mechanism. All payments made before your 70th birthday on these two products allow, cumulatively, each of the beneficiaries you have designated to receive up to 152,500 euros completely tax-free. The allowance becomes less attractive on payments made after the age of 70, as the allowance increases to 30,500 euros for all beneficiaries. The capital held in your other savings products (Livret A, LDDS, PEL) will fall into your estate, and your children will therefore be taxed on it at the progressive inheritance tax scale.
As you will have understood Christian, there are therefore advantages to anticipating and giving to your children during your lifetime, and you will have to hurry in particular if you wish to do so while retaining the usufruct on your assets. Be careful, however, to also keep enough to live your retirement peacefully. In this sense, payments made before your 70th birthday on life insurance are particularly interesting: they allow you to put aside for your old age, while providing for a tax deduction for your children from which they will benefit when you inherit.
Succession: “Should you open or pay into a life insurance policy after the age of 75?”
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