Case study
A couple in their fifties, transferring €1.8M to their children tax-free
Profile
Married couple, 3 adult children
Challenge
Significant estate, concern over inheritance tax, wish to help their children now rather than later.
The situation
Pierre and Hélène, 55 and 53, both company executives. Three children: 27, 25 and 22. Combined estate of around €1.8M (primary residence, second home, older life insurance contracts, PEA (French equity savings plan), and shares in Hélène’s company). They came to see me after running a quick estimate of the inheritance tax their children would owe: roughly €320k under the current structure. They wanted to understand what could realistically be done, without giving up control of their assets.
The plan, built over three years
Year 1: split donation with retained usufruct
- A split donation (donation-partage) transferring bare ownership of the second home (valued at €480k) to the three children.
- Taxable value of the bare ownership at age 55: 60% x €480k = €288k.
- Allowances used: 3 x €100k (Pierre) + 3 x €96k (Hélène) = €588k available.
- Tax due: €0. The allowances comfortably cover the value.
- Pierre and Hélène retain the usufruct: they keep using the house, occasionally renting it out, and maintaining it.
Year 2: restructuring life insurance contracts and beneficiary clauses
- Consolidation of 3 older life insurance contracts into 2 premium contracts, preserving the original seniority date.
- Scheduled payments of €20k/year/contract before age 70, gradually building up the €152,500-per-beneficiary allowance.
- Beneficiary clauses rewritten with split ownership (surviving spouse as usufruitier, children as bare owners), enabling a second layer of transmission.
Year 3: family cash gift and Dutreil preparation
- An exceptional cash gift (article 790 G of the French tax code): €31,865 per parent to each child, an additional €191,000 transferred tax-free.
- On Hélène’s company shares: a collective retention agreement (pacte Dutreil), laying the groundwork for a future transfer at 75% allowance.
The consolidated result after three years
| Mechanism | Value transferred | Tax due |
|---|---|---|
| Split donation with retained usufruct (second home) | €480k in future full ownership | €0 |
| Family cash gift | €191k | €0 |
| Life insurance (payments plus future allowances at death) | ~€457k prepared | €0 (if death occurs after age 70 and allocation rules are respected) |
| Dutreil (over 15 years of preparation) | Transferable base x 25% | Substantial future reduction |
Value already secured tax-free: ~€1,128k. Estimated future tax savings: €200k to €280k, depending on how the estate evolves.
What they say
“We thought passing on wealth was complicated and a taboo subject. We realised it was actually one of the finest gifts we could give our children. And to ourselves too, because now we know where we’re heading.”
What this illustrates
Time is the first asset in wealth transmission. Pierre and Hélène started at 55 and 53. They will be able to renew a full allowance cycle in 2040, and a third one in 2055 if all goes well. For a couple with three children, three allowance cycles are worth up to €1.8M in tax-free transmission over their remaining lifetime.
Had they waited until 70, they would have lost an entire cycle, the equivalent of €600,000 falling back into the scope of inheritance tax.
Case presented with the clients’ consent. First names have been changed.
