To bequeath part of their inheritance before inheritance, parents and grandparents can make a special donation to their heirs. The amount donated can be completely tax exempt.
When preparing to pass on their inheritance, parents and grandparents wish to limit inheritance taxes and notary fees as much as possible. The objective is always the same: to leave the majority of the heritage to the heirs without forcing the latter to pay too much tax on it.
To transmit real estate assets, the dismemberment and the donation of bare ownership are particularly used by households. When it comes to financial assets, parents and grandparents often use life insurance contracts, which allow each beneficiary to pay up to 152,500 euros completely tax-exempt. “There is also the living donation, governed by article 779 of the General Tax Code (CGI), which allows, once every 15 years, to bequeath up to 100,000 euros to a child and 31,865 euros to a grandchild without paying a single cent to the tax authorities,” explains Eric D, former wealth management advisor at AXA. Beyond these amounts, gift taxes can rise from 5% to 45% depending on the amounts transferred and the relationship between the donor and the beneficiary.
“Nevertheless, another type of totally tax-exempt donation exists,” Eric tells us, “I spoke about it to all my clients at the time, and I think it is still used too little by families,” continues the former wealth management advisor. According to the law, sums of money given at certain specific times of the year are not taxed by the tax administration: this is what we call a “customary gift”. “I often told my clients to make gifts to their children or their grandchildren for their birthday, for their wedding, their communion, their bar mitzvah, or even for Christmas,” remembers Eric.
According to article 852 of the Civil Code, a customary gift is appreciated on the date it is granted and taking into account the wealth of the donor. “Obviously you cannot empty your bank account, you have to be reasonable,” tempers our interlocutor. “However, there is no clearly defined maximum amount in the CGI for a customary gift,” specifies Eric. On its website, the Ministry of the Economy and Finance also indicates that there is “no maximum threshold, whether in percentage or in absolute value, which makes it possible to distinguish a customary gift from another donation”.
To make a customary gift, the date on which the payment is made is therefore particularly important. “It must be a specific and rare time of the year,” summarizes Eric. “For example, I systematically encouraged my clients to make donations, sometimes of several thousand euros, to their heirs, when the latter celebrated obtaining a diploma such as a license or baccalaureate,” remembers the former wealth management advisor.
“The baccalaureate is a major step in the life of a young adult and it is an event exceptional enough to justify a nice financial gift,” says Eric. “However, a certain procedure must be followed when making the payment,” warns the former AXA expert. If the customary gift takes the form of a bank transfer, it is recommended to indicate on the wording the justification for the payment, by writing for example “Gift for the Baccalaureate” or “Congratulations on the baccalaureate”.
This precaution can prove valuable in the event of an audit or dispute by the tax administration. Indeed, if the customary gift is poorly qualified, in particular because the amount appears disproportionate to the donor’s assets or because the occasion does not seem important enough, the person who receives the money will have to pay taxes as if it were a classic donation.
