Legal title and succession

Sun 15 April 2018, Philippe Ropenga Estate management

The previous post highlights the fact that French law tends to focus on ownership while English law pays attention to interest¹. These cultural perceptions can lead to serious misunderstanding. A recent case decided by the French Cour de cassation, i.e., the supreme court that deals with civil, commercial, and criminal cases, clearly indicates that the legal title is a crucial element when it comes to succession. Let us see what this means in practice by examining the legal landscape (1) before turning our attention to practical considerations (2).

1 Legal landscape

One can see a hard rule (1) and two flexible techniques (2).

1.1 A hard rule

In French law, any heir entitled to an estate is entitled to the estate as a whole. He has to agree with the other heirs on a liquidation plan to receive his share of the estate once the succession process is over. A sum of money is easily divided. It is less easy to divide other goods. The notary who is the public officer in charge of liquidation formalities when immovable property rights are involved usually makes property lots, similar to auction lots that comprise different items. They are used to smooth the liquidation process since heirs are discussing the distribution of given lots instead of fighting a war over separate items. It usually works. In several cases, however, a decade may have passed, and heirs are still quarrelling. What can the notary do in this case? This public officer cannot do anything on his own to sort this situation out, notwithstanding his skill and dedication. He certainly will encourage heirs to reach an agreement that he will be able to turn into a sensible liquidation plan. He however has to remain neutral. Heirs therefore seek legal assistance to defend their interest. When all the efforts of the lawyers and the notary are unsuccessful, can the notary decide to make lots of immoveable property according to a court-appointed valuator's report? The Court of appeal decided that since one of the heirs had not produced any evidence proving that the valuator's report should be set aside, the estate liquidation based on a valid report is itself valid. The Cour de cassation quashed this decision. According to the court, if an heir does not agree to the distribution of the assets according to lots made by the notary, these lots have to be randomly allocated². This recent case shows that provisions regarding successions are strictly interpreted to preserve the legal title. It also is interesting to note that the Cour de cassation decided this case by interpreting the former article 834 of the civil code applicable to this matter. A piece of legislation passed in 2006 that entered into force in 2007 changed this area of law that is now codified under article 826 of the civil code³. This change does not affect the outcome of the matter. It means in practice that the heirs have been litigating for more than ten years.

French law provides two flexible techniques that can be used to prevent this outcome.

1.2 Two flexible techniques

The executor (exécuteur testamentaire)

The executor is appointed by will⁴. If the validity or the execution of the will is challenged, his office is challenged as well⁵. He therefore can defend the validity of the will as well as its execution⁶. He can also take appropriate protective measures⁷, inventory the estate with the heirs⁸, and sell movable property to pay urgent succession debts⁹. Moreover, the testator can convey extended powers to the executor in case no forced heir accepts his share. The executor can sell immovable property, receive and invest money, and divide the estate to distribute the assets¹⁰.

As one can see, the strength of the executor is that of the will that appoints him. The executor smooths the succession process as far as the liquidation of the estate is concerned. The French policy that protects legal title is not wrecked by the executor. He has very limited management powers. It can be a problem when the estates includes a business, for example. Another institution is adequate in this situation: the agency with postmortem effect (mandat à effet posthume).

The agency with postmortem effect (mandat à effet posthume)

This contract has to be distinguished from the succession mandate that often involves a court-appointed agent in practice¹¹. The agency comes into effect after the death of the principal who is the testator. The contract has to be written by a public officer and the mission acceptance has to be recorded in a public officer deed¹². This is because it gives large powers to the agent and entails the protection of the legal title. Nevertheless, the notary who is in charge of the liquidation formalities of the testator's estate cannot be the agent¹³. Furthermore, the agent has to accept the mission before the testator's death¹⁴.

As far as the mission and the powers of the agent are concerned, the testator has to show that he has a good reason to appoint the agent who will manage the property in a heir's stead¹⁵. The agent obviously has to be entitled to manage a business if he accepts to manage one¹⁶. He can carry on for up to ten years¹⁷. The heir is not deprived of the legal title but from his right to manage the estate with the other heirs who have become co-owners as soon as the testator died. Moreover, according to the principle of universal succession, an heir is entitled to the estate as a whole before liquidation. The agency however can be limited to some heirs or to some assets¹⁸. As one can see, this contract of agency does not wreck these principles regarding succession but fairly limits their application. The fact that this agency may be limited to some heirs or some assets means that an heir can always renounce his share to stop the agent from stepping into his shoes. The outcome obviously is the same if the heir dies¹⁹. Furthermore, if the legal title to the assets that are in the scope of the agency is alienated by the heir, the agency ends²⁰. It also is worth noting that if the mission of an executor and that of an agent under the agency with postmortem are similar in scope, the executor prevails²¹. Moreover, the agent under the agency with postmortem effect and the executor prevail over the court-appointed agent²²; the testator wishes are preserved.

It appears that some French techniques are similar to trusts even if they are labelled as such. Beware of labels! Let us now take a few step back to consider some major cultural issues that affect cross-border estate practice.

2 Practical considerations

It is worth examining the effects of the French "owner-centric" approach (2.1) before unleashing the interest (2.2).

2.1 The "owner-centric" approach

After part 1, it is easier to understand that French law is more inclined to protect legal title than to consider the interest of the beneficiary. These techniques focus on the following questions:

• Who does what?
• Who can deal with the property?
• To what extend are the stakeholders liable?

French law sees these questions from the angle of the legal title. This structural approach influences both clients and practitioners but in two different ways.

French clients, on one side, will think that if they preserve the legal title, they will keep the power to act with the property, and therefore, will be able to defend their interest. Most practitioners, on the other side, will see these questions as a structural challenge: what structure will help my clients to share property without loosing too much power and facing high liability?

French notaries have a monopoly regarding formalities related to immovable property rights. They thus are inclined to safeguard legal title and make sure that formalities are solid since they do not want the legal title to be challenged. This is a very cautious structural approach. Lawyers who are not public officers may be tempted to draft sophisticated instruments to preserve a situation that they consider to be the best for their client. Since lawyers are more concerned with sad ends than happy ones, they consider various plans in case anything goes wrong. As one may see, none of these French approaches tries to answer directly this very simple question:

How do I make sure that the agent/manager/trustee acts in the interest of the beneficiary?

It thus is worth releasing the structural pressure that burdens the interest.

2.2 The interest unleashed

The lawyer who has been educated in a common law country should pay attention to the following elements when considering estate matters with a French colleague or client: - It is important not to consider ownership issues as peripheral ones. As you know, deep-rooted perceptions and strong feelings mesh together; it is impossible to set those ones aside quickly without hurting these one badly. You may want to divert a client's attention from painful property issues by asking him to consider his best interest. It is a clever thing to do since the client may adopt a problem-solving attitude. A French client may however think that you do not care about how he feels. You can avoid this pitfall by uncovering the link between legal title and interest to gently slide from one to the other. This is a delicate and worthwhile move since it can lead everyone to a straightforward and durable solution. - If you exchange with a French practitioner, try to focus on possible evolutions of the structure or the estate plan to meet the client's interest. At this stage, the Anglo-Saxon lawyer should remember that his education in trusts is his most precious asset²³.

It is possible to take the interest of the beneficiary into account in French law. French and Anglo-saxons see the same situation from two different perspective and often do not realise how different they are.

In brief, it is possible to find anything you need in French law to meet your client's needs provided that you do not try to transplant an Anglo-Saxon structure in France. The major challenges here are not structure and black letter law but culture and understanding.

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