When someone dies, an inheritance is set up to transfer the deceased's assets to his or her heirs. When the succession is opened, the status of heir must be certified by a notary who will draw up an initial deed, the attested affidavit, on the basis of which he/she will issue a number of devolving certificates to the heirs of the deceased.
I/ APPLICABLE MONEGASQUE LAW
In Monaco, heirs' relationships with each other and with third parties, as well as the legal mechanism by which rights are transferred, are governed by the Monegasque Civil Code (articles 602 to 760), to which Law no. 1.448 of June 28th, 2017 on private international law is added.
The law governs the order of succession between legitimate heirs, natural heirs and the surviving spouse. If there is no heir, the deceased's property becomes the private property of the State.
A foreigner has the same right as a Monegasque to inherit property owned in the Principality by his or her relative, whether foreign or Monegasque. In the event of the same inheritance being divided between foreign and Monegasque co-heirs, the latter will deduct from the property situated in the Principality a value equal to the value of the property situated in foreign countries from which they would be excluded, for whatever reason, by virtue of local laws and customs.
a/ The principle of a single law of succession...
In the absence of a choice of law, the aforementioned law no. 1.448 provides for the application of a single law of succession (that of the domicile of the deceased on the day of his/her death) to any national or international succession and defines domicile as the place of the principal establishment. This means that any Monegasque resident who owns property both in Monaco and abroad will, in principle, have his or her succession governed exclusively by Monegasque law.
Monaco (like France) maintains a protective framework with regard to certain heirs, such as children, who benefit from specific legal protection under domestic law, which prevents them from being disinherited and guarantees them a portion of the inheritance (articles 780 et seq. of the Monegasque Civil Code). This portion, known as the hereditary reserve, varies according to the number of protected heirs called to the succession.
b/ …from which the professio juris may derogate
However, it is also possible for a Monegasque resident to choose his or her law of succession by means of a will on condition that it is only in favour of his or her national law at the time of his or her choice. This is the principle of professio juris or "choice of law", instituted by law no. 1.448 and which enshrines the autonomy of the will. This law therefore allows Monegasque residents to opt for the law of another country of which they are a national in order to submit their entire succession to it, whatever the nature and location of the assets making up their estate.
The designation of the law applicable to the succession must be express and contained in a declaration in the form of a disposition mortis causa. The estate solutions implemented in accordance with the national law will then be able to produce their effects without risk of being called into question on death.
c) The limits of the professio juris
There are, however, two limits to the principle of choice of law:
1st limitation: it may not have the effect of depriving an heir of the reserve provided by the law of the State of which the deceased was a national at the time of his or her death, which confirms the commitment of the new Monegasque law to the protective mechanism of the reserved portion of an estate (article 63 of the 2017 law).
For example, in the case of a Monegasque deceased domiciled in England, he or she could not escape the reserve on the grounds that the law of his or her domicile, in this case English law, does not require it.
According to the same principle, the surviving spouse may claim his or her right to a reserve in the proportion provided for by the law of the State of which the deceased was a national at the time of his or her death (it should be remembered that Monegasque law does not include the surviving spouse among the heirs with reserve).
The same applies to agreements as to succession*, recognised by Monegasque law, which are validly concluded abroad: these cannot affect the reserve provided for by the designated law of succession (Monegasque law or national law) if the heir subject to the reserve is not a party to the agreement.
*Contract between two or more persons, the object of which is the succession of at least one of them; generally concluded between parents and their children and/or grandchildren.
2nd limitation: it cannot have the effect of applying the reserve to the succession of a person whose State of nationality at the time of death does not have this system.
Other legal systems, mainly Anglo-Saxon ones, do not recognise the principle of reserved inheritance and advocate total testamentary freedom.
This is why the said article 63 also allows the reservation not to apply to the succession of a person whose State of nationality does not have this system, such as a British citizen.
In particular, in the case where a trust* is implemented by a national of a State which is unaware of the hereditary reserve, the provisions protecting the hereditary reserve provided for by Monegasque domestic law are not applicable (article 63 al. 2). In this situation, a professio juris, even if it is not recognised by the national law of the deceased (the case of English law in our example), could be envisaged. It would allow Monegasque inheritance law to be set aside in its entirety and not just in its provisions relating to the reserve.
*A legal act by which a legal or natural person transfers assets to another person who will be responsible for managing them in the name and on behalf of one or more beneficiaries (spouse, children, associations, etc.). It is therefore not a company.
Monaco has indeed adopted special legislation (law no. 214 of 1936) to recognise trusts and to allow certain foreign nationals (generally from Common Law countries) residing in Monaco to benefit from their national law, which allows them to create trusts during their lifetime or by will. Foreign trusts are recognised in the Principality, which has signed and ratified the Hague Convention of July 1st, 1985 on the Applicable Law and Recognition of Trusts.
The internationalisation of society and law therefore raises the question of the possibility of setting aside the hereditary reserve in international successions and giving preference to testamentary freedom, for the benefit of foreigners residing in Monegasque territory or expatriate nationals.
Despite this, Monaco offers a protective framework for heirs and, in order to enhance its attractiveness, has made it easier to plan and anticipate one's inheritance thanks to measures taken over the years that allow one to benefit from a gentle tax regime.
II/ TAXATION APPLICABLE IN THE PRINCIPALITY
Inheritance or transfer tax, which must be paid by the heirs, applies to real estate located in the Principality or based there, regardless of the domicile, residence or nationality of the deceased (subject to the provisions of the Franco-Monegasque Tax Convention of April 1st, 1950, which will be described below).
This tax varies according to the value of the inheritance, known as the net inheritance assets, which correspond to the total value of the deceased's property, less any debts (outstanding loans, unpaid bills, funeral expenses, etc.) and the relationship to the deceased (see table below).
The Monegasque inheritance tax system is advantageous in that it provides for no settlement of inheritance tax in the direct line and limited inheritance tax in the collateral line for property located in the Principality.
- direct line means the sequence of degrees between people who are descended from each other or between spouses. A distinction is made between the descending line (which links the author with those who descend from him or her) and the ascending line (which links a person with those from whom he or her descends). There are as many degrees as there are generations between the deceased and the heir: for example, the child is, with regard to the father and mother, in the first degree, the grandson or granddaughter in the second.
- collateral line means the sequence of degrees between persons who are not descended from each other, but from a common origin. The degrees are counted by generation, from one of the parents, not including the common author, to the other parent. Thus, brothers and sisters are in the second degree; uncle or aunt and nephew or niece are in the third degree; first cousins are in the fourth; and so on.
The level of taxation depends on the degree of kinship between the deceased and the heir:
Direct parent-child relationship or between spouses
Between partners in a cohabitation contract
Between brothers and sisters
Between uncles, aunts, nephews and nieces
Between collateral relatives other than brothers, sisters, uncles, aunts, nephews or nieces
In order to calculate inheritance tax, it will be necessary to determine the market value of the real estate inherited, which corresponds to the estimated sale price based on market prices (at the time of death). In order to provide the heirs with a property certificate, the notary's fees will be 0.7% of the amount valued at the time of settlement or at the time of a future sale. There will also be a 0.25% fee for the declaration of inheritance, which will then be subject to registration with the Principality's Tax Department for a fixed fee of €50 (instead of €10) from 1 October 2023 (Law no. 1.548 of July 6th, 2023 containing various tax provisions).
In addition, there are other costs for the heirs, depending on whether they choose to inherit the property: joint ownership or division of property.
By default, property passes to heirs in joint ownership. In this case, the property passes to the heirs collectively, i.e. each heir owns all of the property.
As the joint ownership regime can be restrictive in terms of managing property and making certain decisions, the heirs may choose to leave the joint ownership arrangement. The Monegasque Civil Code states that no one can be forced to remain in joint ownership, and partition can always be requested, notwithstanding prohibitions and agreements to the contrary. However, it is possible to agree to suspend partition for a limited period of time.
This agreement cannot be binding for more than five years, but it can be renewed.
To this end, the heirs have several options:
- divide the lots equally (if the property permits) ;
- sell their shares (the other heirs have priority to buy them);
- sell the real estate.
The Civil Code provides that if the property cannot be divided conveniently, it must be sold by auction, either before the Court of First Instance, if there are incapacitated persons, or before a notary, if all the parties of full age and enjoying their rights agree to appoint one.
Once the furniture and real property has been valued and sold, if applicable, the accounts that the co-sharers may owe each other, the composition of the lots and their allocation are drawn up.
The notary must then draw up the deed of partition, which will also be paid for by the heirs.
The Franco-Monegasque tax treaty of April 1st, 1950
Monaco has only one tax treaty, with France, concerning inheritance tax. This treaty, which according to the text applies only to French nationals and Monegasques but can be invoked, under certain conditions, by nationals of other States if they reside in Monaco, divides the right to tax inheritance assets between Monaco and France according to their nature. Thus, for example, real estate and certain tangible movable assets are taxed in the country where they are located, while other assets are taxed in the State of the deceased's last domicile.
This agreement was signed in Paris between France and the Principality of Monaco and aims to avoid double taxation for both the French and Monegasques and to codify the rules on assistance in inheritance matters. It only covers French inheritance tax (i.e. the registration duties due in the event of a transfer free of charge on death), gifts being excluded.
The Treaty states that "immovable property and immovable rights forming part of the estate of a national of one of the two States shall be subject to inheritance tax only in the State in which they are situated". Consequently, real estate located in Monaco is subject only to Monegasque inheritance tax, regardless of the place of residence of the deceased or the heirs. Transferable securities (shares, bonds, mutual funds, debts, etc.) are also subject to Monegasque inheritance tax, but there is one important condition: the deceased, a French national, must have been resident in Monaco for at least five years at the time of death.
Article 1 of the Convention indeed stipulates that French nationals must have been ordinarily resident in Monaco for at least 5 years at the date of their death to be considered domiciled in Monaco.
This rule does not apply to:
- individuals belonging to or under the authority of the Sovereign Household, as well as civil servants, employees and agents of the Principality's public services, who are considered to be domiciled in the Principality if they have established their habitual residence there and were in fact residing there on the date of their death, regardless of the length of time for which they were resident ;
- French nationals (and their children) who were resident in Monaco for more than five years on October 13th, 1962 (i.e. October, 13th, 1957) and who have maintained their residence in the Principality since that date. The French tax authorities consider them to be Monegasques.
In France, inheritances are taxed according to a progressive scale, taking into account the relationship between the deceased and the heir. Given the differences in the rates of inheritance tax applied by the two countries, the question of the law applicable in the event of inheritance is of paramount importance.
It should be remembered that although French nationals who own property in Monaco benefit from a tax advantage in terms of inheritance, this does not alter the other rules governing the taxation of assets. In particular, property owners and their subsequent heirs may still be liable for property wealth tax.
Under the May 18th, 1963 tax treaty between France and the Principality of Monaco, French nationals domiciled in Monaco are subject to income tax in France on all their income (with the exception of the two categories of persons mentioned above).
In the case of States that have not signed an agreement with Monaco, inheritance assets are taxed in accordance with the respective laws of Monaco and the State concerned. Certain countries, as long as the deceased is domiciled in Monaco, only tax assets located on their territory, with certain exceptions. Others may tax Monegasque assets because of the status of the deceased or the heirs, and the mechanisms for eliminating double taxation must be examined on a case-by-case basis.
Notwithstanding this last provision, the Monegasque inheritance tax system is advantageous in the case of direct line transfers of assets located in the Principality. It allows an exemption from inheritance tax conditional on the identity of the final beneficiary of the transfer.
The concept of direct line was amended by Law no. 1.529 of July 29th, 2022 containing various economic and legal provisions, amending the provisions relating to inheritance tax on transfers inter vivos or by death of assets located in Monaco placed in a trust governed by foreign law which are not subject to Law no. 214 of February 27th, 1936 revising Law no. 207 of July 12th, 1935 on trusts, as amended, insofar as they are neither constituted nor transferred to Monaco.
Prior to this law, in order to be exempt from inheritance tax, it was necessary for the transfer to take place in a material way, by a legal act, directly between ascendants and descendants or between spouses.
From now on, and since the new article 21-2 of Law n°580 of July 29th, 1953 (created by Law n°1.529 of July 29th, 2022), the transfer inter vivos or mortis causa to a beneficiary of assets, rights or capitalised income, located in Monaco, placed in a trust under foreign law by a settlor under the control of a trustee, is, for the net market value of the assets, rights or income concerned on the date of transfer, subject to free transfer duties depending on the relationship between the settlor and the beneficiary.
The identity of the beneficiary and his or her relationship to the settlor must be established in writing on the basis of official documents, in accordance with the law governing the trust.
To sum up, this means that if a trust governed by foreign law, which has not been set up and transferred to the Principality of Monaco, is used as a means of transfer, and the beneficiary is a direct heir of the settlor, the Monegasque tax regime will apply subject to two conditions:
- the transfer must involve property, rights or income capitalised in Monaco ;
- there must be a direct family relationship between the settlor and the beneficiary (i.e. between ascendants and descendants or between spouses).
In accordance with all the above, it is advisable to study your situation with the help of a tax expert in order to opt for the most appropriate inheritance tools. Valeri Agency is surrounded by the best experts in the Principality and will help you benefit from its network. In addition, as Valeri Agency is authorised to carry out property valuations in the Principality of Monaco, it will be able to estimate the sale price of the assets that need to be known in the context of an inheritance.
Don't hesitate to contact us!