Inheritance tax and inheritance law in Monaco
Taxation Researcher | September 25, 2020
The Global Property Guide looks at inheritance from two angles: taxation, and what inheritance laws apply to foreigners leaving property in Monaco: what restrictions there are and whether making a will is advisable.
How high are inheritance taxes in Monaco?
Monegasque inheritance and donation laws apply to properties and possessions located in the Principality, regardless of the residence or the nationality of the deceased or donor.
Various taxation rates are applied according to the relationship between the deceased and the heir , and are paid by the recipient .
|between parents and children or between spouses||nil|
|between brothers and sisters||8%|
|between uncles, aunts, nephews and nieces||10%|
|between collateral relatives other than siblings, aunts and uncles, nephews or nieces||13%|
|Source: Global Property Guide|
BERG AND DUFFY, LLP ATTORNEYS AT LAW
What inheritance laws apply in Monaco?
Monaco applies the law of the country where real property is situated.
The succession laws of Monaco are defined in articles 602 to 760 of the Civil Code. The estate of a foreigner resident or domiciled in Monaco is subject to Monaco international private law.
The inheritance of real or immovable property owned by a foreigner in Monaco is governed by the law where the property is situated, under the principle of "lex loci rei sitae"; however the laws of the deceased´s nationality govern movable assets (including, but not limited to, bank accounts, securities, shareholdings, and personal belongings).
In addition, Monegasque law is applicable to the inheritance of both immovable and movable property, if the national law of a deceased foreigner refers issues of succession back to Monaco. It is in the interest of foreigners with assets in Monaco to find out if their national laws renvoi to Monégasque law.
The Tribunal de Premiere Instance de Monaco is the court that deals with inheritance issues.
The principles of "reserved right" and "forced heirship" are applied.
An individual´s assets on death consist of the reserved portion (reserve légale) and the disposable portion (quotité disponible). A reserved portion must go to the protected or forced heirs (the surviving children of the deceased) regardless of what is written in a will. The intention of the law is to protect the rights of the family; for example, to prevent an unscrupulous outsider from persuading or coercing an elderly parent to disinherit his/her children.
If a person dies intestate (without a will), the estate must be distributed between the surviving members of the family, according to the rules of intestate succession, as follows:
- Spouse and one child - one half each.
- Spouse and two children - one third each.
- Spouse and three or more children - one quarter to the spouse, and the remaining three quarters to the children (The spouse´s share cannot be less than one-fourth of the estate).
- No spouse - equal shares to the children.
- No spouse or surviving children - equal shares to the grandchildren. (If a child predeceases the decedent, the share attributable to that child is distributed equally between the children of the deceased child. If there are no grandchildren, the share is distributed between the surviving children of the decedent, as if the predeceased child never existed.)
- No spouse or descendants - the reserved portion goes to the surviving ascendants. (If there are surviving parents or grandparents, in both the maternal and paternal lines, their reserved portion is half of the estate. If there are ascendants in one line only, their resereved portion is a quarter of the estate.)
- No spouse, descendants, or ascendants - equal shares distributed between the collateral relatives.
- No family members can be found - the estate goes to the Government.
Incestuous and illegitimate descendants participate in the distribution of the estate under the reserved right principle; however their portions are smaller than those granted to legitimate descendants. If incestuous or illegitimate children exist, the estate is distributed according to the number and classes of the heirs in the distribution, following a complex scheme.
"Forced heirs" must inherit, unless they renounce their "reserved right".
If a foreigner, resident or domiciled in or outside Monaco, dies as the owner of real property in Monaco, his surviving spouse and children have a reserved right to the property.
The rules relating to the reserved portion which must be left to the children of the deceased, are:
- One half of the estate, if the deceased parent left only one child
- Two thirds of the estate to be shared equally, if the deceased parent left two children
- Three quarters of the estate to be shared equally, if the deceased parent left three or more children
This is so even if the will states the whole of the property must pass to the spouse. In that case, the inheritance of the spouse is reduced, to create a reserved portion for the children. The only way a spouse can inherit the whole of the estate is if the children renounce their right. Only after the death of a parent can a child decide whether to renounce.
If there are no children, the parents of the deceased are the forced heirs. If both mother and father are living, they each share one quarter of the deceased´s estate. If only one parent is living, then he/she is entitled to one quarter of the estate. A living grandparent can take the place of a deceased parent.
A surviving spouse can only benefit from the disposable portion of the estate i.e. from a minimum of one quarter if there are three children, and a maximum of one half if there is one child; however if all descendants and ascendants of the deceased (i.e. grandchildren, parents and grandparents) renounce their rights of inheritance, then the whole of the estate can pass to the spouse.
Three types of will can be made in Monaco.
When a person makes a will in Monaco, the reserved rights of his/her children are protected, and cannot be overriden, but the execution of a will can override the rights of other family members.
Monaco recognizes authentic, holographic and secret wills:
- An authentic will must be read out to the testator before one Notary and four witnesses.
- A holographic will must be fully hand written by the testator, signed and dated.
- A secret will must be signed by the testator and sealed. The signed will must be handed to a Notary in a sealed envelope in the presence of four witnesses.
It is advisable to use a lawyer who is experienced in Monaco law to make a will in Monaco, since wills prepared by inexperienced persons may prove to be invalid.
Wills made in a form recognized by a foreigner´s national law are also recognized in Monaco, but the process of proving a foreign will in Monaco is slow, and expensive.
If the testator owns properties in Monaco and abroad, then it is advisable for him/her to make two wills, one in Monaco, to dispose of property in Monaco, and a foreign will, to dispose of property elsewhere. The testator must make very clear that the Monaco will only covers Monaco assets; otherwise the will may read as the testator´s only "last will and testament" covering worldwide assets.
The concept of probate does not exist in Monaco law.
In theory, Monaco law provides for the property of the deceased to pass automatically to all beneficiaries who are of legal age, either by the will, or according to the rules of intestate succession. In practice, when real estate in Monaco is inherited, sold, mortgaged or otherwise disposed of, legal proceedings are necessary to evidence and transfer the property titles, and to draw up other relevant documents.
If property in Monaco is disposed of under a British will, then the legal proceedings are much longer, because the estate cannot be dealt with until a British probate has been granted.
The guardians of minors can be specified in a will.
Without a will, the court automatically appoints guardians to adminster and protect the rights of any property inherited by children who are below the legal age of majority; however, by means of a will, a parent can select guardians of choice.
Gifts made during life can be reclaimed after the death of the donor.
For the purpose of calculating the values of the disposable and reserved portions, any gifts made during the life-time of the owner can, if necessary, be reclaimed by the legal heirs and returned to the estate. This is regardless of the intention of the gifts, or how long before death the gifts were made. Gifts made in trust can also be included. For example, if the value of the estate is inadequate to meet the reserved portions, then the forced heirs can make a claw-back claim against the value of any gifts made by the deceased for which evidence or proof is presented to the court. The claim is made first against the most recent gift, and so on, until the reserved portion is met.
Foreigners may set up trusts governed by their own national law.
Some foreigners (mainly from UK and USA) residing in Monaco use the vehicle of a trust, in order to avoid Monaco forced heirship law, and thereby have the same flexibility to dispose of immovable property on death as exists in their national jurisdictions.
Law 214 allows foreigners resident in Monaco to set up trusts governed by their own national law, and to permit trusts registered in a foreign jurisdiction to be administered in Monaco, according to the following rules:
- The documents must be in French.
- Implied trusts cannot arise; an approved lawyer must certify the validity of a trust formed under a foreign law.
- The trust deed must be registered, so that information relating to the beneficiaries, settlers, and property settled under the trust is publicly available.
- Non-charitable trusts cannot exist in perpetuity.
- Each trust must have at least one trustee chosen from a Government list of approved trustees.
- No specific asset protection laws are in place to protect a trust from challenge by creditors, other than the protection offered by general insolvency law.
- All trust powers must be either stated in the deed, or implied by the foreign law governing the trust, since there is no statutory schedule of trust powers in Monaco.
It has been argued that only nationals of common law jurisdictions (e.g. UK) can set up Law 214 trusts, but not the nationals of civil law jurisdictions (e.g Italy) whose internal law does not recognize the concept of a trust. At present this remains an academic matter, since the issue has never been litigated. There is some doubt as to whether a Law 214 trust can make a disposition of immovable property in Monaco, subject to the principles of the foreign law governing the trust, as opposed to Monaco internal law.
If a dispute arises concerning foreign trusts, the Monaco courts can exercise jurisdiction. Unless Monaco law makes express provision for a legal issue to be governed by its own internal law (e.g. appointment of trustees) then Monaco courts apply the principles of the foreign law governing the trust.
Marital property rights in Monaco are complex.
The assets of the estate of a deceased spouse are determined by the matrimonial regime under which the spouses were married. Under Monaco Law, spouses can opt by contract whether their assets are held separately or jointly, by choosing their matrimonial regime before or during the marriage. If spouses do not enter into a marriage contract before marrying, the statutory regime of limited community of goods (communauté de biens réduites aux acquêts) applies. Under this regime, the assets of each spouse acquired before marriage, or by inheritance or gift during marriage, remain the private property of each spouse. All other assets acquired during the marriage become community property, of which each spouse is entitled to fifty percent. On the death of one spouse, the community of goods is wound up, so the estate of the deceased spouse consists of his/her separate property and half of the community property.
In Monaco law, spouses can enter into a pre-marriage contract that governs the way their property is owned. Different forms of contract exist:
- Separation of property (séparation des biens)
- Universal community (communauté universelle)
- Ownership en indivision
- Ownership en tontine
Separation of property (séparation des biens).
Any assets registered in one spouse´s name are considered to be owned only by that spouse. Any assets registered in joint names are considered to be owned equally. Spouses married in most common-law countries (e.g. UK) are considered to be married under this regime in Monaco law, in default of a specific marriage contract. Under these circumstances, on the death of one spouse, the protected or forced heirs can make a valid claim against:
- All assets registered in the name of the deceased spouse;
- One half of the assets registered in joint names.
These rules can give rise to many problems. For example, the surviving spouse has no rights to continue living in the marital home if it is registered in the sole name of the deceased spouse. Similarly, the surviving spouse has no rights to other assets registered in the name of the deceased if they resided permanently in Monaco. Indeed, it is the children (including those of earlier marriages of the deceased spouse) who have all rights.
Universal community (communauté universelle).
All assets belonging to the spouses (with the exception of certain personal items, such as clothing) are placed in joint or community ownership. Most spouses who married under common law can enter into such a contract.
Joint ownership of property.
There are two ways jointly to own Monaco property:
- en indivision (tenancy in common);
- en tontine (similar to a joint tenancy).
Ownership en indivision.
Each spouse owns half (or another specified percentage) of the property, which on death is devolved according to Monaco succession law. The protected or forced heirs have rights over and above the surviving spouse.
Most Monaco lawyers put the titles of property into the joint names of married couples in default of specific instructions to the contrary, even though it can have major disadvantages.
Ownership en tontine.
Can only be elected at the time of purchase of the property. En tontine is rarely applied in Monaco, other than by British couples. The spouses may have to be very insistent with the Notary who may regard it as a fraud against children, even though it is legal. Under a tontine, after the death of one spouse, the surviving spouse takes all, because he/she is assumed to have owned all the property from the time of purchase. The surviving spouse then has complete freedom to dispose of the property as he/she wishes. In contrast, when both parties to the tontine are alive, the sale of the property is only possible if they both consent. If one spouse declines to sell, the other cannot force the sale. In the event of a matrimonial dispute, it is difficult for a court to make an order relating to the property, because so long as both parties to the tontine are alive, there is uncertainty as to who is the legal owner. In such a case, the court can only order a sale by both parties.