Tempted by the ‘tontine’?
Better know what you are stepping into…
The Tontine is an old funding system, originally set up by an Italian banker long ago, in the 17th century, in France, but hardly in use now… except by English people buying property in France and for which the system is very much in fashion.
In a Tontine, two (or more) people buy a property together, providing for a clause (called in French ‘clause d’accroissement’) by which the entire property goes to the final survivor.
Legally, we have a situation where each party is considered as being the full owner under the condition that the other party dies before he does, and when the condition happens, the lucky survivor will be considered as having been the owner from the very start.
The consequence is extremely logical: the survivor doesn’t inherit really inherit the property because by the fiction of the tontine, the property is his from the day the parties signed the tontine clause, and vice versa, the deceased must be considered as having never ever been the owner of the good.
Although this system can be considered as an incentive to bump off the other party and you can well imagine the kind of plot behind such a scheme, it is perfectly legal in France.
However there are conditions that you must know of, not to mention that even if it’s fun to think of such a scheme, the benefits of a tontine clause can be questionable in some cases - we will try to run through these:
• Case where you shouldn’t even think of it :
Under French law, to go into a tontine, the parties must all have the same chances of survival. The validity of the tontine could therefore be questioned if one of the parties is a nice but old guy, with a cute little brunette 25 years old ; or if one party is sick with a fatal disease and the other is full of life… Then the tontine could be considered as a disguised way of making a gift (’une libéralité déguisée ???’), which under French law is subject to specific rules.
And guess who will raise the problem ? The frustrated children of a previous marriage, infuriated not to get their share on the house. And they will go and find some nasty lawyer (they also exist in France) to check the circumstances of the tontine, because, under French law, the children must inherit, whether it pleases you or not, and cannot be totally stricken off the will.
• Cases where you’d better think twice:
Remember that under the Tontine, you know that you are the owner because you have survived the other. So until one of you dies, you don’t really know (at least you are not supposed to…!) know who the owner is. Now, what happens if this dear fellow, with whom you have bought the house of your dreams, turns out to be a real pain-in-the-neck, and you want to get out of that relationship fast and also get rid of the bl… house ? If he opposes it, (and he is perfectly allowed to do so, and he will, because, remember, he is a pain-in-the-neck), all you have to do is wait until he dies… or plot for him to kick the bucket soon.
So before going into a Tontine, you’d better make sure the person sharing your life is THE love of your life and that only (natural) death will you part.
Also, think of the tax consequences: although, legally, the survivor is deemed to be owner since the signature of the tontine, we now know it is a mere fiction and the tax administration will not lose an opportunity to get its share on the operation: the operation will be regarded as a ’succession’ (???) and taxes will be due on it. The only exception to this will concern homes of a value under 76.000 Euros, in which both parties were living at the time of the death, for which the taxation will be reduced.
So, to be positive, the tontine is interesting for two unmarried partners, of roughly the same age, madly in love with each other, and quite sure this love will last forever, living in a small little home, each party being eager to protect the surviving one.
For married couples living in France, before considering the tontine, remember that since a new law of 2001, the surviving spouse now inherits at least 1/4th of the property of the deceased or 100 % of the usufruit, which also slightly diminishes the value of the tontine.
So, still tempted ?