Manual Gift with Usufruct: The Gift that Limits the Donee's Rights

You have a generous uncle who wishes to give you €50,000 to help you buy your main residence in Saint-Chamond. He gives you a cheque, but he wants to continue receiving the interest on this sum until his death. Is this possible? The answer is yes, but only if a precise legal structure is respected: a manual gift (handing over an asset without notarial formality) can be limited to a conventional usufruct (right to enjoy the asset, here the interest, without being the owner of the capital). This is what the Court of Cassation ruled in a judgment of 25 February 1997.

Many owners and donors are unaware that a gift can be 'dismembered': the donor retains the bare ownership (the capital) and transfers only the usufruct (the income). Conversely, he can give the bare ownership and keep the usufruct. But when it comes to a sum of money, the mechanism is less well known. The decision of the Court of Cassation of 25 February 1997 (No. 94-22.022) provides an essential clarification: an ancillary agreement (supplementary agreement) can limit the gift to a mere usufruct over the sum handed over.

In practical terms, this means that if you receive €100,000 as a manual gift, but an ancillary agreement specifies that you only have the usufruct, you are only the owner of the interest (e.g. 3% per year), not the capital. The capital remains with the donor or, upon his death, passes to his heirs (the bare owners). This solution makes it possible to reconcile generosity with protecting the capital. But beware: if the ancillary agreement is not clear or is verbal, a dispute can quickly arise. In Andrézieux-Bouthéon, a client found himself before the courts because his father had given him a cheque for €200,000, saying 'it's for you, but I want to keep the interest'. Without any written document, the court reclassified the gift as full ownership, and the father lost the right to receive the interest.

The Facts: A Story Like Many That Happen Every Day

Mr X, a retired man from Saint-Chamond, wanted to help his son Y... buy a flat. In 1990, he handed him a cheque for €150,000 (in francs at the time). Orally, he said: 'I am giving you this money, but I want to continue to receive the interest until my death.' The son agreed and placed the sum in a joint account. For three years, the father received the interest. In 1993, the father died. His other children (the son's siblings) discovered the gift and contested it: according to them, the gift was in full ownership (the son was the sole owner of the capital and interest). The son argued that he only had the usufruct, and that the capital was to go to the estate (therefore to the heirs). The Tribunal de Grande Instance of Saint-Étienne was seized.

The first instance judgment (1994) ruled in favour of the son: the handover of cash constituted a manual gift, but the verbal ancillary agreement limited the gift to a usufruct. The siblings appealed. The Lyon Court of Appeal (16 September 1994) upheld the judgment, but with ambiguous reasons: it stated both that the son had received the sum in usufruct and that he was the owner. The siblings appealed to the Court of Cassation. The case came before the Court of Cassation on 25 February 1997.

The appeal raised several grounds: contradiction of reasons, lack of legal basis, violation of Article 617 of the Civil Code (extinction of usufruct). The Court of Cassation dismissed the appeal: it validated the reasoning of the Court of Appeal, considering that it had not been contradictory in finding the existence of a conventional usufruct by effect of an ancillary agreement. It recalled that usufruct may be extinguished by the causes provided for in Article 617 (including the death of the usufructuary). Thus, a manual gift of a sum of money can be limited to a usufruct.

The Reasoning of the Court — Analysed

The Court of Cassation had to answer a simple question: can you give money to someone while retaining the right to receive the interest on it? The answer is yes, but only if it is formalised. The reasoning rests on two pillars: contractual freedom (Article 1108 of the Civil Code, now Article 1101) and the concept of usufruct (Article 578 of the Civil Code: usufruct is the right to enjoy things of which another is the owner, like the owner himself, but subject to preserving the substance).

For the judges, nothing prevents a manual gift from being accompanied by an ancillary agreement (a supplementary agreement) that limits its object. In practice, the donor hands over the sum, but the agreement specifies that the donee only has the usufruct. The donor (or his heirs) retains the bare ownership. This is a dismemberment of ownership (split between bare ownership and usufruct) over a sum of money. However, money is a fungible (consumable) asset which is by nature commingled. But the Court admits that usufruct can apply to a sum of money if the parties so provide, provided that the capital is preserved (for example, placed in a dedicated account).

The siblings contested, arguing that the son was the owner of the sum and that the agreement did not exist because it was not in writing. The Court of Cassation rejected this argument: the ancillary agreement can be verbal, but it must be proved. In this case, the trial judges considered that the circumstances (the father receiving the interest for three years without dispute) established the existence of the agreement. Warning: this evidence is difficult to provide in practice. Hence the importance of a written document.

The judgment confirms previous case law (Civ. 1re, 23 November 1982, No. 81-14.948) which already admitted the dismemberment of a manual gift. It is therefore not a reversal, but a confirmation. The Court simply specifies that the ancillary agreement, even verbal, can limit the gift to the usufruct, provided it is established. It also rejects the ground based on Article 617 of the Civil Code: usufruct is extinguished by the death of the usufructuary, which was the case here (the father died). The capital therefore goes to the bare owners (the heirs).

What This Changes for You — Practically

For a donor (the one who gives), this decision offers a solution for transferring assets without divesting yourself of the capital. Numerical example: you give €100,000 to your child, but you want to continue receiving 3% interest per year (i.e. €3,000) until your death. Thanks to this judgment, you can do this: you are the usufructuary (receive the interest), your child is the bare owner (owner of the capital upon your death). Warning: for tax purposes, the gift of the usufruct is taxable on the value of the usufruct (depending on the age of the donor), not on the capital. Example: at age 70, the usufruct is worth 30% of the capital (tax scale). You will therefore pay tax on €30,000, not on €100,000.

For a donee (the one who receives), you must be vigilant: if the ancillary agreement is not clear, you could be considered the full owner, and therefore liable for interest to the donor. In Andrézieux-Bouthéon, a couple received €80,000 from parents with the oral promise to pay them back 5% per year. The parents then sued the couple for payment of the interest. The court reclassified the gift as full ownership (due to lack of proof of the agreement), and the couple had to pay interest on the capital they thought they had received in usufruct. Result: a 4-year dispute and €12,000 in legal fees.

For heirs (siblings, spouses), this decision protects their rights: if the donor only gave the usufruct, the capital goes to the estate. They can therefore claim their share of the capital. Conversely, if the gift was in full ownership, the capital leaves the estate and the heirs get nothing. It is therefore crucial to contest a suspicious gift quickly.

For a real estate professional (notary, estate agent), this decision highlights the importance of formalising gifts by notarial deed when they are dismembered. A simple cheque with a verbal agreement is risky.

Four Tips to Avoid This Type of Dispute

• Draft a written ancillary agreement: even if the law admits a verbal agreement, proof is difficult. A written document signed by both parties, dated, specifying that the manual gift is limited to the usufruct, is essential. Have it approved by a notary if possible.
• Open a dedicated account: to avoid any confusion, place the gifted sum in a separate account, in the name of the donee, with a joint account agreement or mandate allowing the donor to receive the interest. This materialises the dismemberment.
• Declare the gift for tax purposes: even for a manual gift, a declaration must be made to the tax authorities (form 2735). If the gift is dismembered, specify the respective rights (usufruct/bare ownership). This avoids tax adjustments and disputes.
• Consult a lawyer before giving or receiving: a professional can advise you on the most suitable structure (simple gift, gift with reservation of usufruct, etc.) and draft the necessary documents. The cost of a consultation (around €150) is trivial compared to the costs of a trial.

Further Reading: Related Case Law and Developments

The 1997 decision is part of a consistent line of authority. As early as 1982 (Civ. 1re, 23 November 1982, No. 81-14.948), the Court of Cassation had admitted that a manual gift could be encumbered with a usufruct. More recently, in 2010 (Civ. 1re, 10 February 2010, No. 08-18.055), it specified that the ancillary agreement can be tacit (resulting from circumstances), but only if it is certain. The courts are strict on proof: they require objective elements (written documents, consistent witness statements, conduct of the parties).

The trend is towards securing dismembered gifts. The law of 23 June 2006 (succession reform) strengthened the rights of protected heirs (minimum inheritance share): a gift disguised as a usufruct may be reclassified if it infringes the reserve. Be careful therefore not to use this structure to circumvent the rights of heirs. Furthermore, the tax authorities monitor these transactions: an undeclared manual gift may be reclassified and subject to penalties (40% late payment interest).

For the future, one can expect judges to increasingly require a written document for the ancillary agreement, in order to limit litigation. Digitalisation (electronic deeds, electronically signed contracts) could facilitate proof. In any case, prudence dictates that any dismembered gift should be formalised by a notarial deed.

In Practice: What to Do

FAQ:

Can I give money to my child while keeping the interest? Yes, through a manual gift with an ancillary agreement limiting the gift to the usufruct. But it is better to have a notarial deed to avoid disputes.

What should I do if I received a manual gift without a written agreement, but the donor wants the interest? You must prove the existence of the verbal agreement. Gather all elements: witness statements, bank statements showing the payment of interest, correspondence. If you cannot do so, the gift will be reclassified as full ownership.

What are the time limits for contesting a gift? An action to reclassify a manual gift is subject to a 5-year limitation period from the discovery of the gift (Article 2224 of the Civil Code). For heirs, the period runs from the donor's death.

What is the tax cost of a manual gift in usufruct? Gift tax is calculated on the value of the usufruct, according to a scale set by the administration (e.g. at age 70, 30% of the capital). Allowances exist (€100,000 per parent and per child every 15 years).

Can I revoke a manual gift in usufruct? No, once the gift is accepted, it is irrevocable. Only the donee's ingratitude (Article 955 of the Civil Code) or failure to perform the conditions may allow revocation.

Are you in a similar situation? A 30-minute initial consultation with Maître Zakine (€45) may save you months of proceedings — and often much more. Book an appointment →