Donation-partage with Reserved Usufruct: Is Valuation at the Date of Death Possible?

Imagine: you own property in Ambert, in the Puy-de-Dôme. You have made a donation-partage to your children, reserving the usufruct of a sum of money. Upon your death, your children discover that the value of the assets has increased significantly. Should they value the assets at the date of the donation or at the date of your death? This question, crucial for equality between heirs, was resolved by the Court of Cassation in 1978. And the answer might surprise you.

The Facts: A Story Like Many Others

Mr. and Mrs. X, a couple of property owners in Clermont-Ferrand, wish to organise their succession during their lifetime. In 1965, they make a donation-partage to their three children. This donation concerns real estate and a sum of money. The donors reserve the usufruct (the right to use the assets and receive income from them) of all the donated assets, including the sum of money. The donation provides that the children will only become owners after the death of the last surviving donor.

Upon the death of the surviving spouse in 1972, the children inherit. But a disagreement arises: how to value the shares for calculating inheritance tax and equality between the shares? One child, who received the sum of money, believes that the valuation should be made at the date of death, because the reserved usufruct over a sum of money is an exception. The other children argue that the valuation should be made at the date of the donation, as provided by Article 1078 of the Civil Code. The case is brought before the tribunal de grande instance of Clermont-Ferrand, then before the court of appeal of Riom, and finally before the Court of Cassation.

The Court's Reasoning — Explained

The Court of Cassation, in its judgment of 18 May 1978, quashes the decision of the Riom Court of Appeal. It is asked to interpret Article 1078 of the Civil Code, which provides that, in a donation-partage, assets are valued at the date of the donation, not at the date of death, unless an exception applies. The exception provided for in the same article concerns the case where one of the shares is converted into a sum of money with a reserved usufruct.

The Supreme Court clarifies that this exception applies not only when the reserved usufruct directly relates to a sum of money, but also when it relates to a debt of a sum of money (i.e., the right to claim a sum of money). In this case, the donors had reserved the usufruct of the sum of money itself: this therefore falls within the exception. Consequently, the valuation of the assets must be made at the date of death, not at the date of the donation.

The Court also holds that the donation-partage in question was equivalent to the allocation of a sum of money with a reserved usufruct, because the children could only dispose of the assets after the death of the donors. Thus, the mechanism of the donation-partage did not allow the gift to be realised immediately, which justifies the application of the exception.

What This Means for You — in Practice

This decision has important practical implications, whether you are a donor, heir, or property professional.

For Donors: if you plan a donation-partage with a reserved usufruct relating to a sum of money or a debt, note that your heirs will have to value the assets at the date of your death. This may affect inheritance tax and equality between shares. For example, in Clermont-Ferrand, if you give €100,000 to one child with a reserved usufruct, and that sum is invested and grows, the value at death could be higher, which could imbalance the shares.

For Heirs: if you receive a share consisting of a sum of money with a reserved usufruct, you must check whether the valuation should be made at the date of death. If so, you could benefit from a more favourable valuation if the assets have increased in value since the donation.

For Professionals: notaries and lawyers must be vigilant when drafting deeds. If the donation-partage provides for a reserved usufruct over a sum of money, it is crucial to specify the valuation method to avoid any dispute.

Four Tips to Avoid This Type of Dispute

• Draft the donation-partage deed clearly: specify whether the reserved usufruct relates to a sum of money or to assets in kind. Indicate the valuation date chosen (date of donation or date of death) to avoid any ambiguity.
• Have the assets valued by an expert: at the time of the donation, have the value of the assets estimated by a professional (notary, accountant). Keep these documents to facilitate later calculation.
• Anticipate changes in value: if you give a sum of money with a reserved usufruct, consider the impact of inflation or capital gains. You can include an indexation or revision clause.
• Consult a specialist lawyer: before signing a donation-partage, seek advice from a property lawyer, such as Maître Cécile Zakine, who can help you choose the most suitable structure for your situation.

Further Reading: Related Case Law and Developments

This 1978 decision is part of a consistent line of case law. Already, the Court of Cassation's judgment of 24 May 1975 (No. 73-13.456) had established the principle that the exception in Article 1078 applies when the reserved usufruct relates to a sum of money. The 1978 decision confirms and extends this principle to debts of sums of money.

Since then, the courts have tended to favour a broad interpretation of the exception, in order to preserve equality between heirs. Indeed, if the valuation were systematically made at the date of the donation, the heir who receives a sum of money with a reserved usufruct could be disadvantaged if the value of other assets increases. Conversely, valuation at the date of death allows for the actual changes in value to be taken into account.

In the future, case law is likely to continue refining the scope of this exception, particularly for cases where the reserved usufruct relates to movable or immovable property, rather than a sum of money.

In Practice: What to Do

Checklist for Donors and Heirs:

1. Check the donation-partage deed: identify whether a reserved usufruct has been provided and over which asset (sum of money, debt, real estate).
2. Determine the valuation date: if the reservation relates to a sum of money or a debt, the valuation is made at the date of death (unless otherwise provided). Otherwise, it is the date of the donation.
3. Calculate inheritance tax: depending on the value used, the tax may vary. Consult a notary or lawyer to optimise tax.
4. In case of dispute: bring the matter before the competent judicial court (the one of the place where the succession was opened). A lawyer will assist you in demonstrating the application of the exception.

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