What Is Donation in Undivided Ownership
When a person chooses to give a part of his inheritance to several beneficiaries without attributing a lot to each beneficiary, the latter find themselves in undivided ownership of the estate.
Full ownership donation: beneficiaries in undivided ownership
A donation can be made for different reasons: it can be a gift, it can be made in anticipation of an inheritance (to benefit from tax advantages).
The donation may concern a single asset, several or a mass of assets, and benefit one or several persons.
When the donation benefits several people and concerns a single property or a mass of property, the beneficiaries find themselves in indivision.
– A gives B and C a masterpiece: B and C find themselves in undivided ownership of the painting;
– A gives a painting to B and an apartment to C: B is the sole owner of the painting, and C is the sole owner of the apartment;
– A wants to give B and C equal shares; A can give a part of his inheritance, which consists of a painting and an apartment, but the apartment is worth more than the painting, so A cannot give the painting to one and the apartment to the other; A, therefore, gives the apartment and the painting in joint ownership to B and C
Be careful: giving in undivided ownership can lead to a complicated situation if the co-divisors do not agree, but it is sometimes the only solution for the donor, especially when the donor has only one valuable asset (often a real estate) and several children.
Once the donation is made:
– the beneficiaries are owners of an undivided property whose management follows the legal rules of undivided management;
– they can choose to leave the undivided ownership immediately by selling the property and sharing the sale proceeds or to remain in undivided ownership and manage the property together.
Note: the donor cannot prohibit the beneficiaries from selling the property, as “no one is obliged to remain in indivision”.
Joint owners and beneficial owners: donation in undivided ownership but no undivided ownership
The following paragraph is taken from the article What is Undivided Property?
In some cases, the donor reserves the usufruct on the donated property:
– this is notably the case when the donor uses the property personally or receives indispensable income from it;
– in these conditions, keeping the usufruct allows the donor to give the property while continuing to use it personally or to receive its fruits.
Example: A lives in an apartment; he wants to give the apartment to his children B and C to avoid high inheritance taxes, but he wants to continue living on the property. A donates with reservation of usufruct: A has the usufruct, and B and C have the bare ownership of the apartment; at the death of A, B and C recover the usufruct and then hold the full the apartment in joint ownership.
The usufructuary is not in undivided ownership with the bare owner: the usufructuary has his rights on the property (the right to use it and collect its fruits), and the bare owner has his rights on the property (the right to dispose of it).
– if there are several usufructuaries, they are in joint ownership;
– if there are several bare owners, they are in joint ownership.
Donation in undivided ownership: transmission of a dismembered undivided property
The dismemberment of property gives the bare owner and the usufructuary a real estate right. In contrast, the undivided ownership gives each of the undivided owners the full ownership of the right or the property up to his undivided share. In terms of capital gains on real estate, the transfer of a property held in joint ownership leads to an assessment of the $x threshold provided for in the General Tax Code concerning each undivided share of the property or real estate right.
On the other hand, in the case of an isolated or joint transfer of the usufruct or bare ownership of such property or right, the tax law expressly provides that the $x threshold must be assessed with the total ownership value of the transferred property.
In practice, this means that in the transfer of a dismembered undivided share, the full value of the undivided share must be retained.
Finally, in the case of joint ownership of a dismembered right, the tax law provides for the full ownership value of the dismembered property to be retained. This means that the usufruct or bare ownership held in joint ownership does not affect applying the special provisions of the General Tax Code.
Read more: How to Get Out of Undivided Co-ownership?