A donation with reserved usufruct is a gift in which the donor transfers bare ownership (nue-propriété) of an asset to the beneficiary while retaining usufruct for life. It is one of the most common structures in French and Franco-Swiss estate planning for business owners: the entrepreneur transfers shares to their children at a tax-advantaged bare ownership value (discounted by the usufruct's value based on age), retains voting rights and dividends during their lifetime, and upon death the children automatically acquire full ownership with no additional inheritance tax.

The tax savings are significant: for a 60-year-old donor, bare ownership is valued at 60% of the full value (usufruct at 40%). Gift tax is paid on only 60% of the value. At the donor's death, the children consolidate full ownership with zero additional tax — the original gift tax having already been paid on the bare ownership. Combined with the Pacte Dutreil's 75% reduction and the additional 50% discount for donations in full ownership before age 70, the effective tax rate on business transfers can be extremely low.

The governance implications must be carefully managed: under French law (Article L. 225-110 of the Commercial Code), the usufructuary votes at ordinary general assemblies and the bare owner at extraordinary assemblies, unless the articles provide otherwise. In practice, the shareholder agreement typically specifies the voting rights allocation and dividend policy to avoid conflicts between the generations. Valuation of the transferred shares is mandatory and must be documented in the notarial deed.

At Hectelion, we produce independent valuation reports for donations with reserved usufruct, defensible with the French tax authority, in our valuation and estate planning mandates.