Guide to French Inheritance Laws and Taxes

1. Introduction
2. French Inheritance Laws
3. French Inheritance Tax
4. Inheritance Planning in France

4. Inheritance Planning in France

Property Ownership Options

1. Buy 'En Tontine'
2. Buy using a Property Company

Juridical Options

3. Adopt a French Marriage Contract
4. Enter into a French Civil Partnership
5. Make a Family Inheritance Pact
6. Make a Will
7. Create a Trust Structure
8. European Succession Law

Financial Planning Options

9. Buy or Improve with a Mortgage
10. Make a Gift Between Man and Wife
11. Make a Gift to Children/Grandchildren
12. Make a Gift to Others
13. Take out Life Insurance

4.7. Create a Trust Structure

Trusts are legal vehicles commonly used in many countries for the purposes of inheritance planning.

In France, however, the position is less helpful as, whilst French law recognise trust structures (fiducie) abroad they do not exist in France and offer no fiscal advantages in inheritance law or any other form of taxation.

Article 790 of the Code général des impôts defines a trust as:

1. Pour l'application du présent code, on entend par trust l'ensemble des relations juridiques créées dans le droit d'un Etat autre que la France par une personne qui a la qualité de constituant, par acte entre vifs ou à cause de mort, en vue d'y placer des biens ou droits, sous le contrôle d'un administrateur, dans l'intérêt d'un ou de plusieurs bénéficiaires ou pour la réalisation d'un objectif déterminé.

2. Pour l'application du présent titre, on entend par constituant du trust soit la personne physique qui l'a constitué, soit, lorsqu'il a été constitué par une personne physique agissant à titre professionnel ou par une personne morale, la personne physique qui y a placé des biens et droits.

Under French law, trustees are defined as 'administrators' and assets held in the trust deemed to be under the ownership of the beneficiary.

Proceeds of a trust are subject to personal income tax on distribution and assets transferred into a trust are subject to gifts tax and transfer taxes in the normal manner.

When a trust is created it must be disclosed to the tax authority with 30 days. Trusts are also subject to annual taxation and disclosure requirements which must be submitted by 15th June each year by the trustees. The disclosure must include real estate, money and other assets held by the trust. Failure to comply can result in fines and tax penalties.

A trust cannot override the entrenched rights of protected hiers in French inheritance law. Only if used in tandem with European Succession law, granting the right of individuals to adopt the inheritance laws of their home country would it be possible to circumvent French inheritance laws. However, it is not the trust that grants such exemption, but European law.

Neither could it be used to escape liability to French inheritance tax as assets in the trust are required to be included in the assets transferred to the beneficiary. Inheritors are required to disclose a trust if it has not previously been disclosed by the deceased or the trustees.

Even a trust set up with a bank or solicitor to manage a Will, as is often standard practice in the UK, is a problem, with a potential liability to 60% rate of inheritance tax.

It is possible to also set up a trust structure to manage a charitable estate or to offer protection to the beneficiary, which it is possible to do through a notaire, although many are not familiar with them.

Nevertheless, for most expats we consider that those wishing to exercise some control over the future of their estate, and/or reduce liability to inheritance tax, would be best advised to use one or other of the methods given in this guide.

In short, there is a big health warning about the use of trust structures in France if you wish to use them for optimising your tax obligations.

If you have a trust structure set up, you should consider requesting the trustees to terminate it, which you can read about at Termination of trusts.

You can read more about the tax treatment of trusts in an article we published in our Newsletter at Trusts in France.

Next: European Succession Law

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