France’s Increasing Scrutiny of Foreign Trusts: What Families and Trustees Must Know

Introduction

Foreign trusts have long been subject to a uniquely stringent regime under French tax law: specific reporting obligations, substantial penalties (€20,000 per missed filing), and a sui generis inheritance tax system unlike any other in Europe. Many international advisors are surprised by the breadth and intensity of this framework, particularly when a trust has no French assets and was properly formed abroad.

Recent legislative developments suggest that France is preparing to expand these rules even further. For families with U.S. or UK trusts and for trustees managing structures connected to France, the direction is clear: oversight is increasing, and compliance must be approached proactively.

1. A Trust Regime Already Among the Most Restrictive in Europe

Under current French law, trustees must comply with several obligations when a trust has any connection with France, including:

• a French-resident settlor or beneficiary,

• French-situs assets,

• or certain events such as death, distribution, or modification of the trust.

Non-compliance with these reporting requirements triggers significant penalties, including:

• €20,000 per missed filing, or

• 5% of the trust’s assets, whichever is higher in certain cases.

Additionally, France applies a unique inheritance tax regime to trusts (“article 792-0 bis”), often resulting in taxation at rates of up to 60% when beneficiaries are not direct descendants.

For many foreign advisors unfamiliar with the French system, the severity of this regime comes as a surprise.

2. Proposed Legislative Changes: Expanding Reporting and Penalties

French lawmakers are now considering amendments that would extend the scope of trust oversight even further. The proposed measures include:

• Reinforced event-based reporting, particularly at death, requiring identification of all beneficiaries and detailed valuation of trust assets;

• Extension of the 80% penalty for undeclared trust assets, potentially applying to all trust assets, not only those involving real estate;

• Increased scrutiny of trust arrangements involving French-resident beneficiaries, even when the trust was established abroad and appears fully compliant.

While not all amendments have been finalized, the legislative trend is unmistakable: France seeks greater visibility into foreign trusts and the ability to audit them comprehensively.

3. Why France Takes This Approach: Transparency and Anti-Avoidance

French tax authorities often view foreign trusts through the lens of anti-avoidance.
Common concerns include:

• the possibility that trusts obscure beneficial ownership,

• uncertainty around the timing of transmissions,

• challenges in valuing foreign assets,

• and the absence of direct equivalents in French civil law.

As a result, France has opted for a system that is deliberately conservative and transparency-heavy.

Importantly, this does not mean that France disregards trust structures or treats them as illegitimate. Rather, France seeks to align the functioning of trusts with the principles of French tax and inheritance law, using reporting and penalties to enforce compliance.

4. Practical Implications for Trustees and Advisors

For trustees and advisors — whether in the U.S., UK, Channel Islands, or elsewhere — the increased scrutiny means:

• documenting all trust assets carefully,

• tracking the French residency of beneficiaries or settlors,

• preparing for event-based reporting at each distribution, modification, or death,

• anticipating the tax consequences of distributions to French residents,

• and ensuring that valuations are readily available.

Where French beneficiaries are involved, the trustee must also consider the dual exposure:

• the beneficiary’s personal income tax on distributions, and

• the annual trust reporting regime under French law.

Failure to anticipate these layers can result in significant penalties.

5. For Families Relocating to France: A Trust Audit Is Essential

Families moving to France with an existing trust often assume that:

• their structure will be treated as transparent because it is transparent in the U.S. or UK;

• or that no reporting will apply because the trust has no French assets.

Both assumptions are incorrect.

A pre-move trust audit allows families to assess:

• reporting obligations,

• potential exposure to inheritance tax under article 792-0 bis,

• risk of requalification,

• appropriate documentation for distributions,

• and opportunities for restructuring before acquiring French residency.

With France reinforcing its trust oversight, such reviews have become indispensable.

Conclusion

France’s trust regime is already one of the most demanding in Europe, and recent legislative initiatives aim to extend oversight even further. Trustees, advisors, and families with U.S. or UK trusts should expect increased reporting obligations, broader penalties, and closer examination of structures involving French-resident beneficiaries.

Ensuring compliance now — through proper documentation, expert review, and coordinated planning — provides essential protection in a context of growing scrutiny.

Contact Us

If you are preparing a move to France or reviewing your cross-border structure, feel free to contact us. Our firm advises U.S. and international families on French tax, estate and property matters.