When U.S. Estate Planning Tools Face French Tax Law: Key Issues to Anticipate Before Moving
Introduction
Many American families preparing to relocate to France already have a sophisticated estate plan in place. It is common to see revocable trusts, well-structured life insurance policies, retirement accounts with designated beneficiaries, and coordinated strategies developed with U.S. counsel.
From a U.S. perspective, these structures are coherent, effective, and designed to anticipate incapacity, simplify administration, and ensure smooth transmission of wealth.
However, once the family becomes French tax resident, these tools do not automatically operate in the same way. French tax law applies its own classification rules, especially for life insurance and trusts, and the interaction between the two systems often raises questions that are never considered in the U.S.
This article highlights a common issue involving U.S. life insurance and trusts, explains why timing matters, and outlines how families can protect themselves before relocating.
1. The Scenario: A U.S. Estate Plan That Appears Fully Complete
A recent case illustrates the issue clearly.
An American family contacted me before their move to France. Their U.S. estate plan included:
a revocable trust,
several U.S. life insurance policies,
retirement accounts,
clearly identified beneficiaries,
and a coherent long-term strategy.
From a U.S. perspective, the plan was flawless.
But the moment French tax residency was introduced, a key question emerged — one that the U.S. estate plan had never been designed to answer.
2. The Key Question: How Will France Treat a U.S. Life Insurance Policy Paid to a Trust?
In the United States, naming a trust as the beneficiary of a life insurance policy is common estate planning practice. It ensures continuity, creditor protection, and proper management of proceeds.
But for a French tax resident, the situation becomes more complex:
a. Will France see the policy as “true life insurance” (assurance-vie)?
If so, a favorable tax regime may apply, including specific inheritance rules and tax thresholds linked to contributions.
b. Or will France treat the payout as a transfer to a trust?
If so, this may trigger the French sui generis trust regime under article 792-0 bis of the French Tax Code — which can result in much higher taxation, especially if the trust beneficiaries are not all direct descendants.
The answer depends on details that are rarely examined in U.S. planning:
the governing law of the policy,
the beneficiary clause,
the trust structure itself,
whether the insured is French tax resident at the time of death,
the nature of the payout mechanism,
and how the trust will receive or administer the proceeds.
These aspects are largely irrelevant in the U.S., but decisive in France.
3. The French Perspective: A Legal System That Reclassifies Before It Taxes
France does not simply “accept” the U.S. classification of legal instruments.
Before taxing, it asks:
What is the underlying legal mechanism?
Who is considered to hold the assets?
Is there a transfer at death?
Is there a French-situs beneficiary?
Does the structure fall under French trust rules?
Is the policy governed by a law compatible with French insurance rules?
This approach can lead to outcomes very different from what U.S. planners intended.
For example, a policy that operates like life insurance in the U.S. may be reinterpreted in France as a transfer of assets at death — potentially triggering trust taxation rather than life insurance taxation.
4. Why the Timing of the Move Matters
Many of the complexities described above arise because the insured becomes a French tax resident.
This means:
the classification of existing structures must be reviewed before relocating,
the beneficiary clauses may need adjustment,
certain assets should be repositioned,
and U.S. counsel must coordinate with French counsel to ensure consistency.
Once the move has taken place, options become more limited.
In some cases, unintended tax consequences may arise simply because the structure was not reviewed in advance.
The family in this case took the right approach:
they sought French advice before finalizing their move, which allowed us to align their structure with French rules without rewriting their entire plan.
5. The Cost of Misalignment Between the Two Systems
Between two compliant systems — the U.S. and France — misunderstandings can still occur.
The consequences may include:
unexpected inheritance taxation,
requalification of trust distributions,
denial of life insurance tax benefits,
double taxation in certain scenarios,
increased audit exposure,
or conflicts between U.S. and French estate plans.
All of these outcomes can usually be avoided with advance review.
Conclusion
U.S. estate planning tools do not automatically operate as intended once a family becomes French tax resident. Policies, trusts, and beneficiary designations that work perfectly in the U.S. can produce very different results in France, especially when life insurance is paid to a trust.
The key is not to redesign everything, but to review how France will interpret each structure — and ensure coordination between U.S. and French advisors before the move.
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.