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Issue 41 – January, 2023

A Tale of Two Systems: A Comparison of US and France Cross Border Planning Issues

By Leigh-Alexandra Basha, JD, LL.M. and Romain Desmonts (Member of the Paris Bar)


    1. Introduction to Succession in Civil Law Jurisdictions
    2. Role of French Notaire
    3. Applicable law and Conventions
      1. Choice of Law
      2. Renvoi
      3. The Washington Convention
    4. Holographic Wills
    5. Trusts
    6. Documentation -What to Draft
    1. General
    2. Forced Heirship in France
    3. Enforcement Against Trusts
    4. The 2015 EU “Choice of Nationality” Election
    5. New French Statute Possibly Limiting Freedom of Testamentary Disposition
    6. French Intestacy
    1. Overview
    2. Types of Marital Property Regimes
      1. Separate Property (séparation de biens).
      2. Community Property of Acquisition / Ganancial Property (communauté réduite aux acquêts).
      3. Universal Community Property (communauté universelle).
    3. EU Regulation on Marital Regimes
    4. Changing Marital Regimes during Marriage
    5. The Uniform Dispositions of Community Property Rights at Death Act (“Uniform Dispositions Act”)
    1. Domicile/Residency
    2. United States Tax System
      1. U.S. Income Tax
      2. U.S. Transfer Tax
    3. France’s Tax System
      1. Income Tax
      2. Property Wealth Tax
      3. Inheritance Tax
      4. French Inheritance Tax Rates and Allowances
      5. France’s Tax Treatment of Trusts.
    1. General
    2. U.S.-France Type Treaty
      1. Overview
      2. Article 11 Community Property and Marital Deduction
    1. Introduction
    2. Usufruct Planning
      1. General
      2. U.S. Analysis
      3. Application of Rules in Practice
      4. Reporting Requirements
    3. The Assurance-Vie
    4. Société Civile Immobilière (SCI)
    1. Typical U.S. Plan
    2. Avoidance of Forced Heirship
    3. Trusts
      1. Revocable Trust
      2. Irrevocable Trust
    4. Limited Liability Company


In A Tale of Two Cities, Charles Dickens, wrote of two contrasting cities. This outline will examine how planning can go awry when applying the individual tax, and succession rules of France, a civil law country, with those of the United States, a common law country. The United States and France estate and succession planning have not only their own concepts, but their own vocabulary. The typical French tax and succession plan can backfire for U.S. connected clients; similarly, the typical U.S. plan can implode in France.

This article will explain the fundamentals of U.S. and France cross border succession planning including the general rules of estate administration in France, the role of the French notaire, typical estate planning documents, the treatment of trusts, the impact of marital regimes, the concept of forced heirship, tax considerations, and the impact of the U.S.-France Estate and Gift Tax Treaty. It will also look at France’s typical planning mechanisms (the usufruct, assurance-vie, and the societé civile immobilière (SCI,)) and how the United States treats them, followed by a look at typical U.S. planning mechanisms (the pour-over will, freedom of testamentary disposition, revocable trusts, irrevocable trusts, and limited liability companies (LLCs,)) and their treatment under French law.


A. Introduction to Succession in Civil Law Jurisdictions

The world tends to be divided principally into common law jurisdictions and civil law jurisdictions.  Common law jurisdictions such as the United States generally permit freedom of testamentary disposition while civil law jurisdictions such as France have the concept of forced heirship.  Frequently, civil law jurisdictions have decedents dying without wills since the forced heirship rules provide for the majority of the estate being disposed of by absolute decree.  France, like most civil law jurisdictions, does not have the concept of trusts in its domestic law (other than in its tax and anti-money laundering law) (see section E below).

B. Role of French Notaire

A French notaire is a public official appointed by the Ministry of Justice and is not the equivalent of a notary public in the United States. The number of notaires in each jurisdiction is limited, and their fees fixed by law. Their functions include the preparation and recording of notarial acts (e.g., wills, authentic instruments, deeds of gift, marriage contracts) the administration and settlement of estates (excluding litigation in court) and serving as the repository of wills. While they are lawyers, they are not attorneys (they may not plead in court), but very specialized members of the legal profession.[1]

In most cases, the services of a notaire are required to settle an estate in France. The notaire administers the estate in providing the certificate of heirship (acte de notoriété), retitling French situs real estate, filing the inheritance tax return, and paying the debts of the decedent. A notaire’s role is also essential for all real estate transactions: if property is bought, sold, donated, or inherited, a notaire will draft the acte, record it, levy the appropriate taxes (such as inheritance taxes), and deliver the deeds of property. In addition to handling real estate transactions, a notaire will also assist with closing bank accounts, settling unpaid bills, and disposing of personal property through sale or donation. If a decedent dies intestate, a notaire will be responsible for identifying and locating heirs, sometimes with the help of genealogists. Physical presence of an heir in France is not required to settle an estate. The services of a notaire must be retained if the U.S. citizen decedent owned real estate or left an estate valued at more than 5,000 Euros.[2] A notaire in one part of France can handle matters in another and is not constrained by location.

Contrast this with the administration of a U.S. estate. If a decedent dies with a will, it will be “probated”, typically in the state of the decedent’s domicile and submitted for ancillary probate in any other state where the decedent owned real property. Probate is the court supervised process of administrating an estate. An executor is normally named in the will or if none is named, eligible or willing to serve, the court will appoint an administrator. The role of the personal representative of the estate (either an executor or an administrator) is tasked with collecting the assets, paying the last debts taxes and other charges of the decedent, and distributing the assets according to the will or the appropriate intestacy statute if the decedent died intestate. In most cases, the personal representative must be a resident of the state of qualification. Compensation for the personal representative varies by state, county, value of the estate, and circumstances.  The personal representative is generally supervised by the court.

C. Applicable law and Conventions

1. Choice of Law

What law applies to determine if a U.S. decedent’s last will and testament will be substantively valid in the foreign jurisdiction turns on choice of law rules both in the United States as well as the foreign jurisdiction.  This may be complicated as some jurisdictions base the result on the type of property as well as the nationality or domicile of the decedent.  France uses domicile[3] in choice of law on succession law matters (like Belgium for example, but unlike Germany, who uses citizenship). The United States generally applies the law of the decedent’s domicile for intangibles and the law of situs for tangible personal and real property.

2. Renvoi

When there is a conflict of choice of law rules, the doctrine of renvoi may come into play.  Renvoi arises when the conflict of law rules in the United States refer a matter to the law of another jurisdiction.  In applying that other law, generally under the substantive law and not the conflict of law rules, an exception may be triggered called double renvoi.  Under this concept, a succession law matter related to foreign real property owned by a U.S. decedent being litigated in a U.S. court, the court may attempt to decide the case in the same matter as a court in the other country applying both the substantive law and choice of law rules.  However, in applying the foreign country’s choice of law rules, that foreign country, such as France, may be applying U.S. substantive law.  If the U.S. court concludes that the foreign court would not accept the “transmission” of the governing law from the U.S. court, then the U.S. court will apply its substantive rules.

The EU Succession Regulation addresses renvoi in detail. The conflict-of-laws rules laid down in the Regulation may lead to the application of the law of a non-EU State. In such cases, if the rules of that non-EU State provide for renvoi either to the law of an EU Member State or to the law of another non-EU State which would apply its own law to the succession, such renvoishould be accepted in order to ensure international consistency. However, renvoi should be excluded in situations where the deceased has made a valid election to have his or her entire estate governed by the law of a given non-EU State (see section III.D).[4]

3. The Washington Convention[5]

The Washington Convention has been adopted by France and the United States. However, in the United States it needs to be adopted by each state under the Uniform International Wills Act.  Approximately half of the U.S. states have adopted the International Will Statute including the following:  Alaska, California, Colorado, Connecticut, Delaware, District of Columbia, Illinois, Maryland, Michigan, Minnesota, Mississippi, Montana, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Virginia, and the Virgin Islands.

The advantage of a jurisdiction’s adopting the International Will Statute is that those jurisdictions will accept wills executed in conformity with the statute’s requirements.  The statute sets forth requirements as to form which are set forth in a certificate by an authorized person.  The limitation of the International Will Statute is that it has no effect on the substantive validity of the will.

D. Holographic Wills

Holographic wills can result in issues of vagueness.  They may be valid and customary in the jurisdiction where they are executed but not necessarily accepted in another jurisdiction.  A holographic will is generally entirely written in the testator’s own handwriting and signed by the testator but has no witnesses and does not follow the Washington Convention on Wills.

Although notarial wills and those witnessed are used in France, holographic wills are more common as the primary document used to dispose of a decedent’s estate.  If a testator makes a holographic will to dispose of his or her assets, it may not be valid in the United States. Subject to limitations, only 12 states recognize holographic wills[6].  Therefore, a holographic will can result in invalidity and might not be accepted.  As an example, a French domiciled testator executes a holographic will in France, where holographic wills are valid.  Under Florida law, unless a testator was domiciled in France at the time of its execution, it will not be valid in Florida resulting in a potential intestacy situation.  New York by contrast would accept the holographic will if it was valid in France where it was executed regardless of the testator’s domicile.  Therefore, if possible, a testator should follow the Washington Convention on Wills, including the international will certificate.  If this is not possible, then even a holographic will should be acknowledged by two witnesses in the presence of the testator if it is to be enforced readily in other jurisdictions.

E. Trusts

Like many civil law countries, France is unfamiliar with the bifurcation of title in the trustee and equitable ownership in the beneficiaries, even though it now has implemented its own version of a trust known as the fiducie. A fiducie has significant differences with a trust: it is a bilateral contract with a trustee known as a fiduciaire, not a unilateral instrument and it cannot be used for transmission purposes.

France has signed the Hague Convention on the Law Applicable to Trusts and their Recognition but has never ratified it by fear of the effects it could have on the French legal system.  French courts, however, tend either to assimilate the trust to legal arrangements under French civil law or to admit the existence of the trust as a foreign legal object and its intended legal effects, subject to French public policy (ordre public) rules.

Effective July 31, 2011, French legislation imposes onerous tax and reporting rules on trusts where (1) the settlor is French resident; (2) any beneficiary is French resident; or (3) any trust asset is French situs.

F. Documentation -What to Draft

Even if a jurisdiction with which the U.S. advisor is dealing has adopted the Hague conventions (which does not include France), using a revocable trust must be done with caution.  For example, even in registering property in the name of a trustee in a country that has signed the Hague Convention on Trusts, the registration may disclose only the name of the trustee and may not reflect the fact that the property is owned by a trust.  Problems may arise when the client uses the pour-over will and revocable trust combination.[7] Thus, it may be preferable to use outright specific gifts to individuals, when possible, as opposed to maintaining them in trust.  A will to be used in France and the United States should be drafted in conformity with the International Will Statute and Brussels IV.


A. General

Forced heirship refers to rights under testamentary laws that limit the discretion of a decedent to distribute assets under a testamentary document upon death.  Forced heirship laws protect the “reserved heirs” (frequently the descendants) even to the exclusion of a surviving spouse. When examining the impact of forced heirship rules on the estate of a decedent who has assets in the United States (a jurisdiction without forced heirship other than in Louisiana), one must determine if the forced heirship laws will disrupt the estate plan.  When it comes to enforcing forced heirship in the United States, the U.S. case law tends to divide decisions into forced heirship for descendants and statutory share for surviving spouses.  If a descendant tries to enforce forced heirship, U.S. courts often will refuse to uphold the claim; however, a surviving spouse’s statutory share claim often is upheld.  Civil law jurisdictions generally do not have the concept of an executor or an “estate” as assets automatically vest in the heirs by operation of law at the moment of death, making an estate and executor, and probate unnecessary.

B. Forced Heirship in France

Under French civil law, testators do not have an unrestricted right to dispose of the estate and assets freely, since certain members of the decedent’s family have an absolute right to inherit part of the estate (legal reserve or réserve héréditaire).  A will must respect the minimum (the legal reserve), which must be left to children or a spouse.[8]  For instance, below is the legal reserve for children, varying according to the number of children:

Number of children Legal reserve to the children
One child 1/2 of the estate
Two children 2/3 of the estate (divided equally among the children)
Three children or more 3/4 of the estate (divided equally among the children)

Once the reserve has been calculated, the remaining assets (known as the free share or quotité disponible) can pass freely to another person by bequest (legs) if there is a will.  The rights of the spouse vary according to the marital regime. France has introduced provisions that will permit a beneficiary to waive his or her forced heirship rights (pacte successoral), and certainly, the EU Succession Regulation that came into force in August 2015 affects these rules.

C. Enforcement Against Trusts

In examining the impact of forced heirship rules on the estate of a decedent who has assets in the United States (a jurisdiction without forced heirship other than in Louisiana), one must determine if the forced heirship laws will disrupt the estate plan.  When it comes to enforcing forced heirship in the United States, the U.S. case law tends to divide decisions into forced heirship for descendants and statutory share for surviving spouses.  If a descendant tries to enforce forced heirship, U.S. courts often will refuse to uphold the claim; however, a surviving spouse’s statutory share claim often is upheld.

In examining the enforcement of forced heirship laws against trusts, the U.S. courts will often look at the applicable or governing law of the trust.  A distinction may be made between intervivos trusts and testamentary trusts.  U.S. courts seem resistant to permit forced heirship claims in contravention of a trust’s terms.  If a settlor wishes to strengthen the argument that the trust assets should be governed by the terms of the trust and not disrupted by forced heirship and the like, the settlor should establish the trust during life, fund it during life, and select a trustee in the trust’s jurisdiction and no trustees domiciled in a civil law jurisdiction over whom a civil law court may have jurisdiction.

How a civil law jurisdiction will treat trusts may vary in approach.  Sometimes the civil law jurisdiction will look through the trust and see who ultimately receives the assets and whether the distribution is outright or in further trust and whether it is in satisfaction of a forced heirship claim.

D. The 2015 EU “Choice of Nationality” Election

The EU Parliament and the EU Council approved in June 2012 Regulation (EU) 650/2012 (also known as the EU Succession Regulation or Brussels IV). Denmark, the UK, and Ireland have not adopted these rules.  The EU Succession Regulation provides that the law applicable to the succession of a decedent as a whole shall be the law of the State in which the deceased had his or her habitual residence at the time of death. This can be overridden in one of two ways: (1) if it is clear from all the circumstances of the case that, at the time of death, the deceased was manifestly more closely connected with a State other than the State of his or her habitual residence , then the law applicable to the succession shall be the law of that other State;[9]  or (2) the deceased chooses the law of his or her nationality (defined as a deceased’s citizenship) to govern the deceased’s worldwide succession. A person possessing multiple nationalities may choose the law of any of the States whose nationality he or she possesses at the time of making the choice or at the time of death.[10] It allows a single law to govern a decedent’s worldwide succession, succession document, mutual recognition of decisions in the European Union, and the status of heir, administrator, and executor is recognized on the basis of the European Certificate of Succession.  Also of note, some other non-EU jurisdictions permit a testator to choose the law of his or her nationality to govern the devolution of the testator’s estate (e.g., Switzerland).

The effect of the EU Succession Regulation, which went into effect August 17, 2015, is profoundly important to U.S. citizens who own assets in EU member countries that are governed by this Regulation including France.  By making the election in their wills and choosing to have the law of their country of nationality govern the disposition of their assets, U.S. citizens with assets in an EU adopting state can avoid the potential default rules of forced heirship in civil law jurisdictions.  This is beneficial to those U.S. citizens who have substantial assets in the European Union as it allows them to leave those assets to those, they intended rather than having the civil code dictate to whom and in what amount those assets are to pass. Regarding the application of renvoi in this instance, see discussion above. It is noted that renvoi will not apply to third states of which the United States is one, the law of a U.S. state should govern the disposition of real property located in France if the testator choses his or her U.S. law of nationality.


H (a U.S. citizen) and W (a French national) reside in France. By election, they were married under a separate property marital regime. Their combined estate is valued at $50 million, $25 million of which is located in France, with the balance scattered around the rest of the world. H’s separate assets are valued at $45 million. H has two children from a prior marriage.

Before August 2015, if H had predeceased his wife, under French law, two-thirds of his estate ($30 million) would have been distributed to his two sons and would have incurred substantial U.S. estate tax and French inheritance tax. H could have left the remaining $15 million to W, but as she was not a U.S. citizen, the $15 million would not have qualified for the unlimited estate tax marital deduction unless it had passed to a qualified domestic trust (“QDOT”), or the provisions of the treaty had applied.

However, if H were to predecease his wife after August 17, 2015, he could elect the law of his nationality (i.e., the United States) and the state of his domicile (or state with the closest nexus) and have the freedom to dispose of his estate as he chooses.  H could therefore leave his entire $45 million estate to W; it would qualify for the spousal exemption under French law, and the estate tax marital deduction under U.S. law if W were to become a U.S. citizen and satisfy the requirements of the Internal Revenue Code (“Code”)[11].

E. New French Statute Possibly Limiting Freedom of Testamentary Disposition

The EU Succession Regulation’s application in France was cast into doubt with the enactment of a new statute (Law No. 2021-1109), on August 24, 2021, effective for estates opened as of November 1, 2021.

In essence, this law allows heirs that would be entitled to a reserved share of the decedent’s estate if it were governed by French law to withhold French situs assets (prélèvement compensatoire) up to the value of that reserved share. It applies if the deceased or at least one of the deceased’s children is a national or an ordinarily resident of the European Union, and the governing law of the estate does not provide for any reserved share.

This law was initially aimed at making France’s forced heirship rules part of international public policy (ordre public international) and preventing discrimination between heirs based on sex, especially under Sharia law. But considering that Sharia does provide for reserved shares (although they are unequal between men and women), this law should apply in practice only to estates governed by common law providing for freedom of testamentary disposition. This appears to be in contradiction with both the intent of the lawmakers, and the EU Succession Regulation. The compliance of this law with the French Constitution is also questionable.

Despite strong doubts on its compliance with superior norms, this new statute is currently in force and a French notaire might apply it to French situs real estate in the context of a succession, even if the estate is not governed by French law. For example, the new statute could apply to an estate governed by U.S. law where the decedent bequeaths his or her entire estate to the surviving spouse, or where one of the children of the decedent is disinherited or gets a very small share of the estate. In each case, the children could attempt to enforce French forced heirship rights on French situs assets and especially real estate. One way around this issue is to avoid owning directly French situs assets: for example, French real estate could be owned through a Monaco SCI, which should not be regarded as a French situs asset (subject to French anti-abuse rules against fraudulent arrangements).

F. French Intestacy

If a person dies intestate, then France’s rules of intestacy apply. This means that the estate is divided between surviving children and spouse accordingly.

The spouse can choose either outright ownership of his or her share (minimum 25%) or take a life interest (usufruit) in the entirety of the French property (the right to use it throughout the surviving spouse’s lifetime)[12]. In these cases, ownership of the whole estate splits between the children.

If there is no surviving descendant, the estate will be divided between the surviving spouse, the deceased’s parents, and the deceased’s siblings.

The U.S. intestacy laws vary according to the fifty states and the District of Columbia. If a decedent dies domiciled outside the United States, then the intestacy laws of that non-U.S. jurisdiction will apply for all intangibles including those situated in the United States. As an example, D, a U.S. citizen, died without a will and a long-term resident and domiciliary of France. He had a portfolio of U.S. stocks at a financial institution based in New York, a portfolio of U.S. and foreign stocks in a French brokerage account, and a flat in New York City. According to U.S. principles, France’s intestacy laws would apply to the two portfolio accounts and New Yor law would apply to the NY flat.


A. Overview

A couple’s marital regime determines the rights of each spouse in terms of taxes, inheritance, and divorce.  There are generally three major types of marital regimes: separate property, community property of acquisition and universal community property, which dictate how property is owned. Such regimes can dictate estate and gift tax planning strategies that are available to the spouses. As of May 17, 2013, marriages between same sex couples in France are recognized the same as for opposite sex couples. In the United States, same sex marriage became legal in 2015.[13]

B. Types of Marital Property Regimes

1. Separate Property (séparation de biens).

A separate property marital regime treats all property, whether acquired before marriage or during marriage, as owned individually or separately. Forty U.S. states and the District of Columbia have separate property as their default marital regime.

2. Community Property of Acquisition / Ganancial Property (communauté réduite aux acquêts).

In countries whose laws are influenced by civil law, community property regimes are common. A community property of acquisition or ganancial property regime treats assets acquired before marriage as separate property. All the other assets acquired during the marriage are treated as community property (i.e., 50% owned by each spouse) unless received by gift or inheritance during marriage. Ten U.S. states have varying forms of community property.[14]  This is the default marital regime in France.

3. Universal Community Property (communauté universelle).

Where it applies, the universal community property regime treats all of the couple’s assets, including those received by gift or inheritance, as community property. Under the universal community property regime, the spouses are deemed to jointly own all the assets, regardless of when acquired or how.

This regime also offers the possibility of leaving all community property to the surviving spouse and limiting forced heirship claims to children borne from a previous marriage, who may exercise forced heirship rights to protect their reserved share of the estate (action en retranchement).

C. EU Regulation on Marital Regimes

For individuals married after January 29, 2019, the European Regulation on Matrimonial Property Regimes[15] permits parties to a marriage contract to choose (a) the law of the State where the spouses or future spouses, or one of them, is habitually resident at the time the agreement is concluded, or (b) the law of a State of nationality of either spouse or future spouse at the time the agreement is concluded, to govern their rights and obligations upon divorce and at death.  Absent an agreement, after January 29, 2019, the default rule under the Regulation would apply, and this could lead to an equal division of all marital assets, subject to court determination.[16]

D. Changing Marital Regimes during Marriage

In some jurisdictions, the marital property regime is mutable (e.g., within jurisdictions in the United States) – changes when domicile changes.  In other jurisdictions, the original marital property regime does not change – is immutable.[17] In France, the spouses elect their marital regime, or the default regime of communauté réduite aux acquêts applies. The couple can change their marital regime during marriage. If one of the spouses is a U.S. citizen or domiciliary or the property is U.S. situs, the change of marital regime may trigger adverse tax consequences depending on the facts. For those couples married in a community property jurisdiction or electing into a community property regime by virtue of a marital agreement, they should take great care in the potential gift tax exposure, income tax exposure, and reporting requirements. For example, several problems may arise in the context of a couple changing its marital regime from separate to community property and vice versa, including gift, income, and reporting consequences under U.S. law.

Firstly, a change from separate property to community property could trigger U.S. gift tax.  For example, a U.S. citizen wife and her non-resident alien (NRA) husband marry in a common law property state in the United States.   Several years later the couple moves to France.  Their notaire advises them to change their marital regime to that of community property so that all their assets could pass to the surviving spouse without a forced heirship share passing to their children and incurring inheritance tax at the first spouse’s death.  Their French notaire fails to engage U.S. counsel and changes the couple’s marital regime to universal community property. Wife (U.S.) who is quite wealthy and inherited the family fortune is deemed to have given half of all her assets to her husband an NRA.  To the extent the value deemed transferred exceeds the marital annual exclusion and her applicable exclusion amount, she will have to pay U.S. gift tax.

Secondly, it could trigger additional income tax.  The husband must now include 50% of income generated from wife’s assets and report it on a U.S. income tax return if it is U.S. source income.  Wife also must report on her U.S. income tax return 50% of her husband’s income even if non-U.S. source, with certain exceptions.

Thirdly, wife may have additional reporting obligations. Husband as a NRA has investments in foreign mutual funds which he holds in a Swiss account. Wife now has an interest in passive foreign investment companies (PFICs) and may have additional foreign asset reporting, including Form 8938 (Statement of Specified Foreign Financial Assets) and Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund).

Fourthly, if wife has an interest in an S-corporation, her husband will be deemed to own half her shares and as a NRA will terminate the S election causing the corporation to be a C corp. and subject to two levels of U.S. income tax.

E. The Uniform Dispositions of Community Property Rights at Death Act (“Uniform Dispositions Act”)[18]

The following states have adopted the Uniform Dispositions Act: Alaska, Arkansas, Colorado, Connecticut, Florida, Hawaii, Kentucky, Michigan, Minnesota, Montana, New York, North Carolina, Oregon, Utah, Virginia, and Wyoming.  This Act effectively provides the adopting state to recognize and maintain community property as community property.[19] The purpose of the Act is to preserve the rights of each spouse in property which was community property prior to moving to a common law state.  It is not intended to affect the rights of creditors who were creditors prior to the death of a spouse or the rights of spouses or other persons prior to the death of a spouse. The Act is limited in scope; if enacted by a common law state, it will only affect the dispositive rights, at death, of a married person in property subject to the Act and is limited to real property located in the enacting state and personal property of a person domiciled in the enacting state.[20]

For example, Virginia has adopted the Act, and Maryland has not. If a married couple moves from California (i.e., a community property jurisdiction) or France with the default community property marital regime, to Virginia (i.e., a separate property jurisdiction) and one of the spouses dies owning real property in Virginia and real property in Maryland, then the Virginia property will be considered community property and get a 100% basis step-up. However, the Maryland property will not.

Mixed Property. A couple may own both community and separate property.  Mixing or commingling separate property with community property will transmute the separate property into community property unless the separate property component can be traced.[21]  Further, property becomes community property unless the separate property portion can be traced. Tracing is done by allocating withdrawals, deposits or payments between community property funds and separate property funds. The burden of proof is usually on the party attempting to rebut the community property presumption created under state law.[22]

For example, a couple is married in France, under a community property regime, and lived there for 10 years before moving to New York.  Their net worth at the time of their move to New York was approximately $5,000,000, all accumulated during their marriage.  They buy a flat in Manhattan for $2,000,000 and invest $3,000,000 in a brokerage account. Over the next 5 years their flat appreciates to $3,000,000 and their brokerage account to $5,000,000.  They added after tax earnings from their salary of $1,000,000.  It is likely that the salary and related appreciation that was added to the brokerage account would be considered separate property because it likely could be traced to the personal services of one spouse while in a separate property jurisdiction.  The entire value of the flat and remainder of the brokerage account would be considered community property. Also, it is possible that the couple would still be governed by French marital law, especially if they have a French marital agreement.


A. Domicile/Residency

France imposes tax based on an asset having a French situs or a taxpayer’s residency in France, but not based on French nationality of the decedent alone.

The United States stands in contrast; it imposes tax based on U.S. nationality, residence, domicile, or an asset having a U.S. situs.  Thus, the U.S. citizen having been born in the United States, but never having lived there since infancy is still subject to all U.S. tax rules (income and transfer tax) and U.S. reporting obligations regardless of residency.

These individuals are sometimes referred to as “Accidental Americans” because they are American simply by accident of birth in the United States, propelling them into a universe of perpetual U.S. worldwide taxation and reporting—quite a heavy burden unless they expatriate, potentially triggering the U.S. exit tax[23]  and the U.S. succession tax[24] . The United States has different rules for determining taxation depending on the context of income tax or gift, estate, and generation skipping transfer taxes (collectively called “transfer taxes”).

While France treats a French income tax resident as “domiciled,” the United States takes a different approach. In the United States, a person can be resident for income tax purposes, but not be domiciled for transfer tax purposes. A non-U.S. citizen could be domiciled for transfer tax purposes and not resident for income tax purposes. This is because the United States applies a different test for income tax than it does for transfer taxes.

B. United States Tax System

1. U.S. Income Tax

For income tax purposes, the United States applies a residency test to non-U.S. citizens.  If they are U.S. resident, then they, like U.S. citizens, are taxed on a worldwide basis.  A U.S. person is subject to an ordinary income tax rate of 37% and a maximum capital gain tax rate of 20% plus a net investment income tax rate of 3.8%, plus potential state income tax if resident in a U.S. state.

State income tax rates range from 0% (in Florida, Texas, Wyoming, and a few others) to 13.3% (in California).

Conversely, non-resident aliens of the United States are only taxed on certain U.S. sourced income (effectively connected income at ordinary rates up to 37% and passive types of income referred to as fixed, determinable, annual, or periodical (FDAP) income at a 30% flat rate withheld at source or a lower treaty rate.  The net investment income tax of 3.8% does not apply to non-resident aliens.[25]

A myriad of exceptions may apply, e.g., certain U.S. source income types, including interest on bank deposits, portfolio interest, and capital gains other than from U.S. real property.

2. U.S. Transfer Tax

For transfer tax purposes, the United States applies a domicile test that is a facts and circumstances test based on the transferor’s intent. From a U.S. transfer tax perspective, i.e., federal transfer taxes are imposed on U.S. citizens and U.S. domiciliaries regardless of their place of residency or the situs of the asset transferred at a rate of 40%, after applying any applicable exemptions.

A non-U.S. citizen is a U.S. domiciliary if living in the United States with no definite present intention of leaving.[26] A U.S. citizen or U.S. domiciliary is subject to worldwide gift, estate, and generation skipping transfer (“GST”) tax (collectively “transfer tax”) regardless of where the taxpayer is living and regardless of the location of the asset transferred.

A U.S. citizen or domiciliary has the following benefits: a lifetime exemption of $12,060,000 in 2022/$12,920,000 in 2023  (indexed for inflation but sunsetting to approximately $6 million in 2026), an unlimited marital deduction for transfers to a U.S. citizen spouse, a $164,000 in 2022/$175,000 in 2023 (indexed for inflation) annual marital exclusion for gifts to a non-U.S. citizen spouse, and $16,000 in 2022/$17,000 in 2023 (indexed for inflation) annual exclusion per donee without limitation to the number of donees.[27]

A non-U.S. citizen, non-U.S. domiciliary (NCND) is only taxed on the transfer of U.S. situs assets, has no exemption for lifetime gifts, but can gift $16,000 in 2022/$17,000 in 2023 per year, per donee, and make unlimited gifts to a U.S. citizen spouse and $164,000 in 2022/$175,000 in 2023  per year to a non-U.S. citizen spouse. The NCND has no lifetime exclusion for gifts beyond these amounts. A NCND has an exemption at death of a mere $60,000.  However, the U.S.-France Treaty provides robust benefits for non-U.S. citizens domiciled in France and increases the exemption amounts. (See discussion below).

The definition of U.S. situs varies depending on if it is a lifetime gift of the asset or a transfer at death.  For example, a gift by a NCND of U.S. stock is not subject to U.S. gift tax however, if the NCND dies owning the same U.S. stock, the NCND will be subject to U.S. estate tax. The U.S.-France Treaty may change that result.  If the treaty applies and the decedent is domiciled in France, then those assets may be re-sitused back to France and not subject to U.S. estate tax.

In addition to the federal estate tax, seventeen U.S. states and the District of Columbia impose estate, inheritance tax, or both.[28]. Only one imposes gift tax (Connecticut).

C. France’s Tax System

1. Income Tax

Individuals who qualify as French residents are liable to French income tax on a worldwide basis, whereas non-French residents are subject to French income tax on French-source income only.

French taxpayers are taxed on a “household” basis if they are married unless they do not live under the same roof and are not married under a community property regime. However, the French tax residence of each individual of the household is determined on an individual basis (rather than on a household basis). Therefore, a household can be formed of one resident individual (subject to French income tax on his or her worldwide income) and of one non-resident individual (subject to French income tax only on his or her French-source income).

The household is regarded as a single taxpaying unit for French income tax purposes. This means that all taxable income earned by either member of the household which may be subject to French income tax under French domestic and treaty rules (i.e., worldwide income or French-source income as the case may be) are aggregated for the purpose of determining the taxable income of the household (applicable tax brackets being doubled in that case).

French income tax provides for graduated rates up to 45% for ordinary income. Investment income (dividend, interest) and capital gains are generally subject to a flat income tax rate. A contribution on high income at 3% to 4% can also apply on top of the income tax. The U.S.-France Income Tax Treaty may adjust the sourcing and taxation of such income.

2. Property Wealth Tax

Since 2018, France imposes a wealth tax only on real property interests. Individuals who qualify as French residents are liable to the French property wealth tax on a worldwide basis, whereas non-French residents are subject to the French property wealth tax on French-situs property interests only.

Only individuals with a net tax base in excess of 1.3 million Euros as of 1 January of each year are subject to the French property wealth tax. The tax base includes real property interests (including usufruct interests, which are counted for the entire value of the real property), real estate rights, and equity interests in companies or entities for the fraction of their value representing French situs real property or real estate rights. Exemptions apply for certain assets.

The rates of property wealth tax vary from 0.5% if the net value of the taxable estate is between 0.8 and 1.3 million Euros and a top rate of 1.5% when it exceeds 10 million Euros.

The settlor or deemed settlor of a trust is regarded as the owner of the trust assets for French wealth tax purposes unless the deemed settlor demonstrates that he or she cannot derive any contributive capacity from the trust. Failure to report trust taxable assets and pay the corresponding French property wealth tax can attract a 1.5% sui generis tax on the trust taxable assets instead, which is payable by the trustee.

3. Inheritance Tax

French inheritance tax applies to any inheritance from a French resident, any inheritance by a French ordinarily resident[29], or any inheritance of a French situs asset. The debts of the decedent, including any mortgage, are deductible from the tax base.

Each beneficiary (an heir or a legatee) is then liable to French inheritance tax with respect to such beneficiary’s respective inheritance (i.e., his or her rights in the estate), after deduction of applicable allowances. French inheritance tax then applies at graduated rates depending on the relationship between the decedent and the beneficiary. There is a lookback period of 15 years whereby any gift by the decedent to the heir or legatee in the past 15 years will be aggregated for purposes of determining the applicable French inheritance tax bracket and allowances.

French inheritance tax is therefore a tax on inheritance (i.e., a tax on what each beneficiary receives from a decedent’s estate), and not an estate tax (i.e., a tax on the decedent’s estate, regardless of who is entitled to it).

4. French Inheritance Tax Rates and Allowances

Current French inheritance tax rates and allowances are as follows:

Spouses Married couples and those in civil partnerships are now exempt from paying inheritance tax in France. However, lifetime gifts are subject to French gift tax.
Parents, children, and grandchildren Tax-free allowance: €100,000[30]

5% tax up to €8,072

10% on €8,072–€12,109

15% on €12,109–€15,932

20% on €15,932–€552,324

30% on €552,324–€902,838

40% on €902,838–€1,805,677

45% over €1,805,677

Brothers and sisters Tax-free allowance: €15,932

35% tax up to €24,430

45% on more than 24,430

Nephews and nieces Tax-free allowance: €7,967

55% flat-rate tax

Remote relatives and other beneficiaries Tax-free allowance: €1,594 (€159,325 if disabled)

60% flat-rate tax

5. France’s Tax Treatment of Trusts.

For French inheritance and gift tax purpose, the settlor is deemed to have ownership of all the assets placed in trust and the death of a settlor is a deemed transfer and therefore a taxable event. Thus, French gift and inheritance taxes apply regardless of the location of the assets if either the settlor or the beneficiaries are French residents (subject to applicable double tax treaties). French gift and inheritance tax will also apply to assets located in France even if both the settlor and the beneficiaries are non-French resident. The tax rate that will apply to the gift (upon transfer to the trust) or inheritance (if at death) depends on the relationship between the settlor and the beneficiaries; but a 60% flat rate may apply to trusts that have been set up by a French resident settlor after May 11, 2011[31]. In addition, assets in trust generally are counted for French property wealth tax purposes. The settlor must include the value of their taxable assets in trust in his or her annual French property wealth tax computation.

A beneficiary will be deemed the settlor when the original settlor dies (referred to as a “deemed settlor”) and then must include the value in his or her wealth tax calculation.

For French income tax purposes, a trust is generally viewed as opaque (non-transparent), which means that trust income is generally not subject to French income tax until distributed. However, certain trusts (such as revocable grantor trusts where the settlor is also the trustee) might either be disregarded or subject to anti-abuse inclusion rules[32], thus making the settlor subject to French income tax on income accrued by the trust regardless of distribution. French income taxation of a French resident trustee remains uncharted territory and should depend on the type of income derived by the trust.

The law also imposes a disclosure/registration requirement and onerous penalties for failing to comply.


A. General

Tax treaties are an often-forgotten lynchpin in advising the international client.  Structures are often put together which complicate a client’s situation when the simple, direct investment by the foreigner in U.S. assets would have yielded more favorable tax results under a treaty.

Treaties serve to (i) prevent double taxation; (ii) prevent discriminatory tax treatment of a resident of a country; and (iii) permit reciprocal administration to prevent tax avoidance and evasion.  Treaties often substantially reduce estate and gift taxes.  If an estate claims an estate tax position based on an estate tax treaty with another country, an explanation of the treaty-based position should be attached to the estate tax return.[33]  The purpose of the transfer tax treaties is to prevent or minimize the double taxation of both lifetime gifts and transfers at death of domiciliaries of the two (2) contracting states (i.e., treaty countries).

This is usually accomplished by either: (a) giving one country priority in taxing the property deemed by the treaty to be located in that country; or (b) giving one country priority to tax the estate or the gifts of the individual based on a determination of the decedent’s or the donor’s fiscal domicile.

Where application of the treaty gives rise to the imposition of tax in both countries, a credit mechanism is employed to minimize the double tax burden.  Some of the transfer tax treaties provide for a more beneficial marital deduction than what otherwise would apply to a non-domiciliary of the United States.

Because of the saving clause, a U.S. citizen cannot invoke the treaty to avoid or minimize U.S. tax.  The taxpayer can only avail himself or herself of an increased foreign tax credit.  The saving clause is found in all U.S. income tax treaties, but not all U.S. estate tax treaties.[34]  The saving clause provides that the United States may tax its citizens as if the treaty were not in effect. The purpose of this rule is to prevent U.S. citizens who are classified as income tax residents of the treaty country from claiming the exemption from and reductions in U.S. tax on their income that would be available to non-citizens who are also resident in the treaty country. Most treaties’ saving clauses also provides that the United States may tax its residents as if the treaty were not in effect; however, this may have no practical effect if the treaty contains tiebreaker rules.  The U.S.-France Estate and Gift Tax Treaty also contains a saving clause.

B. U.S.-France Type Treaty

1. Overview

The U.S.-France Estate and Gift Treaty is an OECD type treaty that applies to gift, estate, generation skipping transfer tax, and inheritance tax.[35] To be eligible for treaty benefits, the decedent or donor must be domiciled in the United States or France. U.S. citizenship is also relevant if the decedent or donor was domiciled in France at the time of gift or at death.[36]

The treaty provides for usual tiebreaker rules for cases where both Franc and the United States would regard the same taxpayer as a domiciliary. The order of priority is:

  • permanent home
  • center of vital interests
  • habitual abode
  • citizenship
  • competent authority determination

A special exception applies for an individual who at the time of his death or the making of a gift was deemed domiciled by each country but he was a citizen of only one country, the domicile will be deemed to be in the country of citizenship if he had a “clear intention” to retain the domicile there and was in the non-citizenship country for fewer than five years during the seven years before death or the making of a taxable gift. For the exception to apply, the transferor must be in the non-citizenship country because of a job assignment or as a spouse or dependent on job assignment. The exception also applies for a “renewal of an assignment of employment” or as a spouse or depending on such employee and was domiciled in the non-citizenship country for fewer than seven years during the 10 years before death of the gift. [37]  As an example, a U.S. citizen and his family move to France for employment, and he dies after year 6. He will not be subject to worldwide taxation by France even though France would otherwise consider him a domiciliary.

The treaty grants the domiciliary country general taxing rights on his or her assets.  However, the nondomiciliary country retains the primary taxing right on tangible property (including shares of real property holding companies), and business property of a permanent establishment, located in the nondomiciliary country. Stock, bonds, and other securities are generally viewed as non-situs assets and therefore not subject to tax in the nondomiciliary country. Donations to qualifying charities may benefit from deductions or exemptions under the treaty.

Subject to anti-avoidance rules (especially if a taxable asset is not subject to tax in the nondomiciliary state), double taxation is generally avoided by the domiciliary country granting a foreign tax credit for taxes paid in the nondomiciliary country. For example, France generally grants a deemed-paid credit on U.S. situs real property (resulting in an exemption of the U.S. situs real property, but with possibly higher tax rates applying to the rest of the taxable assets).

If a treaty does not alleviate double taxation, the Code section 2014 credit for foreign death taxes may do so.

2. Article 11 Community Property and Marital Deduction

Under the U.S.-France Estate Tax Treaty and its protocol, there are two rules that are most relevant to a non-U.S. citizen surviving spouse of a decedent: (1) reduction of the decedent’s gross estate by partial application of community property rules to U.S. separate property; and (2) grant of a treaty based marital deduction.


A. Introduction

With these rules as a backdrop, what pitfalls and unintended consequences can occur when planning for cross border private clients? The following discussion examines the potential problems with the use of usufructs, assurances-vie, and SCIs.

B. Usufruct Planning

1. General

A typical French succession plan involves the client retaining a usufruct (usufruit) interest and giving the bare ownership (nue-propriété) interest to the next generation.  The benefits from a French perspective are typically that the value of the gift on which French gift tax will be paid is reduced based on the age of the donor.  At the donor’s subsequent death, the usufruct interest terminates by operation of law and is automatically recovered by the bare ownership holder who then owns the property in full (pleine propriete) Thus, nothing is included in the usufructuary’s estate to be taxed at death for French tax purposes and the appreciated value all passes entirely to the bare ownership holder, typically the children.  The usufructuary has the right to use the property and is entitled to income from the property during his or her lifetime. In terms of rights allocated to usufructuaries, traditionally they are allocated the “fruits” from the property, but generally not capital gains from the sale of the property unless so allocated in the gift documents. The usufructuary’s interest is generally similar to a life estate under common law. The “naked” or “bare” owner (equivalent to a remainderman in a common law jurisdiction) is the legal owner of the property.

2. U.S. Analysis

The concept of a usufruct is not well known under U.S. law except in Louisiana. A usufruct may be treated as a life estate (or form of co-ownership) because there is no separate fiduciary or title owner, or as an ordinary trust under the U.S. treasury regulations. An ordinary trust is defined as “an arrangement created either by will or by an inter vivos declaration whereby trustees take title to property for the purpose of protecting or conserving it for the beneficiaries under the ordinary rules applied in chancery or probate courts.”  Nevertheless, the Internal Revenue Service (the “IRS”) has issued private letter rulings (PLRs) in which it characterized a usufruct as a trust for income tax purposes. For example, in PLR 9121035, the IRS concluded that a usufruct was classified as a trust for U.S. tax purposes. In the ruling, the usufructuary, in addition to his usufruct rights, had administrative powers over the assets subject to the usufruct (similar to the role of a trustee). It is possible that the IRS would not treat a usufruct as a trust for income tax purposes if the usufructuary did not have administrative powers similar to those in the letter ruling. While it is possible that a usufruct could be characterized as a trust for U.S. tax purposes, the overwhelming majority of most civil law usufruct/bare ownership arrangements will be considered as life estates/remainder interests for U.S. tax and reporting purposes.  U.S. Tax Treatment of Usufructs

A transfer involving a usufruct interest or a bare ownership interest could give rise to U.S. income, gift and estate tax reporting requirements depending on the asset in question (e.g., shares of a company, or real property, etc.), who is making the transfer (e.g., U.S. citizen/domiciliary), and what rights and interests are being retained or transferred (e.g., right to all income (including capital gains), right to vote, liquidation rights, etc.). The tax treatment of a usufruct arrangement depends on the facts and circumstances of each arrangement.   A usufructuary typically is taxed on the income earned by the property.  When a usufruct arrangement is created by a U.S. donor, a gift of the bare ownership interest generally is treated as made.  This gift may be subject to U.S. gift tax, but the value of the gift may be limited to the value of the bare ownership interest.  A transfer by the donor (usually the parent) of the bare ownership interest to the donee (often the child) could give rise to U.S. income, gift and estate tax reporting requirements depending on the asset in question (shares in a company or real property) and who is making the transfer (such as a U.S. citizen/domiciliary or a NCND).  If the parent is a U.S. citizen residing in France (or a U.S. resident transferring a bare ownership interest in French property, the donor will be subject to U.S. estate tax at the time of the donor’s death due to the donor’s retained interest in the usufruct (life estate) under Code section 2036.  This is because the United States views the donor as not relinquishing the entire property but retaining a string, which is the usufruct interest.  As such, the United States does not treat the transfer of the property by the transferor as fully divesting the transferor of his or her dominion and control and the gift of the remainder with a retained interest in the usufruct results in the full fair market value of the asset at death being includible in the U.S. person transferor’s estate and subject to U.S. estate tax.  Furthermore, there is no credit for the gift tax paid to France in the earlier year unless the individual also paid U.S. gift tax, which would only occur if the lifetime transfers exceeded the exemption amount.

Also, different U.S. reporting obligations may apply depending on the right to income with respect to such interests. If the usufructuary is a U.S. person, then the value of property subject to a usufruct arrangement generally is included in the usufructuary’s estate for U.S. estate tax purposes if the usufructuary was the one who created the usufruct and gave the bare ownership interest. In that case, the bare ownership interest holder generally receives a tax basis in the property equal to the value of the property at the time of the usufructuary’s death. If someone other than the usufructuary created the usufruct, then the bare ownership interest holder receives a carry-over basis because there is no inclusion in the estate of the usufructuary.

Regardless of whether a usufruct is treated as a form of co-ownership (e.g., a life estate) or a trust for U.S. tax purposes, if the property interest subject to the usufruct/bare property arrangement is an interest in non-U.S. entities, then the individuals holding the usufruct and bare ownership interests likely will be subject to U.S. income tax and U.S. information return reporting obligations. Generally, individuals holding a usufruct interest have a split interest in the voting power over the entity and an interest in the income therefrom and such interest causes U.S. tax issues and reporting considerations.[38]  Similarly, bare ownership interest holders that hold vested remainder interests in the foreign entities generally have no interest in the income, but depending on the circumstances and applicable attribution of ownership rules that apply, such individuals likely will be subject to U.S. information reporting obligations with respect to such entities.  The terms of some usufruct arrangements can mean that no income is allocated to the bare ownership interest holder and that there may be no U.S. reporting, but this has not been the general case due to the default rules that apply in most civil law jurisdictions. What often catches the U.S. person bare ownership interest owners are the reporting rules and specifically the broad attribution of ownership rules.

Under the U.S. estate tax rules, if a person retains certain interests in property transferred to a trust, the property transferred to the trust is treated as retained and the value of such property is included in the donor’s estate at death.  If a person establishes a usufruct interest for himself or herself and makes a gift of the remainder interests to others, this rule may apply to include the value of the property transferred to the usufruct arrangement in the transferor’s estate for U.S. tax purposes.  In general, the beneficiary of such property receives an income tax basis in the property equal to the fair market value of the property on the date of the decedent’s death.  With proper planning, any built-in gain in the property may be eliminated and therefore the remainderman will be subject to income tax only on the post-death appreciation of the property.

3. Application of Rules in Practice

The following are some examples of usufruct arrangements in practice:

Example 1. U.S. person creates and retains usufruct, gift of bare ownership to U.S. person. Mother, a U.S. citizen residing in France, owns her home in France worth 5 million Euros. Mother gives the bare ownership interest to her daughter also a U.S. citizen and retains the usufruit.  Based on Mother’s age, she gets a 30% discount on the value of the bare ownership interest and pays French gift tax on 3.5 million Euros.  Mother will need to report the gift in the United States, but assuming she has her full $12,060,000 exemption amount, she will not pay any U.S. gift tax. As a result, the French gift tax paid will not be credited in the United States. Assume Mother dies 10 years later, and the property is worth 8 million Euros.  There will be no further French inheritance tax as the usufruit interest vanishes at Mother’s death. However, the full 8 million Euros comes back into her U.S. taxable estate and together with other assets is subject to U.S. estate tax at a rate of 40%.  She will not get a credit for the French gift tax paid 10 years earlier.  This generally is an unfavorable result.  It solves the French inheritance tax problem at a reduced rate, but it does not solve the U.S. estate tax inclusion issue with no crediting of the gift tax previously paid.

That said, there is a positive aspect. When Mother dies, because the full value of the property is includible in her estate, the property will enjoy a full step up in basis to the date of death value (8 million Euros), and therefore the daughter will have a new 8 million Euros basis. If Daughter sells the property shortly after her mother’s death for 8 million Euros, she will pay no U.S. capital gains tax.  However, given that it is French real property her basis under French law will be the 5 million Euros value at the time of transfer and she will pay French capital gains tax unless she qualifies for some other exemption (e.g., she held it for more than 30 years—the starting point for the 30-year exemption is when she received the bare ownership interest from her mother).  Daughter will be exposed to French capital gain tax on the difference between the sale price realized by Daughter of 8 million Euros less the 5 million value at transfer or 3 million Euros. This gain will be exempt from U.S. capital gains tax.

Example 2. Non- U.S. person creates and retains usufruct; gift of bare ownership to U.S. person.  Same facts is in example 1 except Mother is a non-U.S. person (she is not a U.S. citizen, and she is not U.S. tax resident). No U.S. gift or estate tax issues would apply because both Mother and asset are non-U.S.  However, the step up in basis analysis may differ. When the creator of the usufruct is a non-U.S. citizen and non-U.S. domiciliary (NCND) and the property transferred is non-U.S. situs, the IRS may argue that the property does not benefit from a step up in basis under Code section 1014. However, there is IRS guidance to support the argument for a basis step-up because possession/ownership of the property passes to the daughter via operation of local French law (via a combination of property and inheritance laws) in which case the child should arguably get a Code section 1014(b)(1) step up based on an analysis similar to Rev. Rul. 84-139 and GCM 39320.  If no step-up were allowed, Daughter as a U.S. person would have to pay increased U.S. capital gains tax at the disposition.

Example 3. Third party creates the usufruct. If instead of Mother creating the arrangement, retaining the usufruct interest, and giving the bare ownership interest to Daughter, Father creates the arrangement, gives the usufruct to Mother and the bare ownership interest to Daughter.  In this instance, under U.S. tax law, when Father dies, there is no inclusion in his estate because he did not retain the usufruct interest. When Mother dies, there is no inclusion in her estate because she did not create the usufruct.  So, there would be no step-up in basis at the death of either Father or Mother because there is no inclusion in either of their estates.  Thus, Daughter will take a carry-over basis from Father and be exposed to U.S. capital gains tax.

Example 4. Couple married under community property regime creates usufruct at death of first spouse to die. A married couple who are French citizens and residents at the time of their marriage have a community property marital regime.  Each spouse has an undivided 50% interest in the property in question and at the death of the first spouse, the surviving spouse is entitled to a usufruct interest in the decedent’s half until the surviving spouse’s death or until remarriage.  At the time of the first spouse’s death, they are both U.S. residents and domiciliaries.  Should the decedent’s one-half value of the community property be included in the decedent’s gross estate? Yes.  The decedent’s share is includable in the decedent’s estate and is not reduced by the creation of the usufruct upon death.  In Estate of LePoutre,[39] a 1974 tax court decision, the court applied French law and held that the value of the usufruct does not reduce the interest in the community property and is includable in the gross estate.

4. Reporting Requirements

The U.S. bare ownership interest holder may have additional U.S. reporting obligations. These include, but are not limited to, the following:

  • Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts) –
  • Form 8938 (Statement of Specified Foreign Financial Assets) –
  • Form 8865 (Return of U.S. Persons With Respect to Certain Foreign Partnerships) –
  • Form 5471 (Return of U.S. Persons With Respect to Certain Foreign Corporations) – As one can gather from the analysis above, usufructs are a valuable succession-planning tool in France, but they can pose major planning problems when dealing with U.S. persons. While this is not always the case, advisors should be cautious when recommending usufruct/bare ownership planning to any clients with U.S. connections.

C. The Assurance-Vie

An assurance-vie (or so-called life insurance) contract may be appealing from French income and succession tax perspectives to dispose of one’s estate. The tax treatment under French law is that the increase in value per year is not subject to French income tax until withdrawn. At death of the holder, the premiums paid by the holder before the age of 70, including appreciation, are subject to life insurance tax at a top rate of 31.25% and the premiums paid by the holder after the age of 70, excluding appreciation, are subject to French inheritance tax (allowances apply in both cases).

However, from a U.S. perspective an assurance-vie contract may not be considered life insurance for U.S. tax purposes and if it is not, it will not have the beneficial tax characteristics as it enjoys in France or life insurance contracts enjoy in the United States. For a life insurance policy or assurance-vie contract to be treated as “life insurance” for U.S. tax purposes it must pass a three-pronged test. Many foreign assurances-vie contracts and including French and Luxembourg policies do not meet this test.[40]

Some assurances-vie contracts may constitute a life insurance contract under local law (there is a real-life insurance/death benefit in excess of equity return element along with risk shifting to the insurer) but it is likely to fail the second prong because it is substantively an investment vehicle and not a life insurance contract.  If the insurance fails a two-pronged test, income on the contract is treated as ordinary income received or accrued by the policyholder for each taxable year.  This creates a huge trap.

U.S. tax residents, even those living in France often do not realize that the income accruing within their assurance-vie policy must be reported in the United States. If the contract is not insurance, the policy is likely analogous to a securities or bank account.  Thus, the underlying investments of the policy (such as foreign mutual funds) could give rise to additional U.S. tax and reporting complications (such as passive foreign investment company/ “PFIC”) reporting and being reportable on a foreign bank account report (an FBAR).

From a French perspective, the assurance-vie generally does not incur French income tax until withdrawn.  If a U.S. tax resident or U.S. citizen owns an assurance-vie, that taxpayer has the following options:

  • do nothing and pay no tax in the United States or in France until withdrawal. However, when the taxpayer owner pulls the assets out in year 10, the owner will have French tax and U.S. tax with an interest charge, which could wipe out the entire distribution.
  • pay as he goes and pay U.S. income tax on the appreciation in value each year. When the owner makes a withdrawal from the policy in year 10, there will be no extra U.S. tax, but the owner will have the French tax and there will be no credit for the U.S. taxes paid because the tax is incurred in different tax years.
  • The best option is generally to cash in the assurance-vie if the owner is a U.S. person. Generally, U.S. persons should avoid owning assurance-vie

D. Société Civile Immobilière (SCI)

An SCI could be an effective way for multiple owners including U.S. person owners to hold and use French real property.  Prior to the effective date of the EU Succession Regulations, U.S. persons often used SCIs to avoid French forced heirship rules. However, what is often missed is that SCIs are treated as foreign partnerships for U.S. tax and reporting purposes unless an election is filed to treat them as foreign corporations.  Shares in an SCI that owns more than 50% of French real property are considered real property under the U.S.-France Treaty.  If French inheritance tax is paid on the SCI interest, then the taxpayer may claim a credit against the U.S. estate tax due as a result of inclusion of the SCI interest in decedent’s estate.  However, one must be aware of the extra reporting in the United States including filing Form 8938, Form 8865 and a possible FBAR for the SCI account.


A. Typical U.S. Plan

The typical succession plan in the United States involves a pour-over will and a revocable trust.  The revocable trust often provides for a continuing trust for a spouse or descendants.  What complications could this pose in France?  Firstly, during the settlor’s lifetime the revocable trust and all its assets will need to be reported in France.  The French reporting rules can be burdensome including the taxation of trusts during the life of the settlor (tax opaque). 

B. Avoidance of Forced Heirship

The United States does not have forced heirship (other than a limited provision under Louisiana law and a statutory share for a surviving spouse if not waived in a marital agreement), so a testator is free to dispose of his or her estate as he or she pleases. This may be contrary to French domestic law unless he is eligible to make a Brussels IV election to elect the law of his or her U.S. nationality to govern his or her worldwide succession. A U.S. green card holder is not eligible to make such an election so may have limited options to carry out his intent. The freedom of testamentary disposition may pose a conflict with France. For example, a U.S. domiciliary (non- citizen) wishes to give all assets to his spouse if he survives her rather than to his children. This would have the advantage that all assets in the United States and France will qualify for the marital deduction/spousal exemption and not incur tax at her death—estate or inheritance tax will be deferred until the death of the surviving spouse. However, if the decedent is not a U.S. citizen and cannot make the nationality election under Brussels IV, then the decedent’s children may claim their reserve share, disrupting the decedent’s estate plan and triggering tax in both France and the United States depending on value.

C. Trusts

1. Revocable Trust

The revocable trust often provides for a continuing trust for a spouse or descendants.  What complications could this pose in France?  Firstly, during the client’s lifetime, the settlor (or the trustee) must comply with France’s annual and event filing requirements for the revocable trust if the settlor is French resident, a beneficiary is French resident, or the trust holds a French asset.   The French reporting rules can be burdensome including the taxation of trusts during the life of the settlor when it is tax opaque.  At the death of the settlor or upon distributions to a beneficiary, French law treats the trust as transparent thereby subjecting the distribution to either gift or inheritance tax.

2. Irrevocable Trust

Frequently, high net worth individuals, shift wealth out of their estate, including the appreciation, by leveraging their applicable exclusion amount by making lifetime gifts.  As an example: Mother creates an irrevocable trust and transfers assets worth $12,000,000 into the trust with an independent trustee for the benefit of her descendants.  Under U.S. tax law, the transfer is a completed gift based on the terms of the trust.  She files a gift tax return reporting the $12,000,000 gift but pays no U.S. gift tax because it is under her exemption amount.  She thinks that the $12,000,000 is now outside of her estate, including all the future appreciation.  She then moves to France.  At the time of her death, the trust is worth $20,000,000.  There is no U.S. estate tax due on that amount because it is not including in her estate pursuant to the terms of the trust and she got it out of her estate using her exemption amount at the time of gift.  Under French law, she is a settlor and resident of France so the full value of the trust assets ($20,000,000) would be subject to French inheritance tax at her death.  Since the assets passed to a variety of individuals, not just her descendants, it potentially could be subject to French inheritance tax at a 60% rate.

D. Limited Liability Company

Many U.S. persons use a limited liability company (LLC) for holding investments.  Depending on who owns the LLC, the IRS may characterize it as a disregarded entity, a partnership, or a corporation. Taxpayers have much flexibility with an LLC by filing a Form and “checking the box” for the LLC to be characterized as something other than its default characterization. For example, a single member LLC is treated as a disregarded entity, but the sole member could make a check the box election to have it treated as a corporation. Both disregarded entities and partnerships enjoy flow through tax treatment while a corporation does not. If a U.S. person uses an LLC with flow through treatment in the United States, but he or she is a resident of France (or is holding French assets in an LLC), then France may treat the LLC as opaque resulting in a possible mismatch of tax credits[41].


What works in France, may not work in the United States and vice versa.  Advisors are likely to run into this when a client is mobile, has dual nationality, or has assets in more than one country.  These examples show that as with A Tale of Two Cities, The Tale of Two Systems – Civil Law and Common Law, may result in a clash of the applicable law and results.  The French revolution was described as “the best of times, it was the worst of times, it was the age of wisdom, and it was the age of foolishness.”  We may not have Dickens’ prose, but we have the foreshadowing of a conflict of systems that both French and U.S. counsel must consider when clients, their beneficiaries, or their assets cross the border.


[2] Ibid.

[3] Domicile in France is not determined in the same manner as in the United States. There is only one rule in France for both residency and domicile.  In France, domicile is based on income tax residency in France under its domestic rules. Once an individual is “resident” in France, such individual is “domiciled” in France.

[4] EU Regulation 250/2012 art. 34.

[5] The U.S. Department of State, Convention Providing a Uniform Law on the Form of an International Will, done at Washington October 26, 1973 (July 6, 2021). Available at:

[6] Alaska, Arizona, Arkansas, California, Colorado, Idaho, Kentucky, Louisiana, Maine, Michigan, Mississippi, Montana, Nebraska, Nevada, New Jersey, North Carolina, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, and Wyoming.

[7] Canada, for instance, may not recognize a pour-over gift to a trust. See Quinn Estate, 2018 BCSC 365 where the court rendered the pour-over clause in the decedent’s will invalid because (1) the trust was amendable without complying with the formalities found in will executions, and (2) the amendable nature of the trust gave rise to uncertainties as to the proper recipients.

[8] If the deceased has surviving children born of the union with his or her surviving spouse, the surviving spouse has the right to choose either (1) the entire usufruct of the deceased spouse’s estate or (2) the ownership of only one quarter.  If, however, the surviving spouse is not the parent of the children of the decedent, he or she receives one-fourth of the decedent spouse’s estate and cannot chose the usufruct over the entire property of the deceased spouse.

[9] EU Regulation 250/2012 art. 21.

[10] EU Regulation 250/2012 art. 22.

[11] All Code references are to the Internal Revenue Code of 1986, as amended, and the Treasury Regulations.

[12] The surviving spouse’s right to claim a usufruct over the whole of the deceased spouse’s estate is conditioned on the decedent’s children being the children of both the decedent and the surviving spouse.

[13] Obergefell v. Hodges, 576 U.S. 644 (2015).

[14] Ten states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin and Alaska by election), have a community property law systems for ownership of property of a married couple. (Puerto Rico and Guam are also community property jurisdictions). Some states offer “community property trusts” e.g., Florida and Tennessee. Tennessee offers a community property trust. Section 35-17-101 et seq. of the Tennessee Code.

[15] Council Regulation 2016/1103, 2016 O.J. (L 183) 1(EU).  This Regulation is aimed at determining rules applicable to property regimes for married couples of different European Union nationalities.  Thus far, eighteen member states participate:  Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Finland, France, Germany, Greece, Italy, Luxembourg, Malta, Netherlands, Spain, Portugal, Slovenia, and Sweden.  The Regulation can be found at (last reviewed July 14, 2018). There is also Council Regulation (EU) 2016/1104, 2016 O.J. (L 183) 30 (EU) issued the same day as Council Regulation 2016/1103. Council Regulation 2016/1104 implements enhanced cooperation in the area of jurisdiction, applicable law and the recognition and enforcement of decisions in matters of the property consequences of registered partnerships.

[16] Under the default regime, rights and obligations of spouses will be determined under (a) the law of the spouses’ first common habitual residence after the conclusion of the marriage, otherwise (b) the law of the spouses’ common nationality at the time of the conclusion of the marriage, otherwise (c) the law which the spouses jointly have the closest connection at the time of the conclusion of the marriage, considering all the circumstances.  By way of exception and upon the application by either spouse, the governing law may be the law of the State for which the applicant demonstrates that (x) the spouses had their last common habitual residence in that other State for a significantly longer period of time; and (b) both spouses had relied on the law of that other State in arranging or planning their property relations.   See Council Regulation 2016/1103, 2016 O.J. (L 183) 1(EU); Council Regulation (EU) 2016/1104, 2016 O.J. (L 183) 30 (EU).

[17] Estate of Charania, et al. v. Comm’r, 133 TC 122 (2009).

[18] Uniform Disposition of Community Property Rights at Death Act (“Uniform Disposition Act”), 8A U.L.A. 191 (1993).

[19] See Robert C. Lawrence, III, International Tax & Estate Planning, 4.1– 4.84, for an excellent discussion of the effect of community property on the international estate plan.

[20] Uniform Disposition of Community Property Rights at Death Act as drafted by the National Conference of Commissioners on Uniform State Laws, prefatory note (1971).

[21] Internal Revenue Manual (02-15-2005).

[22] Internal Revenue Manual (02-15-2005).

[23] Code Section 877A

[24] Code Section 2801

[25] Code Section 1411(e)

[26] Treas. Reg. § 20.0-1(b).

[27] See Wolters Kluwer’s 2022 Projections for Inflation-Adjusted Tax Brackets and Other Amounts, Available at:

[28] Those imposing estate tax are District of Columbia, Connecticut, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. Those imposing inheritance tax are Iowa, Kentucky, Nebraska, New Jersey, and Pennsylvania. Maryland is the only state that imposes both an estate tax and an inheritance tax.

[29] A beneficiary of an inheritance is regarded as a French ordinarily resident if he or she has been a French tax resident for at least six years out of the past ten years. Estate and gift tax treaties will generally preclude France from using this nexus to apply French inheritance tax.

[30] This tax allowance is reduced to 31,865 Euros if the inheritance consists of a generation-skipping bequest by a grandparent to a grandchild but will apply if the grandchild directly inherits from such grandparent as a result of the grandchild’s parent having predeceased the grandchild or the parent having disclaimed his or her inheritance.

[31] French Tax Code, art. 792-0 bis

[32] French Tax Code, art. 123 bis

[33]  Treas. Reg. § 301.6114-1.

[34] Estate of Vriniotis v. Comm’r, 79 TC 298 (1982) , held that a dual citizen of Greece and the United States who was domiciled in Greece was subject to U.S. estate tax on his worldwide estate, and that the U.S. estate tax treaty with Greece, which does not have an express saving clause, did not change that result. The U.S. estate tax treaties with and without a saving clause are as follows:

  1. Australia – No express saving language.
  2. Austria – Has Saving Clause Art. 9 (1).
  3. Canada – Has Saving Clause Art. XXIX (2).
  4. Denmark – Has Saving Clause Art. 1 (3).
  5. Finland – No express saving language.
  6. France – Has Saving Clause Art. 1 (4).
  7. Germany – Has Saving Clause Art. 11 (1)(a).
  8. Greece – No express saving language.
  9. Ireland – No express saving language.
  10. Italy – No express saving language.
  11. Japan – No express saving language.
  12. Netherlands – No express saving language.
  13. South Africa – No express saving language.
  14. Switzerland – No express savings language.
  15. K. – No express saving language.

[35] Art. 2(1)(a) and (b)

[36] Although the treaty is drafted in such a way that French citizenship could also be relevant, French domestic tax law does not recognize French citizenship as a relevant domiciliation criterion. It is generally admitted that from a French perspective, treaty provisions applying to citizens of a contracting state are only meant to apply to U.S. citizens.

[37] Art. 4(3)

[38] See PLR 8748043.

[39] Estate of LePoutre v. Comm’r, 62 T.C. 84 (1974).

[40] The three-pronged test to be life insurance for U.S. tax purposes is 1) Insurance based on risk shifting to the insurer and pooling of risks by the insurer; 2) Designated as a life insurance contract under the applicable law; and 3) meet either 1) cash accumulation test or 2) the guideline premium requirement in a specified cash value corridor.

[41] Conseil d’État, 27-06-2016, No. 386842, min. c/ S Emerald Shores LLC