Assurance vie for Americans in France: why we have changed our view
For years, our position was straightforward: U.S. citizens living in France should generally avoid assurance vie. Concerns about U.S. taxation, particularly the punitive rules governing passive foreign investment companies, or PFICs, made us reluctant to recommend it.
We have reconsidered that position. We now believe that, in certain circumstances, assurance vie can have a place in the financial planning of a U.S. citizen living in France.
This change follows further examination of the legal analysis and discussions with specialist U.S. tax advisers serving Americans in France.
Why our thinking has changed
An assurance-vie contract is an agreement with an insurance company. It is not itself a foreign corporation and therefore is not, in itself, a PFIC.
The more significant question is whether the American subscriber should be treated as owning the investments held within that contract. The interpretation supported by our tax adviser, and reportedly shared by other U.S. tax practitioners in France, is that the subscriber holds contractual rights against the insurer rather than ownership of the underlying funds.
A legal memorandum prepared by Landwell & Associés, then a correspondent law firm of PwC, provides support for this approach under the circumstances it examined. This gives us a basis to move beyond a blanket recommendation against assurance vie.
It does not mean that every contract receives the same U.S. tax treatment, or that all questions have been settled. In particular, the absence of PFIC treatment does not automatically mean that the United States will recognize the same tax deferral available in France. The contract, its investments and the U.S. reporting approach still need to be reviewed together.
Where assurance vie may fit
For someone building a long-term life in France, assurance vie deserves consideration alongside other investment and estate-planning arrangements. Its relevance depends on the person’s objectives: how they expect to use their capital, when they may need withdrawals, whom they wish to benefit and where their family lives.
That is where our analysis begins. A product should serve the client’s life and plans.
We would therefore consider assurance vie when its potential benefits justify its costs and complexity, and when the client’s U.S. tax adviser supports the treatment of the proposed arrangement. Whether the portfolio holds funds or individual securities is part of that assessment.
Why we favor Luxembourg
Where assurance vie is appropriate, our preference is generally for a Luxembourg contract that can accommodate an individually managed portfolio. For LCM, the appeal is the ability to integrate that portfolio with the client’s other investments and manage the overall allocation coherently.
Luxembourg is not a solution to U.S. tax obligations in itself. The choice of insurer, contract, custodian and investments remains important, as does coordination with the client’s tax advisers.
Our revised position is therefore deliberate: U.S. citizenship should not automatically rule out assurance vie. For some Americans living in France, a carefully selected and properly reviewed contract may be appropriate. Our role is to determine when it serves the client’s wider financial plan.