Estate Planning in France for U.S. Citizens, part II
We are often asked about Estate planning in France for U.S. citizens, who are shocked by estate taxes that can rise to 60%, as well as the loss of flexibility for designating beneficiaries, if you have children, and various strategies for charitable giving. French tax attorney’s rarely understand cross border solutions, and the same goes for French notaires, who remain fixed in their world of France and its borders. And even when working with a U.S. estate planning attorney, they rarely reach a “cross-border” solution.
Perhaps one of the most popular techniques in France is called Démembrement de propriété which means splitting a property between the parents who keep the right to enjoy the property during their lifetimes and the children, who obtain the property at their death, at a much lower cost than they would otherwise obtain. By giving the parents the right to enjoy the property for their lifetimes, the value of the “walls” or remainder is worth much less – hence the idea is to lower the value for the succession taxes. This is fine in France, but it doesn’t work for U.S. estate taxes, and it is considered an “incomplete” gift, causing the full value of the property to be included in the U.S. estate, despite the gift taxes that were paid in France. It still might be ok, if the estate tax exemption in the U.S. stays high, but otherwise, the strategy doesn’t really work.
Let’s think about a series of issues that we have recently encountered. First, a U.S. citizen owns an apartment in France. Assume the apartment is worth €1 million. While the U.S. citizen may adore France, their beneficiaries may have little affinity for it and would be stuck with the hassle of dealing with the succession with a French notaire and then hiring a real estate broker in France to sell the property. This is even harder if the U.S. beneficiary doesn’t have a passport, which is the case for 50% of Americans. So, it might make sense to simply gift the property in your will to a registered charity, such as the American Library in Paris. In this way, the property won’t be subject to estate taxes in France, you will be credited for a large gift to charity during your lifetime and you can make up the value of the property by buying life insurance on one or two lives in the United States, potentially even borrowing the premium, and in this way, either dramatically reducing the French succession taxes, or funding them at a far reduced cost.
Other cases involve children who may not be responsible enough to receive a large amount of money, even though they are of the age of majority in France, or perhaps a handicapped child. Here is where a variety of French techniques can come into play through the use of a French corporation and a French version of a trust, called a Fiducie.
We don’t want to bore you with hundreds of examples, but the point is, all is not lost for an American who wishes to plan for their estate in France. It takes using a combination of techniques, some in France, some in the U.S. but ultimately guided by a specialist in cross border planning.