French tax law applies to American trusts

French tax law may apply to American trusts that have a connection with France, according to Article 792-0 bis of the General Tax Code. This article targets all legal relationships created under foreign law by which a settlor places property under the control of an administrator for the benefit of one or more beneficiaries, regardless of the type of trust.

Connection with France triggers tax obligations

A connection with France may be established if the settlor or one of the beneficiaries has their tax residence in France, if the trust holds property located in France, or if the administrator is domiciled in France. A single child living in Paris may be enough to bring an American trust under French tax obligations.

Inheritance taxes may apply after settlor’s death

At the death of the settlor, trust assets may be subject to inheritance taxes in France, as if they were still part of the settlor's estate. Even an irrevocable trust established years earlier is not exempt, as its assets remain attached to the settlor until their death.

Franco-American convention may limit French tax rights

The Franco-American convention of November 24, 1978, on inheritances and gifts may limit the right of France to tax when the settlor was domiciled in the United States. The rate of inheritance taxes in France depends on the wording of the trust, such as whether it specifies a determined share for each beneficiary or a global share for descendants.

Declaration requirements after the settlor’s death

The death of the settlor is considered a "modification" requiring a declaration within a month. Two forms are used: Form 2181-TRUST1 for the creation, modification, or extinction of the trust, and Form 2181-TRUST2 for the annual declaration of the market value of the trust's assets as of January 1.

New law imposes declaration obligations

Law No. 2026-534 of June 25, 2026, created a specific declaration obligation for the administrator in the event of the settlor's death, applicable since June 27, 2026. After the settlor's death, the trust beneficiaries are deemed settlers for the assets that belong to them. For a beneficiary domiciled in France, this qualification may affect their taxable estate for the IFI (Wealth Tax).

Fines for failure to declare

The settlor and the deemed settlers are jointly responsible with the administrator for the payment of fines for failure to declare. Each missing declaration is subject to a fine of 20,000 euros, regardless of the value of the assets or the existence of taxes due. An 80% surcharge may also apply if taxes are recalled on the assets of an undeclared trust.

Case examples highlight legal complexity

In one case, an American father who died in 2021 established an irrevocable trust with American securities worth approximately 4 million dollars in favor of his two children, one of whom had lived in Paris for twelve years. The trust was divided into two separate trusts after the father's death. Despite the analysis of the Franco-American convention possibly excluding French inheritance taxes, declarations were still required, leading to potential fines if not submitted.

Tax rates vary based on trust wording

In another case, an American living in Paris for fifteen years established an irrevocable discretionary trust with 3 million euros of American securities. At his death, France may tax these assets, applying a 45% rate. If the trust had specified a share for each child, the tax rate would have been lower.

Many American trusts remain undeclared in France

Trusts established by American residents often remain undeclared in France, even though some beneficiaries are tax domiciled in France. The obligation to declare falls on the trustee, and the settlor is jointly liable for the fine; after death, this liability extends to the deemed settlers, including those living in France.

Deadlines are short and errors are common

The first error is typically the absence of declaration, followed by improper completion of forms. Deadlines for declarations are short, often only a month after the creation or modification of the trust. The French tax administration has generally been understanding when good faith is established, but there is an increasing focus on assets held abroad.

Legal advice is recommended

Fines remain due even in cases of good faith. Legal experts recommend negotiating with the administration and conducting a case-by-case analysis. The first step is to discuss the trust with a lawyer, considering the wording of the deed, the nationality and domicile of the settlor, the residence of the beneficiaries, and the nature of the assets.