Is Putting My French Home into a Trust a Good Idea?

If you live in the UK, you may have heard of and be familiar with the idea of a trust. A trust is a legal arrangement where a person or a trust company (the trustee/s) owns and manages assets on behalf of another person/people (the beneficiary/ies).

Trusts are everywhere in the UK. If you have a private pension, it is likely that this is held in a trust arrangement.

There is a vague belief by many in the UK that putting assets into trust means that they will not need to pay inheritance tax, or other taxes in the UK. This is not the case, but trusts do still have their uses. For example, there is a real benefit for trusts which are used to hold assets for vulnerable individuals who are not able to manage their assets by themselves

There are a variety of trusts in the UK, and each have their own tax regime. It is relatively common for British individuals to include a trust in their Will.

For example, John has three adult children: Anna, who suffered a head injury 10 years ago and now lives in supported accommodation; Ben, who struggles with a gambling addiction; and Charlie, who is doing well and has three small children.

John establishes a discretionary trust in his Will. He leaves all his assets (bank accounts and home) to the trust and names his two best friends as trustees. He asks them that they distribute the trust assets to his three children when needed, in such amounts as the trustees think appropriate.

However, is the above structure suitable if John moves to France, buying his new home there?

It is important to know that, along with the language, the legal system in France is very different from that in the UK. French law is based on a ‘civil law’, as opposed to a ‘common law’ system used in most of the UK. Civil law jurisdictions, as a general rule, do not have trusts.

The concept of a ‘trust’ is not one that will be encountered in French law and is often met with confusion and worry about tax evasion and illegal activity. Therefore, trying to enforce an English trust over French assets will be fraught with problems, and the legal fees to try and unpick these can quickly mount up.

If a foreign trust has some sort of relationship with France – for example, if the trustees, beneficiaries, or the settlor (the person who set up the trust) are domiciled in France or if there is any property owned by the trust located in France, the trustees must comply with strict tax reporting requirements in France. These reporting requirements are so onerous, and the fines which can be issued for non-compliance so high that there is a real reason to avoid having a trust with links to France for most people.

In addition, depending on the type of trust that John opts for in his Will, there is a risk that the French tax office dealing after he has died will look at the trust set up in his Will and treat the trustees as his beneficiaries (whereas under English law, they would not be treated as entitled to any of the trust assets). If the tax office does this, they could subject John’s assets to 60% tax, because the trustees are not related to John. By contrast, if the assets passed to the children directly they would have tax-free allowance each and pay tax at a far lower rate.

If you have moved to France and still have Wills which contain trusts, it may be a good idea to revisit the Wills and speak to an advisor to discuss what other, non-trust options are available which will work better in France and reduce the tax burden and stress for your family.