US special needs trusts and the law in France

Reader Question: I am an American living in France but own nothing of value here (no home or car). I have set up special needs trusts in the US for my adult son. Would these be affected by French laws?

It is quite normal, in common law countries such as the UK or the US, to establish a trust to protect the interests of a child with disabilities. The aim is usually to allow someone else to manage the person’s finances if they are unable to do so themselves. 

In addition, where assets are held within a trust, rather than in the disabled person’s own name, they should continue to qualify for publicly funded support for their needs.

However the French legal system does not have the same common law basis and treats trusts rather sceptically. Indeed, while trusts are useful in common law jurisdictions as tax-planning vehicles, it is often said that France considers that a major reason for setting up a trust is tax evasion.

For more advice on legal issues in France, contact Ashtons Legal.

Certainly, it can be difficult to establish the true ‘beneficial owner’ of a trust, which does not sit comfortably with the French tax office’s intention of being able to identify all true owners of French assets. Once the real owner is identified, taxable events can be charged correctly. 

Given that inheritance tax, at least, varies substantially depending on the relationship between the deceased and each beneficiary, the need to identify the real owners becomes understandable.

The French state has established a trust registration system. This applies not only where any French property is held in trust, but also where, for example, a trustee, a beneficiary, or the settlor (the person who set up the trust) is a French resident. 

Thus if you live in France but have a US special needs trust for your son, it should be declared in France.

The declaration may give rise to a tax liability. Failure to declare may give rise to penalties.

France does offer extra allowances to inheritance tax for disabled beneficiaries. As with many tax matters though, holding assets across two jurisdictions can cause complications. You should therefore seek advice.