Estate planning, succession law, inheritance tax – these could well be terms you’re already familiar with. But what do they all mean, and how do they differ from one another? If you’re an American expat living in France you may want to plan for the future to ensure your loved ones don’t inherit a costly and confusing administrative tangle when you’re no longer there to help them through it. If you’re considering writing a will, you probably already have an idea of who you want to inherit what when you die.
What can be more complicated however, is ensuring that you are complying with American and French laws relating to the distribution of your estate, who can get what and – significantly – how much tax they will pay and at what point during the process.
It could be you’re also considering gift-giving during your lifetime as a way to ease the financial burden on loved ones – now or in the future.
We asked Amy Witherbee, president of Sanderling Expat Advisors. She lives in Rennes, Brittany holds multiple qualifications including a law degree, and is a registered financial advisor in France. She shares her expertise and experience saying “I have written a series of articles that include what I refer to as the things that people often get wrong. One of the most important distinctions that it’s very easy to misunderstand is the difference between succession and inheritance tax.”
Succession or inheritance. What do I need to know?
“When someone dies, there are specific laws used by the courts, and the rest of us, to work out who gets what,” Amy says. “In the States, these trust and estate laws are specific to each state, but they are all quite similar. These laws explain how to ensure a will is lawful, what kind of things you can pass down when you die, who gets your stuff if your will can’t be found and whether you’re allowed to leave everything to your favourite pet.”
Where it gets more complicated, Amy explains, is working out who pays tax, when, where and how when someone dies. “This is the legal stuff that we spend a lot of time considering as financial advisors or lawyers,” she says. She adds that you can live in one country and opt to choose succession laws that apply in your home country in a lot of cases. “For instance, under French law you are not allowed to completely disinherit a child or spouse. If you really want to disinherit the child who forgot your birthday, you can choose to do so by applying US succession law to your estate instead. But” warns Amy, “you need to be aware that this isn’t going to do much about the taxes that those who do inherit will pay. Succession laws have nothing to do with this aspect of estate planning.”
Gifts, tax laws and the Franco-American tax treaty
There are U.S. and French laws concerning gifts (including inheritance) that apply respectively to citizens and residents of each of these countries. Americans who are French residents are subject to slightly different tax laws when it comes to gifts however, because of the treaties that exist between the U.S. and France.
“The right to opt for U.S. succession laws does exist.” Amy says. “It’s part of an EU Succession Regulation from 2015 known as ‘Brussels IV.’ In theory this means that you should be able to avoid France’s so-called ‘forced heirship’ laws that prevent you from completely disinheriting your children or your spouse.
The right to avoid these French laws has been somewhat in doubt however, because France is interpreting the legislation differently This is probably incorrect in Amy’s view and she says that most French legal experts seem to think that this situation will be corrected.
The problem, advises Amy, is that opting for U.S. succession law probably doesn’t solve the problem you originally had in mind. If you really do want to totally disinherit your children and even your spouse, electing for U.S. succession law is a good idea. If on the other hand, you were trying to cut down on estate taxes when your kids do inherit, you should probably know that the succession laws have nothing to do with the that.
Amy explains the situation further. “Exactly how the rules are applied will depend on the residency status of the person giving, and of the person receiving the gift. If this sounds complicated, it’s probably because it is. Even the authorities in each country seem confused about exactly who pays the taxes applying to gifts and estates. You should always declare your gift, however, to French tax authorities. To date this has meant that your tax bill will be credited to ensure that you don’t pay tax in France.
“If you are an American, however, and you receive a gift from a non-American French resident, there is a completely different issue to consider. If the gift is not of property or land, you shouldn’t, as the recipient, be subject to French tax. Americans though, are always subject to the U.S. Foreign Gift Regulations no matter where they live. This means if you receive a gift or inheritance of more than $100,000 from an individual you must report it to the U.S. government or face strict penalties. The same is true if you receive more than $19,570 (2024) from a foreign corporation or partnership.”
Find out more and get in touch with Sanderling Expat Advisors at sanderlingexpat.com
