What George Clooney and Americans Residing in France Need to Know About French Succession and Tax Laws

Recently, George Clooney, Amal Clooney and their 7-year old twins were granted French citizenship. The granting of French citizenship could trigger a number of estate and tax issues. This article will explain the fundamental differences between U.S. and French succession planning and income tax. This article also discusses the U.S. cross-border estate and tax planning that should not only be considered by George Clooney, but any American that has relocated or will relocate to France.

Introduction to U.S. and French Estate Law Governing Succession

The American system for the transmission of wealth at death can trace its origin to English common law. The American system for the transmission of wealth at death has developed its own peculiar vocabulary. In the United States, a person who leaves a will which directs the disposition of his assets at death is said to have died testate and is called a testator, if male, and sometimes a testatrix, if female. A disposition of real property in a will was traditionally called a devise. The taker of a devisee. A gift of personal property by will is usually called a legacy. All U.S. states have developed detailed laws governing wills. All states require that wills be in writing and that they be signed by the testator, and (usually) attested by witnesses. Historically, wills have been subject to a number of formal requirements. However, many states have reduced the formal requirements for wills. Many states now allow holographic wills and interested witnesses, and allow witnesses to sign the will outside of the testator’s presence. Doubts about the validity of pour-over wills have disappeared.

In the United States, succession planning often revolves around the avoidance of probate at death. Americans want to avoid probate in the U.S. primarily because it’s slow, costly, and public, delaying heirs from receiving assets, reducing an estate’s value. Americans often use revocable living trusts to avoid probate. Trusts in the U.S. can pass property at death even though not executed with the formalities prescribed for wills. Revocable living trusts have no tax advantage for U.S. tax purposes. If the settlor (person who creates a trust) retains the power to revoke the trust, the trust income continues to be taxed to him, and the trust property is included in his estate at death for purposes of the U.S. estate tax. Irrevocable trusts, on the other hand, can save both income and estate taxes. These savings do not require the use of a trust; an outright irrevocable gift has the same effect. Nevertheless, trusts are very commonly used for gifts because they avoid certain disadvantages of outright gifts.

A person in the U.S. states that does without a valid will or trust is said to die intestate. All states have provided for intestacy by statute which are often called the statutes of decedent and distribution. When a decedent in the U.S. leaves both surviving spouse and issue (lineal descendants), many states give the spouse one-third with the issue sharing the balance. Some states give the spouse one-half. Some make the spouse’s share dependent on how many children the intestate has, e.g., the spouse gets one-half if there is only one child (or the issue of one child), but only one-third if more than one child (or child’s issue) survives.

American law governing succession usually consists of a mixture of federal law (for purposes of determining potential income tax, estate, and gift tax associated with estate planning) and state law which governs a decedent’s will or trust. The U.S. law generally applies the law of the decedent’s domicile for state purposes of the distribution of assets. On the other hand, for purposes of personal and real property, the state law of the situs of the property governs.

U.S. citizenship (along with domicile and the location of a decedent’s assets) is the primary factor for determining if a deceased person or decedent is subject to U.S. succession laws.

France is a civil law jurisdiction. As a civil law jurisdiction, France does not recognize the concept of trusts under its laws governing succession of wealth. French law does however recognize the concept of trusts for purposes of taxation and anti-money laundering laws. French succession law also emphasizes “forced heirship.” France’s forced heirship protects children by mandating that they receive a significant portion of an estate. French succession law limits the amount of property that can be freely given away by parents. Under French law, children of a decedent have the absolute right to inherit from a decedent as follows:

Once the amount of the forced heirship has been calculated, the remaining assets of a decedent can be transferred to the decedent’s heirs.

Like the United States, France has rules governing intestacy. In France, the intestacy rules typically provide that a spouse may take a minimum of 25% of a decedent’s estate or a usufructory interest in the entire estate of a decedent. A usufruct is a civil law concept granting someone (the usufructuary) the temporary right to use and benefit from another person’s property without owning it. A usufructory interest legal definition is similar to that of a life estate under U.S. law.

French law allows married couples to hold property as follows:

Separate Property

France permits married couples to hold property as separate property. In general, separate property refers to assets and debts belonging solely to one spouse, generally including what they owned before marriage, gifts or inheritances received during marriage. Holding property separately in France typically requires a marriage contract executed with a French notary before or during marriage.

Community Property

In France, holding property as community property is typically the default rule. Under community property laws, with the exception of property acquired by gifts or inheritances, assets and debts acquired during a marriage are typically owned 50/50 by both spouses.

Universal Community Property

France’s universal community property regime pools all assets – present, future, inherited, gifted into one pool of assets that is held by a married couple. Under this method of holding property in France, everything owned before or during the marriage, including inheritances, become joint property, shared equally and the spouses are fully liable for all debts.

The method in which married couples in France hold property may significantly limit a spouse’s ability or children from a former marriage forced heirship claims of marital or separate property. In France, spouses may elect their marital regime. How an American holds marriage property in France can have significant consequences for estate planning purposes in France. French law permits parties to a marriage to contract how they will hold assets located in France. French spouses can have a contract drafted in a way that the agreement holds assets as follows: 1) under the laws of the state where the spouses or future spouses, or one of them will be a resident; or 2) under the law of the state of the nationality of either spouse or future spouse at the time the agreement is concluded or at the time of a spouse’s death or at the time of divorce.

France uses domicile to determine if an individual or decedent will be subject to French succession law. Under French law, an individual is considered to be domiciled in France if at least one of the following four criteria listed below is met:

1. The habitual abode of the person or family is in France.

2. France is the principal place of sojourn (more than 183 days in a calendar year).

3. Professional activities are carried out in France.

or

4. France is the center of economic interests.

Even if an individual is not domiciled in France, he or she could be subject to France’s succession laws on property that he or she owns in France.

The differences discussed above between U.S. and French succession law are significant. Thus, if an American relocates to France, French succession law could conflict with U.S. law governing the succession of wealth.  In some cases, these differences will be minor and the conflict of laws can be resolved through a legal concept known as Renvoi. Renvoi is a French legal concept used primarily in conflict of laws. It refers to the process where a court in one jurisdiction applies the legal rules of another jurisdiction to resolve a legal dispute. The doctrine may be applied whenever a court is directed to consider the laws of a foreign country. In other cases, the doctrine of Renvoi will not resolve conflicts of law between the two sovereigns. Below, we will discuss the areas of succession law that are likely to trigger conflicts that cannot likely be resolved by the doctrine of Renvoi.

Potential Cross-Border Succession Issues and Planning Options

Can an American Use a Trust for Estate Planning Purposes?

Although trusts are a very popular method to transfer wealth and avoid probate, France does not recognize trusts for estate planning purposes. Thus, U.S. persons holding French assets cannot likely utilize a trust to transfer French assets. Even if a U.S. person is using a U.S. revocable trust to hold non-French assets, extreme caution must be excised. Because the utilization of a U.S. revocable trust even to hold non-French assets can trigger very negative French income tax consequences. In some cases, limited cases, negative French tax consequences can be avoided or mitigated by utilizing a pour-over will and revocable trust combination for U.S. estate planning purposes.

The Washington Convention and International Will

In some cases, Americans establishing a residence or acquiring assets in France can utilize an “international will” that adheres to guidelines of the Washington Convention for cross-border estate planning. In 1961, the Washington Convention on International Wills was enacted. The Washington Convention on International Wills provides a uniform set of rules to ensure that a will is considered valid in a participating country, regardless of where a will is created, where the assets are located, or where the individual who created the will resides.The Washington Convention has been adopted by France and the United States. However, in the United States, the Washington Convention must be adopted by each state individually under the Uniform International Wills Act. The Uniform International Wills Act has been adopted by Alaska, California, Colorado, Connecticut, Delaware, District of Columbia, Illinois, Maryland, Michigan, Minnesota, Mississippi, Montana, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Vermont, Virginia, and Wisconsin. France may accept a will from a state that incorporated the Washington Convention through the Uniform International Wills Act. The Uniform International Wills Act is found in state law that governs probate. For example, the California Uniform International Wills Act is part of California Probate Code Sections 6380 through 6390. California Probate Code Sections 6380-6390 provides a standardized method to create a will that is valid in foreign countries such as France.

The purpose of the Washington Convention is to resolve the need for multiple wills to dispose of international assets. Consequently, as long as an American has a will that complies with the guidelines of the Washington Convention, his or her assets located in the United States and France may be transferred by one will. For example, if Tom is a resident of California and has assets in California and France, because California has adopted the Uniform International Wills Act, Tom may potentially utilize a single will to transfer all of his assets located in both the United States and France. On the other hand, if Tom is a resident of Florida and has assets in Florida and France, because Florida has not enacted the Uniform International Wills Act, Tom may not use one will to transfer his Florida and French assets. Tom may require separate wills in Florida and France. In certain cases, the Washington Conversion can be utilized to avoid the need for multiple wills. However, on its own, Washington Conversion does not provide any relief from France’s succession rules discussed above.

EU Regulation 650/2012  and its Application to French Succession Rules

The European Succession Regulation Regulation 650/2012 permits individuals with assets in an European Union (“EU”) country to choose the laws of their nationality to govern their succession, overriding the default law that would otherwise apply in the EU country at the time of his or her death. The law of the EU country at issue can be overridden in one or two ways: (1) it is clear from all circumstances of the case that, at the time of death, the deceased was manifestly more closely connected with a State other than the State of his or her habitual residence, then the law applicable to the succession shall be the law of that other State; or 2) the deceased chooses the law of his or her nationality may choose the law of any whose nationality he or she possess at the time of making the choice or at the time time of death. In theory, European Succession Regulation permits the law of a single country to govern a decedent’s worldwide succession, succession document, mutual recognition of decisions in the EU, and status of heir, administrator, and executor is recognized on the basis of the European Certificate of Succession.

An American that has assets located in France or is considering acquiring assets in France may consider making an election under the EU Succession Regulation in their U.S. will can govern the disposition of their French assets. To make a EU 650/2012 election in a U.S. will, the individual must explicitly state in his or her will that they have selected the U.S. law to apply to succession. However, since the United States is a federal nation with different state laws, simply stating “U.S. law” on a will is insufficient, an EU 650/2012 election must state the specific state law that will apply. However, even if such a EU Regulation 650/2012 is made, there are a number of complexities that must be considered. France has enacted domestic legislation that in some circumstances may override EU Regulation 650/2012 for purposes of its domestic succession laws. Whether or not an EU Regulation 650/2012 made by a U.S. person can make an election on a U.S. will and override France’s forced heirship rules remains an open question.

It should also be noted that French law can even apply to U.S. assets. Under the EU session regulation, if a French resident (including a U.S. citizen residing in France) chooses French law in their will, French succession law (including forced heirship) can potentially apply to U.S. assets.

Americans with French assets or Americans that become French domiciliaries must consider the interplay between French and U.S. law and consider if an EU 650/2012 will assist in cross-border estate planning. As a U.S. citizen with two children, George Clooney’s estate planning attorneys likely considered the complex interplay between French and U.S. law and the EU 650/2012 election for George Clonney’s cross-border estate plan.

An Overview American and French Tax Laws

Americans becoming domiciliaries of France will be subject to French income and transfer taxes. By becoming a French citizen, George Clooney will not only have to pay U.S. tax on his worldwide income, he will also be subject to French income and transfer taxes. This portion of our article will discuss the significance of a U.S. citizen becoming a dual resident with France for income and transfer tax purposes. We will begin this section of this article by discussing the differences between the U.S. and French tax regimes.

Overview of the U.S. Tax Laws

The United States taxes its citizens and resident aliens on their worldwide income. Non-resident aliens are taxed on their U.S.-source income. The determination of an alien’s residence is subject to a set of relatively objective tests. These rules generally treat the following individuals as residents.

1. All lawful permanent residents for immigration purposes (“green card” holders).
2. Those who meet a “substantial presence test.” (Present in the United States for at least 183 days in the current year or, alternatively, present in the United States for at least 31 days in the current year and a total of 183 equivalent days during the last three years. For the purposes of this 183-equivalent-day requirement, each day present in the United States during the current calendar year counts as a full day, each in the first preceding year as one-third of a day and each day in the second preceding year as one-sixth of a day).  A U.S. person is subject to an ordinary income tax rate of 37% and a maximum capital gain tax rate of 20% plus a net investment income tax rate of 3.8%, plus potential state income tax if resident in a U.S. state.

Non-resident aliens of the United States are only taxed on certain U.S. sourced income (effectively connected income at ordinary rates up to 37% and passive types of income referred to as fixed, determinable, annual, or periodical (“FDAP”) income at a 30% flat rate withheld at source or a lower treaty rate.  The net investment income tax of 3.8% does not apply to non-resident aliens.

U.S. Estate and Gift Tax

The United States imposes estate and gift taxes on certain transfers of U.S. situs property by “nonresident citizens of the United States.” In other words, individual foreign investors may be subject to the U.S. estate and gift tax on their investments in the United States. The U.S. estate and gift tax is assessed at a rate of 18 to 40 percent of the value of an estate or donative transfer. An individual foreign investor’s U.S. taxable estate or donative transfer is subject to the same estate tax rates and gift tax rates applicable to U.S. citizens or residents, but with a substantially lower unified credit. The current unified credit for individual foreign investors or nonresident aliens is equivalent to a $60,000 exemption, unless an applicable treaty allows a greater credit. U.S. citizens and resident individuals are provided with a far more generous unified credit from the estate and gift tax. U.S. citizens and resident individuals are permitted a unified credit of $15 million or $30 million for a married couple (for the 2026 calendar year).

France’s Tax System

France’s Income Tax

Individuals, whether French or Americans, who have their tax domicile in France are generally subject to personal income tax on worldwide income unless excluded by a tax treaty. Individuals who are not domiciled in France (nonresidents) are subject to tax only on their income arising in France or, in certain instances, on imputed income.

French income tax provides for graduated rates up to 45% for ordinary income. Investment income (dividend, interest) and capital gains are generally subject to a flat income tax rate. A contribution on high income at 3% to 4% can also apply on top of the income tax.

If an American becomes a resident of France, he or she will be subject to U.S. and French tax on his or her worldwide income. The U.S.-France income tax treaty may adjust the sourcing and taxation of certain income to reduce the double taxation on worldwide income. For example, Article 24 of the U.S.-France income tax treaty provides that U.S. citizens who meet the treaty test for “residency” in France” are excluded from paying French tax on U.S. investment income (interest, royalties, capital gains). This is a courtesy that the French government extends to U.S. citizens that reside in France with respect to certain U.S. source income from dividends, capital gains, and royalties. It should be noted that this is not an “exclusion” of U.S. investment income from the calculation of French taxable income. Rather it is a tax credit that France offers which ensures that U.S. citizens will not pay French tax on that U.S. source investment income. Thus, the U.S.-French income tax treaty offers U.S.-French dual tax residents such as George Clooney a small break from double taxation under Article 24. In certain cases, the tax treaty may offer larger reductions of French tax or U.S. income tax on income that would normally be taxed under both sovereigns. In addition, U.S. and French double taxation can also be reduced in certain cases through foreign tax credits and the foreign earned income exclusion.

American Trusts May Trigger Unwelcome French Tax

As discussed above, Americans often utilize revocable trusts or living trusts to avoid costly and lengthy U.S. probate processes. However, these types of trusts can be problematic for U.S. citizens establishing a residence or domiciliary in France. While France does not have a concept of trusts under its own law, it does recognize U.S. trusts for tax purposes, and has specific reporting obligations for them. On July 31, 2011, French legislation imposes onerous tax and reporting rules on trusts where (1) the settlor is a French resident; (2) any beneficiary is a French resident; or (3) any trust asset is French situs.

Utilizing a U.S. trust for estate planning is not only an ineffective way to plan to transfer French assets, utilizing a U.S. trust for estate planning will likely trigger filing requirements in France and unwelcome French tax consequences. Although France does not recognize trust for estate planning purposes, France taxes them. This includes U.S. revocable trusts. In 2023, an American couple found out the hard way that France taxes U.S. revocable trusts. In that year, an American couple appealed the French tax authority’s decision on the income from their U.S. trust. The French tax authority treated U.S. trusts as “pass-through” entities for purposes of French taxes and ignored that the assets were in trust. At the request of the French Minister of the Economy, the French Administrative Supreme Court was asked to decide on whether, under the provisions of the United States-France income tax treaty, income distributed by a non-discretionary revocable trust established in the United States should be considered to be directly derived by U.S. citizens who are French tax residents and who are settlor, trustees, and beneficiaries of the trust. The French Administrative Supreme Court was asked to determine whether under French law a U.S. trust should be considered tax transparent. The French Administrative Supreme Court rendered its opinion on April 18, 2023. The opinion of the French Administrative Supreme Court stated as follows:

1. French domestic law does not recognize the transparency principle applicable to certain U.S. trusts. Under French law, U.S. trust income is taxed only when it is effectively distributed from a U.S. trust to a French tax resident. Such income will be taxed as a foreign dividend, regardless of the nature of the assets held in trust. As a result, income that is not distributed by the trust is not subject to income tax. However, when the income is distributed from a trust, it will be taxed as investment income at a rate of 30% “flat tax” rate (34% in certain cases).
2. The purpose of the U.S.-France income tax is to allocate the right of taxation between the two nations and not to modify the substantive domestic tax rules of the contracting state. In the absence of any explicit provision in the tax treaty preventing the French domestic taxation of distributed trust income as dividends, the domestic rules continue to apply.
3. More specifically, Article 7 Section 4 of the tax treaty, which provides for a transparency principle regarding the income from “partnership” does not apply to trusts and trusts are not treated as partnerships.
4. The French Administrative Supreme Court avoided discussing the issue of whether or not tax credits may apply in France for U.S. taxes paid in trust distributions. Thus, U.S. citizens receiving trust distributions that reside in France may be subject to double taxation.

What the French Court Opinion Means For U.S. Settlors and Beneficiaries of U.S. Trusts

The French court opinion means that U.S. beneficiaries of domestic trusts will likely pay French taxes on income from a U.S. domestic trust only when distribution is made from the trust. The French Supreme Court Opinion does not seem to distinguish between grantor and non grantor trust for purposes of French income tax. For French inheritance and gift tax purposes, the settlor of a U.S. revocable trust is deemed to have ownership of all the assets placed in trust and the death of a settlor is a deemed transfer and therefore a taxable event. This means if a U.S. citizen establishes a U.S. revocable trust and later redomiciles to France, French gift and inheritance taxes will likely apply to the trust regardless of the location of the assets or beneficiaries.

The tax rate that will apply to the gift will depend on the relationship between the settlor and the beneficiaries. In addition, as discussed above, assets in trust generally are counted for French property wealth tax purposes. Any settlor of a U.S. revocable trust that redomiciles to France and become French residents for tax purposes must include the value of their taxable assets in trust in his or her annual French property wealth tax computation. A beneficiary will be deemed the settlor when the original settlor dies (referred to as a “deemed settlor”) and then must include the value in his or her wealth tax calculation.

For French income tax purposes, a trust is generally viewed as opaque (non-transparent), which means that trust income is generally not subject to French income tax until distributed. However, certain trusts (such as revocable grantor trusts where the settlor is also the trustee) might either be disregarded or subject to anti-abuse inclusion rules, thus making the settlor subject to French income tax on income accrued by the trust regardless of distribution. Consequently, if a U.S. brokerage account is placed in a U.S. trust and earned $30,000 in dividends, but the dividends were not withdrawn from the trust, the U.S. beneficiary would not likely be subject to French income tax on the dividends. However, once the dividends are distributed from the trust, the U.S. dividend may be taxed in France as a dividend from a closely-held entity. This type of dividend is taxed at a relatively high rate in France. It is uncertain if dividends distributed from an American trust subject to French tax can be reduced under the U.S.-France income tax treaty. American beneficiaries of U.S. trusts may not only be subject to a number of French taxes, American settlors and beneficiaries of such trust may also be required to file annual Form 2181 with the French tax authorities.

Americans (including George Clooney) that establish a domicile in France should consider carefully reviewing any U.S. trusts they created or are beneficiaries of to determine if these trusts will trigger French tax consequences and filing French filing requirements. In certain cases, Americans may want to consider the use of a pour-over will to reduce their exposure to French tax associated with an American trust. However, this is not an area that one-size fits all and must be cautiously considered.

French Wealth Tax

France imposes a wealth tax only on real property interests. Individuals who qualify as French residents are liable to the French property wealth tax on a worldwide basis, whereas non-French residents are subject to the French property wealth tax on French-situs property interests only. Only individuals with a net tax base in excess of 1.3 million Euros as of the 1st of January of each year are subject to the French property wealth tax. The tax base includes real property interests, real estate rights, and equity interests in companies or entities for the fraction of their value representing French situs real property or real estate rights. There are a number of exceptions to these rules. The rates of property wealth tax vary from 0.5% if the net value of the taxable estate is between 0.8 and 1.3 million Euros and a top rate of 1.5% when it exceeds 10 million Euros.

This wealth tax can be an unwelcome surprise for U.S. citizens redomiciling to France that hold real estate in U.S. revocable trusts. Under French law, a settlor or deemed settlor of a U.S. revocable trust is regarded as the owner of the trust assets for French wealth tax purposes unless the deemed settlor demonstrates that he or she cannot derive any contributive capacity from the trust. Failure to report trust taxable assets and pay the corresponding French property wealth tax can attract a 1.5% sui generis tax on the trust taxable assets. Any U.S. citizen that holds real property in a revocable trust (regardless of the location of the real estate) that is considering redomiciling to France should determine if the wealth tax will apply to the trust’s assets.

Inheritance Tax

Unlike the United States, France has an inheritance tax. The French inheritance tax applies to any inheritance from a French resident, any inheritance by a French ordinarily resident, or any inheritance of a French situs asset. Certain debts of the decedent reduce the inheritance tax.  Each beneficiary of a gift is liable for French inheritance tax. French inheritance tax then applies at graduated rates depending on the relationship between the decedent and the beneficiary. The French inheritance tax is computed as follows:

Does the U.S.- France Estate and Gift Tax Offer Relief from French Wealth and Inheritance Taxes

Both the U.S. and France assess transfer taxes on the death of a citizen or resident. France’s wealth and inheritance taxes can be assessed on U.S. assets. The threshold for these taxes are much lower than the threshold as to when the U.S. estate tax is triggered. The U.S. has entered into an estate and gift tax with France. The question is does the U.S. – France estate and gift tax offer any relief from France’s wealth and inheritance tax. The U.S. – France estate and gift tax treaty allows for a credit for taxes paid in one country against liability in the other, preventing double taxation, meaning any U.S. estate and gift tax paid can potentially reduce French inheritance tax on the same asset.

The U.S.- France estate and gift tax also change the regular U.S. and French domicile test. Under the U.S.-France estate and gift tax, an individual will only be deemed a domiciliary of the country of which he is a citizen and a series of tests is applied to determine if the individual is a domiciliaries of the other country. Under the treaty, in certain circumstances, French domiciliary for purposes of the wealth and inheritance tax may be avoided. The U.S.- France estate and gift tax may also potentially change the situs rules in certain cases to reduce transfer taxes.

Conclusion

Like many Americans, George Clooney moved his family to France for a higher quality of life and a better work-life balance. Although a move to France can offer some Americans a higher quality of life, the complex interplay between French and American succession and tax laws must be carefully considered and planned for. Americans acquiring French assets and/or relocating to France will likely require sophisticated international estate and tax planning from both competent American and French international tax attorneys.

Anthony Diosdi is one of several tax attorneys and international tax attorneys at Diosdi & Liu, LLP. Anthony has substantial experience advising foreign and domestic technology companies regarding the U.S. tax consequences of digital content and cloud transactions. Anthony has written numerous articles on international tax planning and frequently provides continuing educational programs to other tax professionals.

He has assisted companies with a number of international tax issues, including Subpart F, GILTI, and FDII planning, foreign tax credit planning, and tax-efficient cash repatriation strategies. Anthony also regularly advises foreign individuals on tax efficient mechanisms for doing business in the United States, investing in U.S. real estate, and pre-immigration planning. Anthony is a member of the California and Florida bars. He can be reached at 415-318-3990 or adiosdi@sftaxcounsel.com.

This article is not legal or tax advice. If you are in need of legal or tax advice, you should immediately consult a licensed attorney.