Estate Planning for Americans Retiring in France

Arielle Tucker (00:01.026)

France is one of the most popular destinations for Americans dreaming of life abroad. But French tax law, inheritance rules, social charges, and estate planning can surprise even wealthy and well-advised families. Today I'm joined by Vincent, a French tax attorney, to talk about what Americans should understand before making France their next chapter. Vincent, I'm gonna let you fully introduce yourself because I am going to kill your French name.

Give me a short introduction about your your full name and your your firm and what you are doing in France.

Vincent (00:36.891)

Alright, that works. thank you, Arielle, for taking me on for that podcast. I am Vincent Berthier de Bortoli, so that's quite quite the long name I know. French and Italian descent, so that's that's quite a lot. anyway, I'm a French tax attorney. I've been practicing tax for around ten years now. always in some Buddhic firms, always serving private clients only. and I've set up my own

French tax practice in October 2023, I think. So it's almost three years now. And even though historically I was advising UK clients, because that's where I'm from. I'm from the Alps, the French Alps, so there's a lot of British people there. I I had my clientele turned out to be mostly American people now. and it's basically 90% of my clientele now. So yeah, it's

virtual net worth American people coming to France, trying to live the good life and escape the the French the French tax net as much as possible. so that's what I'm I'm trying to do trying to assist my US clients doing that.

Arielle Tucker (01:45.379)

Wonderful. And I also want to mention you are a member of STEP. And so if you're not familiar with STEP, it is a wonderful organization. They really hold themselves to very high education.

fiduciary standards. So I find it quite impressive that you are a STEP member and that you're also a member of our Passport to Wealth advisory committee. So thank you so much for for sharing your time and your expertise with us today. I want to kind of jump right into it because it's been so interesting to see the demand for France and

I'll just say, like our firm does not do anything in France. But we, I think, at least weekly get inquiries about France. it is such a popular destination for Americans to move abroad. What do you think is really driving the idea about moving to France in particular for Americans right now?

Vincent (02:35.19)

Well, I think France and the US always had kind of a great connection, historically, so that's that's one thing. the second one is probably the the quality of life you've got on the French side, which compared to some places in the US might seem better, at least for retirees, especially in the south of France where you've got a lot of sun. if it were me, I would say the French Alps because you got a lot of snow, but that's another story. so I guess those are the

primary reasons for Americans coming to France. And then there's obviously the tax treaty that helps a lot because you can try and look pretty much all over the world. There's no other tax treaty like the French American one. It's so beneficial to the to the to the US citizens that yeah that's if the if tax is the question, then you've got the answer already on paper. That's that's France and that's it.

Arielle Tucker (03:28.866)

I'm so glad that you've already brought up the tax treaty, right? Because

A lot sometimes I'll get inquiries where it's something like, I want to move to Europe. And Europe is a really big continent with lots of different countries. And so you have to go like one step further and really start to think: which country do I want to live in? And what is the financial implications of living in that country? Does it have high cost of living? Does it have low cost of living? Are there high taxes? Are there low taxes? That's a really important consideration. And when we're thinking about Europe, oftentimes we're really thinking about high taxes.

tax jurisdictions. So within that treaty, are can you kind of pull out some examples of things that are a really great deal for Americans?

Vincent (04:11.608)

Yeah, so there's there's a few there's a few articles where actually US citizenship is not even mandatory and whether you're American or not, it would still work. And those are pensions and okay, mostly pension and US rentals. Those would be we say tax free, but it's it's not really what it is. It's not tax-free. You get taxed on the French side and the French will give you what we call a full tax credit. So they're gonna zero out your French taxes.

Result is you only pay your federal taxes in the US. You should no longer pay US state taxes, depending on your situation, but in most cases you won't. So that leaves you with US federal tax on your US pensions and US rental income, no French taxes. So that's one. And by pension, that's also a good thing with that tax treaty. By pension, we mean a lot of things. so for US people, most of the time, pension is is really your private pension, but we actually include your

IRA distribution, rough IRA distributions, Social Security, 401k, 403B, all of those are pension, no tax on the French side. So that's one. And then you've got the sources of income where you actually need US citizenship for that to work. It's investment income. So dividends, interests, capital gains on stocks and bonds for those, you need they need to be really US source. So you need to be invested in US.

investments and for those same thing the French will grant you a full tax free on the French side. So that's why it's probably the best tax treaty in the world for income tax for US persons because they end up paying no income tax on the French side if everything is done quite well.

Arielle Tucker (05:57.357)

Yeah, and it really it's almost like too good to be true, right? It th when I hear of when I first heard about it, and one of the things you mentioned was Roth accounts. And this trips up so many Americans moving abroad because there are so few countries that recognize the Roth accounts, and France is one of them. France and

Right. If you are following anything about US financial education, you'll know the Roth account is this like amazing deal, right? To you put money in and then it just grows tax-free and you pull it out tax-free. There's not a lot of other countries in the world that have this type of retirement plan or this retirement scheme. And so in France, the fact that you could kind of come there with a, you know, a million dollars or or more in a Roth account and that's tax-free on the US and on the French side.

Vincent (06:27.506)

Yeah. Yeah.

Arielle Tucker (06:45.932)

That's super exciting. So whenever I hear about the French Taxi Treaty, I always think it's incredibly attractive for high net worth families, the families that have already accumulated their wealth and it's mostly US-based, and now they're moving into France because they're actually potentially able to drop their state tax residency and just pay federal tax rates. And our highest federal tax rate right now is 37%.

Vincent (07:11.897)

Yeah. Yeah, that's absolutely true. Yeah, no, that's that's a real good deal to be honest. I usu I usually joke about it and saying it's probably some something that came out after the Second World War and it was kind of a thank a thank you to the Americans, but it probably is actually. so yeah, it's it's really a good deal for for for US citizens.

Arielle Tucker (07:31.214)

Okay, so we're know that a lot of US citizens are moving in, they're taking advantage of this, especially after they've accumulated their wealth, maybe they're retiring early or they're spending their whole retirement in France. Seems like a great tax place to live, but what about if you're dying? What if you die in France? Tell us, can we talk a little bit about dying in France?

Vincent (07:48.602)

that's that's whether whether you're French, you're French American, British, whatever, it's never a good place to die. absolutely never. and that's that's b of of course because of our high tax rate on the French side for inheritance tax. but it also it also has to do with the only few tax tools that you got to go over it. Okay. so the well yeah, how can I say that?

The main thing you have to understand as as an American is that there's a huge difference between a US inheritance and a French one. On the US side, you've got an estate. That concept of an estate doesn't exist on the French side. We don't know what an estate is. Okay? This is really for common law countries. So when you die in the US, all of a sudden your wealth is in that thing called an estate. It can be dragged for years and years and years. It can get distributed.

Arielle Tucker (08:25.742)

Mm-hmm.

Vincent (08:46.697)

10 years afterwards and it gets taxed on its own. And that's something that we don't have on the French side. On the French side, we've got a saying, le mort saisit le vif. So basically that what that means is when you die, your heirs, or your beneficiaries, if you want, they're entitled to your your estate straight away on the same date. So the only date that matters is the date of death. And then the main o the main other difference is.

We assess the taxes on the head of the recipients, not on the estate itself. So each and every one of the beneficiaries will got their own rates, their own share, and that's it. So that's the the two main differences, which in practice it leads to very, very weird situations where you've got clients telling telling you, okay, we've got this estate that is here, like it's been here for five years. And I'm like, Okay, but when was the date of death actually? It was five years ago.

Okay, so we missed something five years ago, so we might we might have to go back and look at it. So those are really the kind of mismatches you got, but fortunately from a tax point of view, we've got a second tax really between France and the US that would kind of tackle most situations. The only thing it does not do, it does not resolve that timing mismatch between settling an estate on the US side and handling a inheritance on the French side. But

You're right overall, given all rates on the French side, not a good idea to die in France.

Arielle Tucker (10:22.092)

Okay, can you talk me through are there any issues for individuals who become resident in France and maybe they have a parent die in the US and now they've received an inheritance. Is that an issue that they need to be thinking about?

Vincent (10:38.476)

No, it's absolutely not an issue because of the tax treaty. The tax treaty will absolutely resolve that issue. It's again one of those beautiful tax treaties. We don't have many in terms of inheritance tax. I think there's around 20 arounds for France. but the one with the US is one of the one of the best again, because it it lays out a lot of rules actually. Some of our estate tax treaty are like a few lines here and there. This one is really a thick one.

And actually, if you are in France, if you are a f French tax resident and you receive inheritance or gift, because the rules are the same for gift, from someone that is in the US, and provided it's not a piece of real estate outside of the US that you're receiving, pretty much everything else, so cash, US real estate, investment account, those will be tax-free on the French side, because the tax truly will look at where the donor is. That's the first thing we will look at.

If they're in the US, most articles in the tax treaty will basically say France doesn't have the well, again, they have a right to tax it, but they need to give you a tax rate equal to the French tax. So no worries. If you're coming to France and you know that your parents are of old age and you know you're gonna receive something within the next five years, no problem at all. And there's even something better on the French side, and that's a

pure French domestic mechanism, so you don't even need a tax treaty for that to apply. For the first six years that you are in France, you can receive anything from anyone outside of France, again, except if it's French assets, but most of the time it's not, it will be tax free because of a French tax mechanism. We have we have kind of a tax holiday for six years. You can receive whatever you whatever you want from whoever you want, tax free weird.

Not even going to look at the tax rate between those persons, it's tax-free. The thing that you need absolutely absolutely need to do anyway is to file your either gift tax or inheritance tax return when you receive something and you're in France. That's very important. The French tax authority have a very kind of a in some kind of investigating tool whereby they could say if you did not report your gift.

Vincent (13:00.972)

Whenever we're gonna find out about that gift, and that could be fifteen years after the facts, we're gonna say, since you've never disclosed that gift, well, it happened on the day we discovered it. So if at that point of time the person who gave you the money is in France, all of a sudden this is a French taxable gift. Whereas five years ago, ten years ago, it was not. But you never said you received something, so the French are gonna tell you, we just knew about it.

So this happened yesterday. So that's a very that's something that I want everyone to keep in mind. Yes, we have very good tax treaty, we have very good tax credit, but you absolutely need to comply with the filing obligations. That's a an absolute no brainer.

Arielle Tucker (13:47.352)

What is the filing threshold for a gift then?

Vincent (13:51.894)

It's zero, it's one euro. It's one euro. Yeah?

Arielle Tucker (13:55.347)

really? So like your parents I'll give you a common scenario, right? Current US gift thresholds that you wouldn't have to file a an extra tax return are, I think are nineteen thousand. so your parents can give you nineteen thousand dollars every year and not have to file a tax return. So if you receive that nineteen thousand dollars and you don't report it in France, you're opening up

Vincent (14:06.648)

Correct?

Vincent (14:17.429)

Well Yeah. Yeah.

Arielle Tucker (14:19.308)

potential tax. I mean, these parents are now US based, so I guess it wouldn't apply, but let's say they're UK based. You're UK you have a UK par based parent and they're giving you nineteen thousand. Then they would need to you'd actually need to report that.

Vincent (14:23.753)

Yeah, if they Yeah.

Vincent (14:34.353)

Absolutely. And the the filing window is 30 days. So you've got 30 days to file the gift tax return and it starts at one euro. It doesn't mean you're gonna pay taxes because you've got you've got abatements and stuff like that, exemptions, that's not a problem, but you need to tell the French tax authority what happened, otherwise, whenever you're gonna receive something bigger, for instance, and you actually want to file, then the French tax authority can inquire about what happened in the past, and if you forgot to put

like previous gifts, they can say like, okay, well, everything happened today and we're gonna tax whatever we can tax. So no, there's no finding threshold. It starts at one euro and you've got thirty days to do it.

Arielle Tucker (15:18.062)

Wow, okay, what if I have a birthday? Do I have to file a tax return? Like if I have a birthday and I have a birthday party and never someone k someone brings me like a nice bottle of champagne? I mean, I threw I this is the first time I'm hearing about this and I'm just thinking I'm just thinking about all the potential filings that you would have it.

Vincent (15:32.967)

No, well, okay, I'm gonna give you a very a lawyer answer. it depends. It depends. okay, we've got we've got something on the French side that we called présent d'usage, which means basically that you can make gift, you can well you can make gifts at certain dates during the year, and they won't be and you won't need to report them. So basically what we're talking about is birthdays,

Arielle Tucker (15:38.306)

Okay, thank you.

Vincent (16:01.227)

Christmas or end of year celebrations. we're talking about if you get a diploma, for instance, if you graduate, if you get married, if you got a baby, all of those, if someone gives you money for it or gives you well, not money, anything actually, it could it could potentially be exempt from tax filing and taxes altogether. But, and this is where it's a little bit tricky, there's no written rules about that. It's all about case law. So it's the case law.

Basically defines what's a yes, what's a no in that situation. And most of the time we look at the the wealth and the income stream of the donor. And the main idea is those gifts you can make them with no tax consequences, no filing consequences, provided you're not impoverishing yourself, basically. So if it's a really, really tiny part of your wealth, all good. We're not gonna look at it. But if you start transferring your estate.

and basically arguing, but I'm I'm doing that on my on my son's birthday every year, yeah, you might you might have an audit about that. but if those remain kind of petty petty gifts, no problem at all. You can absolutely do that.

Arielle Tucker (17:14.316)

Okay. Thank you for clarifying that a little bit. Just I I think it's a really interesting concept because we don't have the same concept in the US. So just kind of getting introduced to that is is is is really different, right? And it's a new system, yeah.

Vincent (17:16.511)

Mark

Vincent (17:25.888)

Yeah, but it's a yeah, it's it also has to do with with what I said earlier with the the mismatch between a US estate and a French inheritance. It it has to do with that because on the US side, what you're doing with the exemption is that you're not eating up your lifetime exclusion. And then and then you start eating that up, but that's yours, right? On the French side, we look at the recipient. So that's different. It's the recipient that is liable for the filing obligation and so on and so on. So starting first euro.

Arielle Tucker (17:34.786)

Mm-hmm.

Arielle Tucker (17:42.445)

Mm-hmm.

Vincent (17:54.771)

We want to know what's going on.

Arielle Tucker (17:56.835)

Yeah, it is such a different system. And so I kind of want to get into it into trusts, right? Because a lot of Americans, I mean, if you again, if you're following just general American financial planning advice, you're listening and you're hearing about trusts.

How do you simplify the probate process? How do you actively choose who's going to be your heirs? It's a it's a kind of a different thought process entirely in the US, but I know a lot of people as they're preparing to move abroad, they're like trying to get their finances in order, right? They want to do the right thing, they want to get all organized so that when they move into a new country, they don't have to think about it. But the mistake that I see a lot of the times is they go through a very expensive and thorough

a state planning process in the US and then they move to a new country. So can you talk to us a little bit about some of the mistakes that you see with American clients moving in with these really complex or even just basic trusts that are all US based, but now they're French residents.

Vincent (18:59.315)

Yeah, so the first thing is the the French really don't like trust. But again, it's all the same idea with the concept of an estate and so on. We don't have the concept of a trust on the French side. Okay, it's this mechanism just it doesn't exist. And unfortunately for us, the French taxophone when they don't understand something, they try and want to tax it. So that's what happened in in twenty eleven. they implemented some kind of

New finding obligations for foreign trust. It was not, it was absolutely not aimed at US trust, it was aimed at any trust in the world. The idea was people were using trust to kind of avoid French wealth tax at the time and French inheritance tax, okay? by hiding their estate into some very exotic mechanism. the French didn't like it, so they basically said, okay, now if you've got a French element to a trust, so whether settler, trustee, beneficiaries.

Are French tax resident or you've got an asset, a French asset into the trust, then you're gonna have to tell us at least once a year what's going on in the trust because we actually want to know. We want to know what's going on when the trust is gonna distribute something. That's the important part of it. So it created those new finding obligations, which could be okay depending on the type of trust you got, but they could be way too burdensome for you. It would it could be an administrative burden that you

really don't want to have on the French side if you've got a very complex trust. So what I usually tell my client is depending on when they come to me, because that's also that that makes a big difference. So if they come to me a year in advance, fine. It's it's way more relaxed and we can look at those those trusts and try to find other tools on the US side because that's the most important thing. They're still Americans, they've got their estate in the US

They will probably use US law to dictate the restate. They want to have tools that are efficient there. But the only thing I can tell them is if you want to keep a trust and come to France, then you need to have a trust that is not going to distribute anything. So if your trust is distributing you money every month, this is going to be a nightmare. Plus, you might be taxed, and the tax really will not apply to your trust. So you will be going from a zero.

Vincent (21:23.463)

person tax to a 31.4, all of a sudden. Yeah. So usually that is the work. We analyze all the trust, the trust structure they got into their estate plan. And we kind of target those that we can absolutely terminate before they come to France. And those that they can't, then what we're trying to do is we're trying to remove assets that are that they will need for their daily life, basically.

Arielle Tucker (21:24.684)

Yeah, that's huge.

Vincent (21:53.127)

So if you've got a brokerage account that is here for growth and you're never touching it and it stays in the trust, you know you will have to file for that trust, but it might only be a filing a year, that's okay. If you're the set Yep. Sure.

Arielle Tucker (22:07.906)

But just just I wanna stop you on that. But if we keep that brokerage account in the trust, even if it's a growth oriented account, it's still going to likely distribute something. There will still be some distributions. It's like unless you have it like I don't know, Bitcoin, it's it's very likely there's gonna be some distributions, even if it's a minor asset minor dividends. Does that mean anything that's coming

Vincent (22:13.553)

Yeah. Yeah.

Arielle Tucker (22:37.09)

that's reported from that particular account in the trust, it's gonna be taxed at that thirty one point four percent because we decide we want okay.

Vincent (22:42.277)

No. No, that's that's the that's also a big mismatch between France and the US. On the French side, we see any type of trust, so even whether they're revocable living trust or not, same thing on the French side, they're opaque structure. So basically, if you've got a brokerage account into a trust and the brokerage account is earning dividends interest every year, fine. No filing needed every time you're earning a dividend, no income tax on those, but

If you take that money and put it into your own personal bank account, for instance, so for I don't know, every month you're taking ten thousands because that's what you need for your monthly expenses. Well that that money getting out of the trust to your personal account, that's a distribution on the French side. And then the French will tell you, then can you tell us on those ten thousand you took, what's income and what's principle? Most of the time you won't be able to do that because it's money, so

Arielle Tucker (23:27.022)

Hm.

Vincent (23:41.297)

Money could be could be income, could be principal. It's very hard to tell. And if you cannot prove what's principal, then the French will tell you, okay, then it's all income. And income from a US trust, we tax it at 31.4, and you cannot benefit from the tax trading. So you can absolutely keep a brokerage account into a trust. You will have fining obligation at least once a year. But the idea is don't take any money from it. Just keep it for growth. It's earning dividend, it's reinvested into the account. Fine.

If it's not, if there's any risk you're gonna get distribution, don't keep it. Okay? So that's the first aspect. It's the income tax aspect. And then you've got the inheritance tax aspect. If that's your trust, if that's the plain vanilla, revocable living trust that you've got, you've got a brokerage account, but your advisor said if I don't touch it, I have one filing a year, all good. Not really, because if you die in France as a settler,

The French will actually look at the trust wording. So it comes down to that. They will look at how the trust is drafted. If it looks like a French inheritance, so if it basically your trust is saying, I'm gonna give 50% to child one, 50% to child two, fine. The French will apply the usual French inheritance tax rate, all good. But if you've got something saying something a little bit more vague, like I'm gonna give 100% of that trust.

To my two children, but it doesn't say who's gonna get what. Then all of a sudden the French will tell you, that's a little bit too vague. We don't know exactly when they're gonna receive it, we don't know who's gonna receive what. We're gonna do something very simple, we're gonna apply a flat rate, either 45 or 60 percent. So that's that's the second part of our job. When we see a trust and you're still in the US, if it's your trust, we might want to amend the trust deed to fit.

What the French are expecting of a French inheritance. So it sounds weird like this. It sounds a bit like, okay, but now I'm I've got a French inheritance, so what's what's the matter? Actually it just it's just here to save you those flat taxes. You your children are still gonna be hit by the French taxes. Yeah. Yeah.

Arielle Tucker (25:56.195)

Which forty five or sixty percent. And what and if it and it's more clearly defined to fifty percent to child one, fifty percent to child two, what is the rate?

Vincent (26:06.756)

Yeah, that could be the rate would be the usual one between a parent and a child. So each child gonna receive their share and we're gonna apply the zero well, zero to forty-five percent, but at least it's progressive. It's not a forty-five flat from the first year, which is way different. so that's that's also the work that we carry out when we see a trust. We actually go like it's like when you're repairing a car. You cannot repair a car from the outside. You have to go to go in there and see what it's like.

Arielle Tucker (26:12.419)

Okay.

Arielle Tucker (26:20.077)

Mm-hmm.

Vincent (26:36.08)

That's what we do with trust. We just go in there, we look at everything, and then we're able to tell, look, given the current state of our case law and so on, we can tell you that distrust is dangerous from a French inheritance tax point of view, or fine, distrust will look like a French inheritance, you can keep it, just don't use it.

Arielle Tucker (26:58.926)

Wow. Okay. And I do want to just highlight this this concept of these progressive rates depending on your relationship to the person and how much money they are are receiving. We see that all over Europe. Again, that concept does not exist in the US. I think like Willas said 1% of Americans are subject to estate tax because our our threshold is like $15 million per person right now. So it's so different.

Vincent (27:18.096)

Yeah. Yeah.

Arielle Tucker (27:24.13)

When you establish residency in a new country, and France is one of those countries where everything's going great until you die. So it's really important to call the right people and not just have like a general call, but actually review the documents and make sure does this match up with what's going to happen in France?

Because as you age, we can't decide the day we're gonna die. But this is really important. If you want your kids who are maybe not French-based, you don't want them to have to deal with paying French tax. So, Vincent, on that, we I'm gonna we're gonna end here for today because we've covered so much, but we would love to have you back to get more into French estate planning because this is a very, very fascinating topic. So thank you for coming on today to share your your expertise with us.

Vincent (28:10.734)

You're welcome. Thank you very much, Arielle.