How France Taxes US Living Trusts

Arielle Tucker (00:01.378)

So you're moving to France, you found the house, you're practicing the language, and then someone drops the phrase French tax residency into the conversation. And suddenly that whole dream feels like it's written in a language you don't actually speak. Here's what most Americans don't realize until it's too late. The French US tax treaty doesn't mean you fully stop owing. It means the rules get twice as complicated, which is why exactly why I have

Brought in today's guest, Thomas Dubanchet He's a French tax lawyer who's admitted to the French bar and the founder of Bespoke Tax, a boutique practice built exclusively for American families moving to France. His practice covers trust reporting and regulat regularization, real estate and wealth tax planning.

Arielle Tucker (00:59.666)

And estate and success succession planning for US citizens with ties to France. So Thomas, thank you so much. I'm excited to hear your stories and learn from you and really just understand how you ended up, you're a f you're a Frenchman living in France, and you serve American families. How did how did that even happen?

Thomas Dubanchet (01:24.626)

Thank you, Ariel, for the presentation and no worries about the accent. You will have a taste of mine for this next 25 minutes. So please also, I mean, don't blame me for my accent. So why did I decided to work for American families? mean, it's been 10 years that I'm practicing law in France. I've always worked in the wealth.

wealth planning, inheritance tax planning, for on patrimonial question. And at the start of my career, I've worked in several law firms where we already worked a lot on all these trust questions, these trust issues that individual coming from common law countries can face. So I've always wanted to keep working

in this field. So I started my career in Paris. Then during COVID, I moved to Monaco, not really to live there, but just to work there. So that's when I moved to Nice, working in Monaco. So still for a very international client base. And then when I decided to start my own law firm, two years ago, almost, I wanted to find this mix between

working for international clients, for private clients. And I've always loved the US. I've been there very often for holidays. I've already worked on getting the California Bar exam as well. I'm currently in the process of learning about that. And I hope I get it next February, 2027.

Hopefully, I mean, Americans in France, they are facing some real challenge. The language, first of all, most of them, when they move to France, they don't speak English and they are in a transition period. They are excited about their move. And as I said, they are facing real challenge and also they have a lot of opportunities in terms of planning.

Thomas Dubanchet (03:51.602)

when they move and most of the opportunities close after the move. And that's an interesting mix of having clients that are very nice because they are in a good period of their life. They are not fleeing the country, even though sometimes that's what we could think. But most of my clients, they have planned for a few years to move to Europe. Maybe now with the current situation, they...

It has made them move faster, but they are still very excited about their move. And so I love my clients because they are extremely nice. The vast majority of them are extremely nice. And I feel that I can bring a lot of value to them because they are facing this specific challenge.

Arielle Tucker (04:40.545)

Yeah, and one thing I didn't even realize when we hit record was that you were actually preparing to sit for the California bar exam. And I just want to just congratulate you and celebrate that for a moment because there are not a lot of lawyers in this space who are thinking about two systems at once.

And that's really important. And you talked a little bit about the common law system versus the European system. Can we go back to just kind of understanding fundamentally how different the US and French system actually are and what causes all of the the issues, the planning opportunities or the misplanning opportunities for families who've already established residency?

Thomas Dubanchet (05:25.721)

I think that it's due to the fact that the US is a huge country, big country, most of the planning that is done in the US is performed, is done by professionals who are thinking in silos, I mean they are just thinking about the US and they are not really considering that there are clients, the family they are advising.

would move one day, I cannot blame them because I mean in France it's the same so I'm not so sure it's a question of the size of the country but so but well that's the case and many of my clients when they move to France I'm very surprised that when I tell them how it works in France they are sometimes defensive about that.

They don't understand why France keep asking them that many questions, requires them to provide that many information. And so that's when I tell them, but do you know about FATCA? Because it all started there. well, that's, I mean, I think one, and I don't want to be racist here because as I said, I love my clients, but I think that's a lot of the Americans that I'm advising.

they want to transport their own system in Europe. And unfortunately, my role is to make them understand that sometimes it doesn't work and I'm here to translate the two systems. So how I usually work is I try to change as little things as possible in their plan, but we often have to change what they have already built.

And there is a big part of the psychology into that. So when I started working for these private clients, sometimes I was maybe too harsh. I was really telling them right away in the first meeting that I thought that they should not have done that. Now I'm really trying to be more cautious about their...

Thomas Dubanchet (07:47.388)

their mindset, their psychological state of mind at that time, because that's a huge part of what we do. And we go little by little. And what I often say to my clients is we are not trying to find the most seductive plan, I mean, the most perfect tax planning, but the one that really fits your needs, your objectives.

and that's really what we are trying to do at BISCO.

Arielle Tucker (08:23.083)

Yeah. And I'm glad that you talked a little bit about that, those I don't know, behavioral simil similarities. you know.

I I find the same thing. And I'm an American, so I don't think it's racist at all. Like we kind of build our life, we get used to the financial systems that are available to us in the US. And I think this is for so many immigrants, right? You're used to one thing and then you move abroad. And it's hard to suddenly conceptualize that you really truly are in a completely different system. You have not grown up with that. And not only are you doing it in a different language, the fundamentals have completely changed. And so I find a very common mistake.

For Americans who are moving abroad is either in preparation to move abroad, they go back and they say, okay, well, I'm currently living in the state of California. Let us, let's, let's go through everything and optimize everything because we're getting ready for this big adventure. So let's make sure that our state plan works for California, right? Because they're seeing it as like a thing on the list that they need to do before they can leave.

Where it's really a very common mistake because once you've now

move to a new country and you've established residency in this new country, you are under their rules. Even if you are not a citizen, if you are considered a resident, oftentimes you're under the same rules as the citizens in that country. And I think that it just it feels like, okay, now we have to like start all over again. And you and I both know that estate planning can be a bit overwhelming. We have to think about our life and our death and our heirs and what's going to happen. And it's it can be emotionally exhausting. So

Arielle Tucker (10:03.337)

It is important to be, you know, put on the gloves of care with these conversations because it's a lot. And if you've just also done an international move on top of all of it, it's like, my gosh, gosh, I hadn't really thought that I'm gonna have to do this all over again potentially.

Thomas Dubanchet (10:11.322)

Yes.

Thomas Dubanchet (10:20.91)

Yes, I totally agree with you and that's exactly what I said. Putting the gloves, taking the gloves, that's a good expression. That's exactly what I think the families we are advising need. They need someone that will not tell them that everything they've done is wrong because generally it's not the case. It's just that they will have to adapt slightly if they want a better life and

easier life after their move. It's an additional work that they will have to do before moving ideally, but we are here really to make their life easier. That's what we are trying to do, you and I, to guide them so that they don't even have to think about that. They just have to answer the question and we will let them know what we believe they should do.

several options and then they will decide but we will be there to answer their questions. I think when you do this type of move you need to accept, to be guided and not try to understand everything yourself. Even me, if I was moving to the US and I'm a lawyer, I will never try to understand

everything before I move. I, because I know that I will miss some very important information, not saying that you should never, I mean, of course, if it's interesting for you to understand, you can do it. But I believe that we are there to avoid this burdensome process, to assist in the families, to

just concentrate on their move, moving the dogs, finding a school for the children, finding a nice place to live, and the tax, the financial, I mean all these questions, that's for experts. That's my view.

Arielle Tucker (12:34.079)

Yeah. So I wanna get to some stories because one of my favorite things about following your content, and you're very active on LinkedIn and so and social media, so we'll have your your profiles linked in the show notes so people can find you and follow you as well. I I I love all the stories that you tell. Is there a client story that you can share with us today that just kind of helps people understand the importance of going through this process?

Thomas Dubanchet (13:03.62)

Let me give a little thought to that. Yes, can take a general story of course because first of all when I tell a story on social media I always change some information. So if the client comes from Texas I will say comes from New York, if the amount is 1 million I will say 2 million. I try to mix so that you are...

none of my clients can really read my content and say, well, it was me. But the idea behind is still there. So what I'm seeing very often are, for example, mean, families coming to me with a lot of questions because I always start with a diagnostic session with my clients that lasts 30 minutes.

around that to make sure that I have a good understanding of their situation and that's very interesting that at this point they very often come with some questions that are perfectly legitimate but often that are not the most important I would say at least in terms of cost and risk for them but what I see very often are for example

When I ask them, do you have a trust, for example, they will tell me no. And I will say, but do you have a living trust? And then often they will say yes, because in their minds for lots of families, they have set up this living trust not really knowing why they did that, just because they have heard about probate and they think well.

living trust is the only way to go to avoid probate. So they do a living trust and then they forget about that. They will just leave as if they still owned the asset in their own name. So, well, that's the first step. ask them, do you have a trust? They say yes. And so then I ask them, what do you have in this trust? And then they tell me they have everything, the brokerage accounts, the house, everything. And so we can...

Thomas Dubanchet (15:25.423)

So just to give you an idea of how it works in France, if an American moves to France with a portfolio of securities, a brokerage account that holds only U.S. financial assets in his own name, not in a trust, and receives dividends, interest, or makes some capital gain on these financial assets, he will not pay tax.

in France. No tax, no social security, let's put aside the Puma tax, that's another topic for another day, but well, short answer, no tax in France if you sell US stocks as an American living here, being a French tax resident, but if you hold the same portfolio inside your living trust, even if you believe that it's the same, that it will be

Yes, your trust doesn't really exist, you can just revoke it, you can just destroy the paper and it has no value. That's not how French tax authorities see the living trust. And the tax treatment will be completely different because when you will receive dividends in trust, you will have to declare it in the US and pay your income tax on that. But then France will not view this.

payment, this dividend interest as being taxable in France, but every time that you will withdraw some money from your trust account to your personal account or when you will pay a personal expense from a trust account, France could view this payment or this withdrawal as a distribution of income, hence taxable at the rate of 31.4%, so 314, with no tax credit.

So that means that you could have paid your income tax in the US when you will have received these dividends interest during a given year. And then two years later, when you make a withdrawal from the trust that you don't even consider as a withdrawal because often they tell me, well, I don't really do a withdrawal. I'm just paying things with the trust account. But France could view that as

Thomas Dubanchet (17:43.854)

the distribution of income and so you will be taxed in the US, in France, without any help from the tax treaty. So that's the situation that I face very often in practice. And so maybe the question that you will ask me is whether or not you should keep your trust or not before moving in France. And there is no straightforward answer to this question.

I don't want to do the question and answer, so sorry for that, Ariel.

Arielle Tucker (18:18.605)

no, that's fine. That's my job. That's why I'm here. no, I think that's I I just kinda want to summarize that because that is such a huge important point, right? You are basically saying if you show up with your US custodian, everything, I don't know, is Vanguard, Fidelity, Charles Schwab, Interactive Brokers, whatever, it's all invested in the US. You become a French tax resident. If that's not in a trust, it's essentially tax free in France, which is amazing.

Now, it's really important if you're US connected and if you listen to this podcast long enough, you know you're still gonna have to file a tax return on the US side and that's gonna be taxed on the US side. But if your income is really low, it could be potentially taxed at like zero percent.

Right, for s for some of that income. So it's a very interesting tax opportunity or tax planning opportunity because when we think about Europe, oftentimes we're thinking about higher tax countries. But now we're saying, man, if you're moving over in retirement, maybe you're not gonna owe any tax to France and you're just gonna be at the lower income tax rates on the US side, creating a huge tax savings if y compared to if you were moving or living in California or New York, where you have federal and state tax considerations and all of this income.

But a very important caveat of this is if you have it all in trust, because maybe your California lawyer said, hey, we wanna make sure that we have clear beneficiaries, we don't wanna anything to go through the probate process.

Put it in this living trust to protect all of those assets. Now we have a tax timing difference. So yes, there is a treaty between the US and France, but we have tax timing differences because France is going to look at this

Arielle Tucker (20:03.415)

This trust completely differently than how the US sees it. So you're gonna pay distribution on trust distributions, where on the US side it's basically like a pass-through. You received interest dividends, capital gains, you're gonna pay that on your personal tax return the year that you receive it. So we have this fundamental difference. And we see this from time to time with different types of accounts, but it is really important that this is your red flag if you're sitting here thinking about moving to France and you're

talking about trust or you have a trust, you need to speak with someone before you establish residency and start taking distributions because you're basically saying, I'm willing to pay the 31.4% on distributions versus 0% tax.

Thomas Dubanchet (20:48.674)

Yes, that's exactly this. Thank you for summarizing my demonstration. That's perfect. And if I can add something to illustrate the importance to anticipate these questions is, for example, if you move to France with this 2 million USD portfolio held in a trust and then

you talk to me or to someone else after being considered a French tax resident already and then the conclusion is that it's not efficient fiscally and you should get rid of the trust, then you don't really have a very satisfied, in the vast majority of the situation, you don't really have a satisfactory solution because if you decide to revoke the trust after being a French tax resident already,

the French tax authorities could view this revocation as the distribution of the full value of the assets. so then, once again, short answer because we don't have time to go through all the details, but in the worst case scenario, the French tax authorities could decide to apply the 31.4 % on the full value of the portfolio. So you could prove that part of it.

represents the principle of the investment, but you have to be able to prove it. Prove it means being able to show accountings, a financial statement for the trust, and generally a living trust doesn't have such statements, so it makes bringing any evidence a bit complex.

Arielle Tucker (22:38.349)

Can you talk to me a little about these conversations that you have with the pr French tax authorities? You know, as Americans, we're all familiar with the IRS.

You know, less than 1% of tax returns are currently audited. It's a pretty automated system. You it's harder to talk to an IRS agent. How is it in France? I mean, are you able to go to the French tax authorities on your clients' behalf and have conversations about the, you know, the facts and circumstances of the cases, or is it still kind of an automated system and there's really a barrier between you and the the French tax authorities?

Thomas Dubanchet (23:15.02)

Yes, that's an interesting question. It depends at which stage you are of an audit. I if you are audited by the French tax authorities, you have someone, the tax inspector to whom you can talk. There are several commission that you can talk to also in the process. But before an audit, we have the possibility to

ask the French tax authorities to take a position on a specific question. So that's what we call an advanced tax ruling, a rescri fiscal tax ruling. So it can be very interesting in various situations for Americans moving to France, but not only for Americans moving to France, but we are talking to Americans today. And especially when we are unsure about

how a foreign trust will be treated or if we are unsure about the tax residency position, for example, if we believe that one client, we believe that we have ground to say that one client should not be treated as a French tax resident, but we believe at the same time that the tax inspector that will be a bit mad in the morning when he will take his breakfast.

could take another view, then it could be a good idea to file this advanced tax ruling to ask the French tax authorities to take a position on this very specific question. So that's a way to interrogate, to ask a question to the French tax authorities in advance. to give you, for example, an example of the type of files that we handle at the firm.

we have successfully secured, for example, for several clients the fact that even though they will spend more than six months a year in France, that they should not be treated as French tax residents, for example, even though we are very often hearing online on the forum and that's a common belief that you just have to count the number of days if you stay

Thomas Dubanchet (25:36.398)

183 days you are a French tax resident, if you stay less you are not, but it doesn't work this way and under certain circumstances you could stay even eight months a year in France without becoming a French tax resident. So sometimes it can be very interesting for families, especially the ones who have trusts that are not living trusts that they can revoke. And so if you have a

irrevocable family trust, a dynastic trust, and becoming a French tax president would be really not tax efficient at all. It could be worth it to look at this path of still living your French dream, but maybe slightly differently than initially anticipated, but with the benefit of not becoming a French tax president. So that means living the French dream, but without the

administrative burden. And so for that, I will never tell my client, well, stay eight months, nine months a year. And I find that I'm confident that I'll be able to defend your position later on. I will generally tell them if I believe their case could work, that we should ask the French tax authorities in advance to confirm the position. And then you can stay eight to nine months.

That's a way to talk to the French tax authorities.

Arielle Tucker (27:10.381)

I'm so glad that you brought that up as an example because I am on a mission to kind of just bli bring clarity to that 183.

Day rule because I think this is across the board, right? With different countries. Everyone has this belief. If I stay if I stay and if I'm there for you know more than six months, I'm automatically a resident. If I'm there for less, regardless of what I'm doing in that country, I am also not a resident. So thank you for bringing that up. It really comes down to the facts and circumstances of your situation. And it is really important to get legal counsel. If you start to have really strong ties with a country, you have housing there, you have family there, you have a driver's.

license, you're working, you're voting, all of those things are gonna have a huge impact on where are you actually a a tax resident and and that's gonna change. So we're over time, so I'm gonna let you go, but there are so many other topics that I want to have you back on to discuss, so many things. So Thomas, think thank you so much for joining me today. I really appreciate your time and expertise with our audience.

Thomas Dubanchet (28:15.47)

Thank very much, Arielle. Thank you.