Back to France: how to pass on to your children?

Replay webinar UFE — USAFrance Financial Group | Olivier Sureau, CPA® & Adrien Eyraud

The basic rule: what goes through the succession, what does not

Before any strategy, it is necessary to master a fundamental distinction in French law.

In the estate: real estate located in France, investment accounts, cash. These assets go through the notary, who applies progressive inheritance tax brackets that rise significantly at higher transmitted values. Rates and thresholds are set by French tax law, are subject to change, and should be confirmed with a qualified French notary or tax advisor at the time of any transaction.

Excluding inheritance: life insurance (French or American). Be careful — outside the estate does not mean exempt. This means that these assets are not taken into account in the calculation of the notary's tranches. Beneficiary allowances and tax rates depend on factors such as the age of the policyholder at the time of payment, and these figures are periodically revised. A qualified tax advisor can confirm the rules applicable to a specific situation.

For a family with multiple children, this can mean a meaningfully larger combined allowance and a more favorable rate than the rates applied under the traditional inheritance regime — though the exact advantage depends on each family's specific circumstances and the rules in effect at the time.

A point that is often ignored: contributions made after a certain age are treated differently and are generally reintegrated into the estate with a substantially reduced allowance. Gains generated on these funds may continue to benefit from more favorable treatment. This timing consideration is one of several reasons to discuss the structuring of life insurance contracts with an advisor well before any relevant age threshold is reached.

Strategy n°1: dismemberment on real estate

Consider a family planning to buy a property when they return to France. By buying this property in dismemberment (bare ownership for the children, usufruct for the parents) — typically structured around the parents' age at the time of purchase — the tax value attributed to the transmission can be substantially reduced compared to the property's full market value, since only the value of the bare ownership interest is considered for allowance purposes.

French law also provides a per-parent, per-child allowance that applies to this type of transmission. With two parents and two children, the combined allowance can be significant, and in some cases can align closely with the tax value of the bare ownership transmitted — though the precise figures are set by law, are subject to periodic revision, and should always be verified with a qualified advisor before any transaction.

In a well-structured scenario, this approach can meaningfully reduce — and in some cases largely offset — the inheritance tax otherwise due on this type of property. Actual outcomes depend on the specific facts of each case and the rules in effect at the time of transmission.

And the flexibility can remain largely intact: the parents retain the usufruct, and therefore the use of the property. If they wish to sell and buy back elsewhere, this can often be done in a way that preserves much of the structuring already in place, depending on how the transaction is carried out. Dismemberment should follow the family's broader strategy, not the other way around, and any transaction of this kind warrants advice from a qualified notary or attorney.

Strategy n°2: American rather than French life insurance

One question often comes up: why not simply open a French life insurance policy when you return?

The answer often comes down to tax treatment: for a Franco-American with a tax link to the United States, French life insurance can raise the risk of unfavorable double taxation on returns, or may otherwise produce after-tax results that compare poorly against inflation, depending on how the contract and the policyholder's situation are treated under both French and U.S. tax rules. This is a tradeoff worth examining carefully with a qualified cross-border tax advisor before choosing between the two.

Whole life insurance can address this tradeoff. It is designed to offer some of the inheritance advantages associated with French life insurance while being structured for a Franco-American profile: returns that, depending on the contract, may be more predictable than market-linked alternatives, growth that may avoid the double-taxation issues described above, and potential access to funds during one's lifetime. Actual terms, costs, and tax treatment vary by carrier and contract and should be reviewed individually — no rate of return can be guaranteed, and past or illustrated performance is not indicative of future results.

One feature often highlighted in an inheritance context is the potential leverage effect associated with the death benefit of this type of policy, though the specifics depend on the contract and should be discussed with a licensed insurance professional.

Go further: the American family corporation

For those who want to take the logic even further, a structure equivalent to dismemberment exists in the United States: the family LLC.

The principle: the assets are housed in a company. The children receive the economic interest (bare ownership), which can take advantage of applicable U.S. gift and estate tax exemptions — the specific exemption amounts are set by U.S. tax law, change periodically, and should be confirmed with a qualified U.S. estate planning attorney or CPA. Parents retainmanagement interests — that is, total control: decisions, access to funds, use of assets.

Children are the owners by law, but without immediate access. The parents keep the reins. A structure to be considered on a case-by-case basis, depending on the level of assets and the life project.

What you need to remember

International transmission does not have to be approached as a fixed tax burden. Tools such as dismemberment and Franco-American life insurance structuring can, in the right circumstances, meaningfully improve the outcome for a family — without necessarily requiring parents to give up control of their assets, sacrifice their standard of living, or lose flexibility. Results vary by situation, and none of these outcomes can be guaranteed.

The key is anticipation. The earlier the strategy is put in place, the more effective it is. And each situation is different: age, the composition of the assets, the life project and the family structure determine the most suitable tools.

This article is provided for general informational and educational purposes only and does not constitute tax, legal, or investment advice, nor an offer or recommendation to buy or sell any security or insurance product. Tax laws, allowances, exemptions, and rates referenced are subject to change and vary based on individual circumstances. No rate of return is guaranteed. Please consult a qualified tax advisor, attorney, and/or financial professional regarding your specific situation before making any financial or estate planning decisions.