Successions through Trusts in France

Successions through Trusts in France

Introduction

If you have established a trust abroad to organize your estate plan and then relocate to France, you must determine whether it will continue to produce its effects… at the moment when you leave the stage for the final act.

Your testamentary trust sets the rules for the transmission of your assets upon your death. In foreign legal systems that recognize broad testamentary freedom, these rules may be arranged flexibly, according to your wishes as settlor and in compliance with the applicable foreign law.

French civil law does not recognize the trust as an autonomous institution. There is no definition in the Civil Code. Nor has France ratified the Hague Convention of 1 July 1985, which specifically aims to determine the applicable law to trusts and their recognition in States that have not adopted specific legislation governing this institution.

The subject is complex and dense. An exhaustive treatment would require developments akin to a textbook.

If, at the end of your life, your habitual residence is located in France, French law will in principle govern your entire succession, even if your foreign trust provides otherwise. This consequence stems from Regulation (EU) No. 650/2012, which establishes that any succession must be governed by a single law—generally that of the decedent’s habitual residence at the time of death.

French succession law provides for a system of forced heirship, namely a minimum share of the estate that must necessarily devolve to certain heirs, known as “reserved heirs.” These are primarily your children and, in their absence, your surviving spouse. Concretely, this share amounts to one-half of the estate if you have one child, two-thirds if you have two children, and three-quarters if you have three or more. In the absence of children, your surviving spouse is entitled to one-quarter of the estate as a reserved share.

The remaining portion, known as the disposable share, is the only part over which you have full freedom of disposition—for instance, in favor of other family members, friends, or a partner to whom you are neither married nor bound by a civil partnership.

If a foreign trust provides for a distribution that deprives your children (or your spouse) of the minimum share guaranteed to them under French law, such provisions may only be enforced in France within the limits of the disposable share. The heirs concerned retain the right to claim their reserved portion, unless they have expressly and irrevocably waived it in advance.

The legal context in France regarding trusts

Since the trust is a foreign mechanism in French law, it is for the case law to determine its legal characterization and to assess its effects when it comes into contact with our legal system. The courts have been led to rule on the civil and tax consequences of foreign trusts, as illustrated in emblematic fashion by the Wildenstein case (French Court of Cassation, Criminal Chamber, 6 January 2021, No. 18-84.570). gal order.

The governing principle that has gradually emerged is that of conditional recognition: a trust may produce effects in France provided that it has been validly established in its country of origin and does not conflict with French international public policy. This principle derives from what is referred to as the “law of autonomy,” namely the respect of the law chosen by the parties to govern the trust deed.

In practice, two major conditions must be satisfied:

• validity under the law of the country of origin: the trust must comply with the law in force in the State where it was created (for example, it must not infringe the rights of creditors, create a de facto monopoly, distort the operation of voting rights in companies, or contravene prohibitions on perpetual commitments);
• compliance with French international public policy: even if validly constituted abroad, a trust cannot produce effects in France if it violates certain fundamental principles of French law. By way of example, it may not:
  • render inalienable assets subject to French law;
  • establish fideicommissary substitutions, which are prohibited under French law;
  • deprive forced heirs of their rights in a succession governed by French law;
  • provide for gifts in favor of persons not yet born, which French law forbids.

In practice, the issue of forced heirship is where most difficulties arise. Indeed, a trust may be used to organize transfers across multiple generations and to benefit individuals who are not necessarily the settlor’s heirs.

Yet under French law, forced heirs (children or, failing that, the surviving spouse) enjoy statutory protection that limits the freedom of disposition. To the extent that the enforcement of a trust may impair this protection, its effectiveness in France is in fact restricted to the disposable portion of the estate, unless the heirs have previously waived their right to bring an action in reduction.

Thus, French law accepts that a foreign trust may be recognized, but only conditionally and under the constant scrutiny of the courts, which ensure the preservation of the balance between party autonomy and the safeguarding of the fundamental principles of French civil law.

The forced heirship regime represents the portion of the estate that the deceased cannot withhold from certain heirs—most notably his or her children—except under very particular circumstances.

If a trust established by the deceased has the effect of depriving a child of his or her reserved portion, the child may bring an action before the French courts to request the reduction of the gifts made in favor of, for example, a surviving partner, so that the reserved share is preserved. In one notable case, the Court of Appeal considered that the benefit conferred by a trust should be assimilated to a legacy, which could be reduced as a priority, before inter vivos gifts (Paris Court of Appeal, 2nd Chamber, 28 Sept. 1993, D. 1993, IR 228).

The case law of the French Court of Cassation holds that a foreign trust is not, in itself, contrary to French international public policy. However, it must not undermine the rights of a forced heir in such a way as to leave that heir in a situation of economic vulnerability or need. Only in such circumstances may the foreign law be set aside in favor of French forced heirship rules: “A foreign law designated by the conflict-of-law rule which disregards forced heirship is not, in itself, contrary to French international public policy and may only be set aside if its concrete application, in the specific case, leads to a situation incompatible with the principles of French law regarded as essential” (French Court of Cassation, First Civil Chamber, 27 Sept. 2017, Nos. 16-13.151 and 16-17.198).

In conclusion, under French law, the provisions of a trust that substantially infringe upon the rights of heirs protected by the forced heirship regime may be challenged before the French courts. The courts retain the power to ensure that these mandatory inheritance rights are upheld, thereby limiting the effectiveness of the trust in France to the extent necessary to preserve the reserved shares.

An exception: the election of the law of nationality under the EU Succession Regulation

While the principle in French law is that trusts must respect the forced heirship regime when French succession law applies, the European framework introduces an important exception. Since 17 August 2015, cross-border successions have been governed, in most of Europe, by Regulation (EU) No. 650/2012 of 4 July 2012, commonly referred to as the “Succession Regulation.”

This Regulation establishes the rule of a single law governing the entire succession—movable and immovable property alike—regardless of where the assets are located. As a general principle, the applicable law is that of the State in which the deceased had his or her habitual residence at the time of death. Habitual residence is assessed in light of several connecting factors, such as the duration and regularity of residence, the reasons for living in that State, and the deceased’s personal and professional ties.

The Regulation nonetheless provides for exceptions. First, where it is manifest from all the circumstances that the deceased was more closely connected with another State than with the State of habitual residence, the law of that other State may apply. Second, and most importantly for estate planning, the Regulation allows individuals to make an express choice of law—the professio juris—designating the law of their nationality to govern their succession in its entirety. This choice must be formalized in a will or other disposition upon death and can only relate to the law of a State of which the deceased is a national at the time of the choice or at the time of death.

The Regulation also contemplates the possibility of a tacit choice of law, inferred from the terms of a will or succession agreement. However, this remains uncertain in practice, as the use of foreign-law concepts or drafting forms is not, by itself, sufficient to constitute a valid choice. Such ambiguity may give rise to litigation after death.

Finally, it must be emphasized that even where a professio juris is validly made, French domestic law provides a corrective mechanism. Article 913, paragraph 3, of the French Civil Code allows children (or their heirs) to claim, against assets located in France, a compensatory share equivalent to the reserved portion that French law would have granted them, if the foreign law applicable to the succession does not provide any form of forced heirship. This mechanism is limited to French-sited assets and does not extend to property situated abroad.

In practice, this means that while the professio juris offers a valuable planning tool for individuals wishing to avoid the constraints of French forced heirship, its effectiveness may be curtailed with respect to assets located in France. Anticipating and formalizing the choice of law is therefore a crucial step in cross-border estate planning.

So, is a professio juris sufficient to address an international succession in France involving a trust?

The professio juris mechanism under the EU Succession Regulation undoubtedly provides individuals with greater freedom in shaping the law applicable to their succession. By designating the law of their nationality, testators can, in principle, escape the rigidities of French succession law, particularly the forced heirship regime. Yet, the question remains whether this tool is sufficient when combined with the use of trusts.

French courts have long protected the réserve héréditaire, traditionally considered a matter of public policy. For many years, the Court of Cassation held that a foreign law ignoring forced heirship was not, in itself, contrary to French international public policy. It could only be set aside if its application left heirs in a state of economic need or vulnerability (Cass. 1re civ., 27 Sept. 2017, Nos. 16-13.151 and 16-17.198). This position marked an openness to respecting the law chosen by the deceased, provided that fundamental fairness towards heirs was preserved.

More recently, however, the balance has shifted. Legislative reform in 2021 introduced into Article 913 of the French Civil Code a right of prélèvement compensatoire for children, allowing them to claim their reserved share against assets located in France, even if a foreign law has been validly chosen and even if that law does not recognize forced heirship. This provision reflects a legislative intention to enshrine forced heirship as a principle of international public policy in France.

Case law has also reinforced judicial scrutiny of trusts in this context. In a 2022 decision, the Court of Cassation ruled that assets transferred into a trust could be declared unenforceable against the succession where it was demonstrated that the settlor retained de facto control and used the structure to defraud the rights of heirs. In such a case, the assets had to be reintegrated into the estate subject to the réserve héréditaire (Cass. 1re civ., 18 May 2022, No. 20-20.609 FS-D). This illustrates that courts are willing to “look through” the trust structure and requalify transfers where fraud, abuse, or concealment of assets is established.

The message is clear: while a professio juris provides a valuable tool for succession planning in cross-border contexts, it cannot alone guarantee the effectiveness of a trust under French law. Planning must be holistic. Trust provisions must be carefully aligned with French public policy principles, transparent in their objectives, and fully documented. Where heirs protected by forced heirship are concerned, any arrangement that substantially undermines their rights may be challenged before the French courts.

Ultimately, successful international estate planning requires balancing the autonomy granted by the EU Succession Regulation with the enduring protections of French law. Only a strategy that anticipates judicial scrutiny, addresses the rights of legal heirs, and ensures coherence between trust beneficiaries and heirs can provide the level of security expected by families with cross-border estates.

 
Sandro ASSOGNA