Last update of this article: 6th august 2025
In 2025, a French court confirmed that life insurance held by a US irrevocable trust may be taxed as an indirect gift in France.
Here’s what Franco-American taxpayers must know to stay compliant.
Focus on French-American Case Law
Life insurance in an irrevocable trust: indirect gift?
US Life Insurance and Trusts: an Indirect Gift Taxable in France?
Abstract: A recent decision by the Paris Court of Appeal confirms that the subscription of a life insurance policy by an irrevocable trust can be reclassified, from a French tax perspective, as an indirect gift subject to transfer duties in France. A look back at a landmark Franco-American case.
The tax context: gifts, trusts, and life insurance
Although trusts are not part of French civil law, they are expressly taken into account by the General Tax Code. Under the terms of Article 792-0 bis of the CGI, it refers to “all legal relationships created under the law of a country other than France […] with a view to placing property or rights under the control of an administrator in the interest of one or more beneficiaries.”
When the territoriality conditions are met, assets or rights placed in a foreign trust are taxable in France as if they were gifts or inheritances (II 1. – Article 792-0 bis of the CGI).
At the same time, French life insurance taxation provides for specific preferential regimes, in particular through Articles L.132-12 and L.132-13 of the Insurance Code and Articles 757 B and 990 I of the CGI.
But what happens when these two structures – trusts and life insurance – are combined in a cross-border arrangement?
Unsure how French tax law applies to your US trust or insurance?
Do not hesitate to contact us in order to clarify your situation on these issues; we will be happy to help you.
CONTACT USThe case: a Franco-American arrangement reclassified
In the case decided by the Paris Court of Appeal on June 30, 2025 (No. 21/12282 and 22/05103), a French tax resident had set up an irrevocable and discretionary trust under US law in 2007 for the benefit of his children and grandchildren.
On the same day, the trust took out a life insurance policy with an American company, with the settlor as the insured. The trust was both the policyholder and the beneficiary of the contract. After the settlor’s death in 2008, the funds were paid in 2011 to the grandchildren, who were the beneficiaries of the trust.
Point at issue: the heirs argued that these payments should benefit from the favorable tax treatment applicable to death benefits paid under a life insurance policy. They argued that the settlor remained the economic policyholder and, in their view, retained a right of surrender.
The tax authorities, on the other hand, considered that this was an indirect gift, as the settlor had irrevocably transferred his assets during his lifetime to the beneficiaries of the trust.
The decision: an indirect gift subject to tax
The Court of Appeal upheld the tax reassessment made by the tax authorities and validated in the first instance by the court in June 2021.
It held that:
- The trust was irrevocable, which excluded any recovery of the assets by the settlor.
- The right of redemption belonged to the trust, not to the settlor.
- The beneficiaries did not receive the funds directly under the life insurance contract, but through the settlement of the trust, as part of an indirect transfer mechanism.
Therefore, the payments constitute an indirect gift subject to transfer duties, depending on the family relationship between the settlor and the beneficiaries.
Key takeaways
This case law illustrates the increased vigilance of French courts towards arrangements using foreign trusts, even when they are based on insurance products.
For French-American taxpayers, it is essential to secure their estate planning in advance and anticipate the tax consequences in France, particularly when irrevocable trusts and life insurance contracts are involved.
We assist Franco-American families with cross-border estate and tax matters.
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The opinion expressed in this article is for informational purposes only.
This article does not constitute legal advice.
In addition, it is important to remind that each client’s tax issue is different because each client’s personal situation is different.
Should you have a similar tax issue, please contact us for an initial discussion of your case.
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Frequently Asked Questions
Yes. If the policy is held by an irrevocable trust and the settlor has no redemption rights, payments to beneficiaries may be taxed as indirect gifts.
The Court ruled that beneficiaries receiving funds via the trust, not directly from the life policy, triggered French transfer duties.
By consulting a cross-border tax lawyer before setting up an irrevocable trust involving life insurance.