A recent decision of the Paris Court of Appeal has clarified how French tax authorities may treat life policies held through irrevocable and discretionary trusts. The ruling confirms that such structures may fall outside the favourable French life insurance tax regime. Instead, distributions may be reclassified as indirect gifts subject to transfer duties.
For advisers supporting HNW expatriates relocating to France, the decision highlights both a material tax risk and a clear opportunity to reposition clients towards compliant international insurance-based wealth solutions.
The Court Decision in Context
The ruling arrives at a time when France continues to scrutinise foreign trust structures. Trusts remain common in many common-law jurisdictions, but they do not align naturally with French civil and tax law. As a result, HNW individuals who become French tax resident often encounter issues when long-standing arrangements meet French concepts of ownership, control and transmission.
Against this backdrop, the June 2025 judgment of the Paris Court of Appeal carries significant weight. It confirms that even well-established trust structures created abroad may be reassessed once the settlor or beneficiaries are French tax resident.
Case Summary
The case concerned a French tax resident who had created irrevocable and discretionary trusts under US law for the benefit of his descendants. On the same day, the trusts subscribed to life insurance policies issued by US insurers. The settlor was the insured, and the trusts acted as both policyholders and beneficiaries.
After the insured’s death, the insurers paid the death benefits to the trusts. The trustees then exercised their discretionary powers to distribute the proceeds to the beneficiaries. The beneficiaries claimed the payments should fall within the French life insurance tax regime, which applies when sums are received directly under a policy.
The French tax authorities disagreed. They treated the distributions as indirect gifts subject to transfer duties. Both the Court of First Instance and the Court of Appeal upheld this view.
Why the Life Insurance Regime Did Not Apply
The Court focused on the legal structure rather than the economic rationale. Three factors were decisive:
- The trusts were irrevocable and discretionary, meaning the settlor permanently ceded control.
- The settlor had irrevocably disposed of the assets invested into the policies during his lifetime.
- The insured did not hold surrender rights, which were exercised solely by the trustees.
Above all, the Court highlighted a two-step transfer:
- The insurers paid the death benefits to the trusts.
- The trustees distributed the proceeds to the beneficiaries at their discretion.
Because the beneficiaries received funds following a trustee decision – and not directly from the policies – the Court held that they were not paid “by virtue of a life insurance policy”. This break in legal continuity justified excluding the life insurance regime and reclassifying the distributions as indirect gifts.
Implications for Advisers Supporting HNW Clients
Trust Ownership Often Conflicts with French Tax Principles
While trusts can be appropriate in certain cross-border situations, the ruling reinforces that discretionary and irrevocable structures often sit poorly within the French tax system. Once French tax residency applies, such features may trigger unfavourable outcomes that differ from those expected in common-law jurisdictions.
A Recurring Challenge for Inbound Clients
HNW expatriates frequently arrive in France with existing trusts that were never assessed under French rules. Without early review, advisers risk discovering issues only at death or on distribution – when it may be too late to implement corrective action.
A Strong Commercial Opportunity
The decision strengthens the case for international insurance-based wealth solutions structured to operate cleanly within French law. These solutions avoid discretionary interposition, maintain continuity of tax treatment and offer greater predictability for clients. Advisers can add clear value by helping clients transition from misaligned trust holdings to compliant arrangements.
The Paris Court of Appeal ruling is a clear reminder that planning tools effective in common-law jurisdictions do not always translate into a French tax context. For HNW expatriates, trust-owned life policies may create significant and unexpected tax exposure. Early review and the adoption of compliant international insurance-based wealth solutions are essential to protect clients and support long-term planning.