France is on the United States’ favorite country list. Recently, France and the U.S. changed their tax treaty. Under the new treaty, the U.S. estate tax does not apply if the spouse inherits the property. And it gets better.
The surviving French spouse can sell the property located in the U.S income tax-free.
This how it works. When the spouse inherits the property, she or he has a new cost for tax purposes. The cost is the market value at the time of the death. For example, French couple acquired a home in Los Angeles in 2009 for U.S.$500,000.
The husband dies in 2017. The house is now worth $1,500,000. The wife inherits the home without. The U.S. death tax does not apply because of the U.S. – French Tax Treaty.
Next, U.S income tax law increases the tax cost of inherited property to the market value as of the day of death. When the spouse sells the property for $1,500,000 she will have no gain or loss.
This new tax law is found in a “protocol” to the original French-U.S. income tax treaty and not to the estate tax treaty. Here is a link to the protocol.
If you need help with your U.S. – French tax planning, then please email me [email protected]
By the way, U.S. tax laws allow a unique type of trust that will avoid inheritance tax for the children of French citizens. Wth trust is called a “marital deduction trust”. This trust created at the time of the death of the first spouse. For French tax law, this trust is a U.S. person which provides interesting tax savings. By the way, the French have duplicated the U.S. foreign trust reporting (the U.S. trust is a French foreign trust). As you know, I am a big fan of reporting.
As you know, I am a big fan of reporting. In this case, the tax treaty provides powerful protection. Best state for a French U.S. trust is Nevada.