Take action to avoid French penalties on trusts Trusts are "bread and butter" in the UK as a way of holding assets for the benefit of more than one generation. They are a useful way of protecting property held outside the estates of family members, yet the trustees can still give access to those assets. People can set them up when alive, or write them into their will. Life insurance policies can be held in trust, for example, as well as share portfolios and other assets. To understand the impact of the new French rules, you need to know about the three key parties to a trust: Settlor: this is the person (s) who set up the trust and gifted the assets to it. Trustees: these are the people who administer the trust, and the trust property is generally held in their names. Beneficiaries: these are the people who can receive a distribution from the trust. They might have a fixed interest in the trust (eg. 50 per cent share) or there could simply be a list of "potential" beneficiaries, and it's left to the trustees to decide who gets what, when and how. Who is affected? The starting point for the new rules is that a trust is impacted if any of these three factors is present: 1. the settlor is French resident. 2. a beneficiary is French resident. 3. the trust holds a French asset. So, if you have moved to France, and you set up a trust some time in the past or you are a beneficiary of a trust, you may need to take some action before June 15 . Or it could be that you are a trustee (resident anywhere) of a trust which has a French resident settlor or beneficiary - if so, you are also in scope for these new rules. How do the new rules work? Continuing the theme of "threes," here are some key points to be aware of Disclosure of the trust Firstly, the trustees need to notify the French tax authorities of certain trust details if the settlor or any of the beneficiaries is French resident, or if the trust property is situated in France. This needs to be done before June 15, and also involves disclosing the value of the trust assets as at January 1 2012 (though the forms for doing this were not yet available at time of writing). The penalty for non-disclosure is €10,000 or five per cent of the value of the trust fund, whichever is greater. Wealth tax declaration (and possible tax due) Secondly, there may be a wealth tax impact. Wealth tax is relevant if the settlor is resident in France and has assets over €1.3 million. If the settlor is dead but there is a French resident beneficiary, that beneficiary steps into the shoes of the settlor for French wealth tax purposes. The settlor (or beneficiary) is obliged to add the value of the trust as at January 1 to his wealth tax declaration. The rate of wealth tax is 0.25 per cent or 0.5 per cent depending on the level of wealth, with a starting threshold of €1.3 million, below which no wealth tax arises. There is some good news here: for the first five years after becoming French resident, there is a wealth tax exemption, so this new wealth tax rule will only affect expats who have been living in France for a longer period. Special tax on non-disclosure Thirdly, a special tax of 0.5 per cent of the value of the trust fund may be due, which is a further penalty charge for non-disclosure. This tax is not due if a Trust Disclosure (and any wealth tax declaration) has been made. Pre-emigration planning If you are not yet resident in France, but are at the pre-emigration planning stage, you should seriously consider taking legal and tax advice in the UK. There may be steps which could be taken to remove the future French tax obligations. For example, if you know you are a beneficiary of a trust, you might want to take advantage of the fact that with some trusts, it is possible to exclude beneficiaries. If French resident beneficiaries are excluded, this might be one way to take the trust out of scope of these new rules, in particular if the settlor is no longer alive. Alternatively, if it is the settlor who is moving to France, winding up the trust before becoming French resident might be worth considering (if the trust allows this). This might suit where the trust has served its purpose, or is low value. This will only work for some families, however, and in larger value trusts, the overall asset protection benefits are likely to outweigh other factors such as French tax compliance costs. You have until June 15 to make sure you're up-to-date. Julie Hutchinson is head of international technical insight at Standard Life International