La Revue Squire

Trust and transfer without consideration tax

Rédigé par Philippe DE SAINT-BAUZEL le 24 Janvier 2008

Cour de cassation, chamber commerciale, 15 May 2007, n° 05-18.268

The Cour de cassation (the French Supreme Court) has ruled that the delivery of property transferred to an American Trust constitutes a transfer without consideration which is effective upon the death of the Settlor.

The Cour de cassation agreed with the judgment of the Rennes Court of Appeal which, after indicating that the Settlor of the Trust had irrevocably transferred title over properties held by the Trustee on behalf of the designated Beneficiaries, who had acquired this title upon the dissolution of the Trust due to the death of the Settlor, held that this transaction constituted a transfer without consideration effective on the date of the death of the Settlor rather than on the date of the creation of the trust.

In this decision, the Cour de cassation appeared to confirm the position of the Rennes Court of Appeal, which had held that the transfer took the form of an indirect gift, however the highest Court in the land did not approve this expressly. Indeed, several commentators categorically reject that this type of transfer is a gift and consider that, in this particular instance, it is rather a transfer of property without consideration of a new nature.

Consequently, the fundamental question is whether this tax ruling is compatible with the Cour de cassation’s interpretation of a transaction made within the scope of a Trust.

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