In the UK, a trust removes a life insurance policy from the estate and eliminates its Inheritance Tax exposure. In France, Germany, Spain, and Belgium — the four largest continental European UHNWI markets — the trust either does not exist in local law or is explicitly ignored for tax purposes. This piece examines what that means in practice and what tools actually work in each jurisdiction.

GLOBAL ESTATE PLANNING SERIES

Overview — The Global Landscape
Part 2 — EU Civil Law: France, Germany, Spain and Belgium (You are here)
Part 3 — The UAE and GCC: Succession Without Estate Tax
Part 4 — Japan and Asia: The World’s Highest Inheritance Tax Rate
Part 5 — The United States: Estate Tax, the ILIT, and Where PPLI Fits
Part 6 — South Africa: Estate Duty and the Named Beneficiary Rule

THE CIVIL LAW TRUST PROBLEM

Continental European civil law jurisdictions — descended from the Napoleonic and Roman legal traditions — do not contain the concept of the trust as it exists in Anglo-Saxon common law. A trust bifurcates legal and beneficial ownership: the trustee holds the asset legally, the beneficiary benefits economically. This bifurcation has no direct equivalent in French, German, or Spanish private law.

The consequence for estate planning is significant. When a UK adviser or offshore PPLI carrier recommends writing a life policy “in trust” to remove it from the estate, that recommendation assumes a legal framework that simply does not exist — or does not produce the expected tax result — in most of continental Europe. Tax authorities in Germany and Spain have made this explicit: trust assets are treated as still belonging to the settlor for inheritance and gift tax purposes.

This is not merely a technical obstacle. It defines the entire product and structuring landscape in these markets. The alternatives to the trust — product-level solutions like France’s assurance vie, entity-level solutions like the German Stiftung, and EU-portable PPLI structures — exist precisely because the trust cannot do what it does in common-law jurisdictions.

FRANCE: THE ASSURANCE VIE SOLUTION

The tax position

France imposes succession tax (droits de succession) at progressive rates reaching 60% for non-relatives. But France has built a specific carve-out for life insurance contracts into its tax code — and that carve-out is the cornerstone of French estate planning.

Under Articles 990I and 757B of the French General Tax Code, premiums paid into a life insurance contract before the policyholder’s 70th birthday produce a death benefit that is assessed separately from the estate. Each named beneficiary receives up to €152,500 tax-free. Above this threshold, the excess is taxed at 20% (up to approximately €852,000 per beneficiary), and at 31.25% above that. Spouses and PACS partners are fully exempt regardless of amount. This treatment applies irrespective of the nationality or residence of the beneficiary, provided the policyholder was a French tax resident at time of death or the policy was taken out with a French-regulated entity.

For premiums paid after age 70, the treatment reverts closer to standard succession rules: a global exemption of €30,500 applies across all beneficiaries combined (not per beneficiary), with the excess subject to standard succession tax rates.

PLANNING POINT
The assurance vie is not a workaround or an offshore structure — it is the solution the French tax code itself provides. The policy’s beneficiary designation is the functional equivalent of a trust distribution instruction. The product structure is the planning tool. For UHNWI clients with assets well above the per-beneficiary threshold, multiple beneficiaries can be named to maximise the €152,500 exemptions, and Luxembourg-law assurance vie (PPLI) is accepted as equivalent for French tax purposes in most cases, providing additional portability and investment flexibility.

Forced heirship and assurance vie

France also imposes forced heirship rules (réserve héréditaire) that require fixed portions of the estate to pass to children. Assurance vie proceeds sit outside the standard estate calculation and are therefore generally not subject to forced heirship constraints — provided premiums are not “manifestly exaggerated” relative to the policyholder’s wealth and lifestyle. French courts have interpreted this standard liberally, but it remains a structuring consideration for very large policies taken out late in life.

The EU Succession Regulation (Brussels IV)

Non-French nationals resident in France may elect for the law of their nationality — rather than French law — to govern their estate succession under the EU Succession Regulation. This election must be made explicitly in a will and provides significant flexibility for expats who wish to avoid French forced heirship rules. It does not override French tax rules, which are outside the scope of Brussels IV.

GERMANY: THE LIFE INSURANCE PROBLEM IS STRUCTURAL

The tax position

Germany imposes Erbschaftsteuer (inheritance tax) at progressive rates of 7% to 50%, depending on the value of the transfer and the relationship between the deceased and the beneficiary. The key exemptions per beneficiary are: spouses €500,000, children €400,000, grandchildren €200,000, and other persons €20,000. These exemptions renew every ten years, allowing a gifting strategy over time.

Critically, life insurance death benefits are explicitly included as taxable property under the Erbschaftsteuer- und Schenkungsteuergesetz (ErbStG). The death benefit is treated as a “deemed acquisition” (Erwerb) of the beneficiary and is subject to inheritance tax in the same way as any other asset. There is no product-level carve-out equivalent to the French assurance vie. As confirmed by PwC’s Worldwide Tax Summaries, “the death benefit of a life insurance or annuity, or other contractual death benefit” is explicitly listed among taxable transfers on death.

The trust problem in Germany

Anglo-Saxon trusts are not recognised in German civil law (Bürgerliches Gesetzbuch). For inheritance and gift tax purposes, the German tax authority has historically treated trust assets as remaining part of the settlor’s estate. A 2024 ruling from the Schleswig-Holstein Fiscal Court offered some nuance: where a trust is validly constituted under its governing law, is genuinely irrevocable, and the settlor retains no powers of control, the trust assets may be treated as independent of the settlor’s estate for German IHT purposes. However, this ruling is jurisdiction-specific and not universally applicable — and it covers a narrow set of circumstances. Advisers should not rely on it without specific legal advice.

The German solution: the Stiftung

The structural alternative to the trust in Germany is the Privatstiftung (private foundation) or, more commonly in an estate planning context, a Liechtenstein or Austrian Stiftung. A foundation is a legal entity with perpetual existence that holds assets for stated purposes and beneficiaries. It is recognised as a separate legal person under both German and EU law. Assets settled into a foundation are transferred out of the settlor’s estate — though the transfer itself may attract endowment tax depending on the jurisdiction and structure.

For PPLI structures, a common approach is to hold the life policy within a Liechtenstein foundation, with the foundation as policyholder and the beneficiaries of the foundation receiving the death benefit. The German tax treatment of such structures requires careful analysis, including the application of § 15 of the German Foreign Tax Act.

PLANNING POINT
German-resident UHNWI clients face the full force of ErbStG on life insurance death benefits. The per-beneficiary exemptions (spouse €500,000, each child €400,000, renewable every 10 years) provide meaningful planning headroom for term policies of moderate size. For larger PPLI structures, a Liechtenstein or Austrian foundation is the preferred alternative to the trust, and Luxembourg or Irish PPLI is used as the policy vehicle given EU market access. The specific German tax treatment of foundation-held PPLI requires legal opinion.

SPAIN: THE TRUST THAT DOES NOT EXIST

The tax position

Spain imposes Impuesto sobre Sucesiones y Donaciones (ISD) on inheritance and gifts, with rates varying dramatically by autonomous community — from effectively 0% in some regions (Madrid, Andalucía) after bonifications to theoretically 88% (before regional reductions) in others. The life insurance position is clear: where the beneficiary and policyholder are different individuals, the death benefit is a taxable event for ISD purposes, assessed on the beneficiary.

Spain’s explicit trust non-recognition

The Spanish Tax Agency (Agencia Tributaria) has repeatedly confirmed in tax rulings (resoluciones) that trusts are not recognised for Spanish tax purposes. The traditional interpretation holds that assets held in a trust do not leave the settlor’s estate when the trust is settled — they are treated as still owned directly by the settlor. At the settlor’s death, the trust distribution is treated as an inheritance or gift, attracting ISD in the normal way. The distinction between revocable and irrevocable trusts, or between discretionary and fixed trusts, is not made by the Spanish Tax Agency.

This means that placing a life insurance policy in an offshore trust, for a Spanish tax resident settlor, does not achieve estate exclusion under Spanish law. The policy remains — for Spanish tax purposes — part of the settlor’s estate.

Spanish planning tools

The primary planning tools available to Spanish residents are: (1) regional bonifications — in Madrid and Andalucía, the ISD burden on close-family transfers is substantially eliminated by autonomous community legislation; (2) the seguro de vida with named beneficiary designations — correctly structured named beneficiary policies can reduce ISD exposure depending on the relationship between policyholder and beneficiary and applicable regional rules; and (3) foundations — Spanish private law recognises foundations, and a Liechtenstein or Luxembourg foundation may be used as an alternative to the trust, subject to Spanish controlled foreign corporation and CFC rules.

PLANNING POINT
Spanish-resident PPLI clients cannot use the policy trust structure in the way UK clients do. The autonomous community of residence is the first variable to assess: Madrid and Andalucía have largely neutralised ISD for spouse and child transfers. For larger estates, or for clients in higher-ISD communities, Luxembourg PPLI with carefully structured beneficiary designations — combined with expert Spanish tax advice on the ISD treatment — is the working approach. A Spanish foundation or a Liechtenstein Stiftung may provide the entity-level alternative to the trust.

BELGIUM: THE REGIONAL COMPLEXITY

The tax position

Belgium applies succession duty at regional level, with distinct regimes in Flanders, Brussels Capital, and Wallonia. Rates range from 3% (spouses and children, Flanders) to 80% for distant relatives and non-relatives. As confirmed by the EY Worldwide Estate and Inheritance Tax Guide 2024, life insurance proceeds payable to a beneficiary on death are subject to succession duty if the deceased was a Belgian resident — with some exemptions for group insurance entered into by the deceased’s employer.

The Belgian position on trusts mirrors France and Spain: trusts are not a concept of Belgian civil law, and their use for Belgian estate planning purposes requires significant structuring care. Distributions from an offshore trust on the settlor’s death are assessed as successions by Belgian tax authorities.

Belgian planning tools

The primary vehicle for Belgian UHNWI clients is the Luxembourg or Belgian branch 21/23 life insurance policy with a carefully structured beneficiary clause. Luxembourg PPLI, accessed via the single passport framework and the Triangle of Security, is a standard product for Belgian clients with investment assets. The Belgian tax treatment of Luxembourg policies is reasonably well-settled, though cross-border complexity increases significantly where beneficiaries are resident in different countries — particularly the documented double-taxation risk in Franco-Belgian estate situations.

WHAT LUXEMBOURG PPLI PROVIDES FOR THE EU CIVIL LAW MARKET

Luxembourg’s position as the dominant European PPLI jurisdiction — covered in our Luxembourg jurisdiction profile — is inseparable from its role as a product solution for the EU civil law estate problem. The Luxembourg PPLI policy, issued under Solvency II and accessed via EU passporting, provides: a beneficiary designation framework that operates outside local civil law succession rules in most EU member states; investment flexibility through the Triangle of Security framework; and a policy structure that, in many EU jurisdictions, separates the policy from the estate more effectively than a trust that the local tax authority will not recognise.

It is not a perfect solution — French, German, Spanish, and Belgian tax treatment of Luxembourg policies each has jurisdiction-specific wrinkles. But it is the closest available equivalent in the civil law world to what the trust achieves in the common-law world. The choice of carrier and the quality of the beneficiary clause drafting both matter materially.

SOURCES AND FURTHER READING

• EY, Worldwide Estate and Inheritance Tax Guide 2024 — Belgium and France chapters: ey.com
• PwC, Worldwide Tax Summaries — Germany: taxsummaries.pwc.com
• IBA International Estate Planning Guide — Spain chapter: ibanet.org
• Chambers & Partners, Private Wealth 2025 — Germany: practiceguides.chambers.com
• EU Succession Regulation (Brussels IV) — europa.eu
• PPLI.Solutions, Luxembourg jurisdiction profile
• PPLI.Solutions, Malta jurisdiction profile
• PPLI.Solutions, Ireland jurisdiction profile