Why cancel the beneficiary clause in your life insurance contract?

Sponsored content

The preference clause makes it possible to determine to whom the capital or annuity must be paid in the event of the insured’s death.p. Before checking the “default clause: “my spouse if my children are not born or to be born if my heirs are not” When signing, consider whether this clause really fits your family situation and your long-term financial goals.

Today we will focus on the breakdown of the recipient clause

Behind this somewhat technical term actually hides an opportunity to organize the transfer of capital between several successive beneficiaries. The mechanism combines the favorable tax effects of property stripping and life insurance.

How is ownership of a life insurance contract divided?

This consists in separating the rights that constitute ownership of the contract between usufructuary and bare ownership.

The usufructuary has the right to dispose of the property and collect the income thereof. For life insurance, it is a question of quasi-usufructuary, in that financial assets are consumer goods (their use leads to their consumption).

It just owns is a “future full owner” who, when the usufruct expires, gets full ownership of the property.

What are the civil interests?

In the event of separation, the death benefit is paid to two successive beneficiaries of a different nature. The first receives the right to use the capital. Upon his death, the other (the bare owner upon the insured’s death) automatically becomes full owner of the capital.

This makes it possible to protect the right of use while organizing the transfer to the bare owners. This mechanism can be implemented in different family configurations. Very often the first beneficiary will be the insured’s spouse, and the second the insured’s children.

This clause makes it possible to designate several beneficiaries at the same time and avoid double taxation. It is thus more effective than a clause appointing a beneficiary with full ownership.

What is the tax rate?

The division of the clause makes it possible to transfer the insurance capital exempt from inheritance tax (except for the application of articles 757 B and 990 I of the CGI): a first time to the quasi-usufructuary, then a second time to the mere owner.

In practice, and unless there is a specific clause, insurance companies very often provide capital to the beneficiary surviving spouse in the form of a usufruct. The latter can then freely dispose of the divided amounts on the condition that he returns them upon his death. This debt constitutes an estate liability. As such, it will reduce the tax base for inheritance tax.

Example in connection with premiums paid before age 70 (Article 990 I of the CGI).

Each recipient can receive tax-free up to 152,500 euros. On top of that, he has to pay 20%, then 31.25% after 700,000 euros. Transfers to spouses are exempt.

In the event of a split of the beneficiary clause of the life insurance, the rights to be paid by the user and the bare owner, respectively, depend on the user’s age. If the usufructuary is, for example, 70 years old at the death of the insured, the sole owner is taxed on 60% of the assets. Ultimately, the intention is to recover the entire capital.

When the rights are united by the death of the usufructuary, the bare owner automatically becomes the full owner, without any formality to be completed, nor additional tax costs. This option means that this second transfer is not taxed, regardless of the relationship between the usufructuary and the bare owner.

In any case, it is strongly recommended to review the draft of your Beneficiary Clause regularly, giving you the opportunity to update it if necessary. It is relevant to take advice from professionals to draft a tailor-made clause adapted to your objectives.

Invest Expat is a company in the Altea Patrimoine group, a wealth strategy consultancy, which brings together 15 employees in France and Asia. We are experts in international taxation, family law, pensions, real estate and financial investments. Invest Expat co-constructs your wealth strategy to increase your savings, protect your assets and prepare you for your retirement, throughout your stay abroad and after your return to France. www.invest-expat.com

Make an appointment on: +852 9264 5788 / [email protected]

Leave a Comment