Beneficiary clause in life insurance: An effective wealth lever

<h1>Beneficiary clause in life insurance: an effective wealth lever</h1> <h2>Life insurance: an exceptional civil and fiscal mechanism</h2> <p>Unlike the assets of the deceased, the capital of a life insurance policy escapes, upon the death of the insured, from the civil and fiscal regime</p> of inheritance assets. <h3>Civil benefits</h3> <p>At the civil level, the life insurance mechanism makes it possible to allocate substantial amounts to selected beneficiaries, without being subject to the constraints of the “hereditary reserve”, provided, however, that the premiums paid are not considered to be clearly excessive</p>. <h3>Tax advantages</h3> <p>In terms of taxation, life insurance benefits from a particularly advantageous regime. In the event of the death of the subscriber:</p> <ul><li><strong>Premiums paid before age 70:</strong> each beneficiary benefits from a deduction of 152,500€ on the capital transmitted. The capital paid to each person escapes inheritance tax, and is subject to a special levy at the rate of 20% up to €700,000, then 31.25%</li> beyond that. <li><strong>Premiums paid after 70 years:</strong> an allowance of €30,500, to be divided between all beneficiaries, is applicable. The latter are taxed with inheritance tax, it being specified that the base consists only of premiums paid after this date, the interest generated being not taxed</li></ul>. <p>Compared to the traditional inheritance tax regime, the life insurance mechanism reduces the tax cost of transmission. For example, the inheritance tax scale can reach up to 45% directly (parents/children), while the taxation of capital transmitted via life insurance is capped at 31.25% (premiums paid before age 70), thus allowing a significant reduction in the fiscal cost of</p> transmission in certain cases. <p>The tax savings are even more significant when it comes to transmitting capital between distant relatives (beyond the 4th degree) or between non-relatives, since it makes it possible to avoid the flat rate of 60% provided for in terms of inheritance tax.</p> <h3>Numerical example</h3> <p>A subscriber wishes to pass on €500,000 to his child:</p> <ul><li><strong>Without life insurance:</strong> after an allowance of €100,000, the remaining €400,000 is subject to inheritance tax, i.e. around €78,200</li> to be paid. </ul><li><strong>With life insurance (premiums paid before age 70):</strong> after an allowance of €152,500, the remaining €347,500 is taxed at 20%, i.e. €39,000 to be paid.</li> <p><strong>Savings achieved:</strong> around €39,200.</p> <h2>The importance of the beneficiary clause</h2> <p>The implementation of this derogatory civil and fiscal regime requires the designation of the beneficiaries of the capital in the event of death. In fact, in the absence of a designation of a beneficiary or if the written clause does not allow him to be clearly identified, the compensation will be reintegrated into the estate assets of the deceased and subject to inheritance tax</p>. <p>In <h3>terms of designation</h3> procedures, the subscriber can identify the beneficiary either by name or according to his status (for example: “my children”, “my spouse”), or use both forms. It can also designate several beneficiaries by specifying the share of the death benefits due to each, or establish an order of beneficiaries on a subsidiary basis. In the latter case, the first-ranking beneficiary may renounce the benefit of the second, who will receive the death benefits directly, this renunciation being fiscally neutral</p>. <h3>Beneficiary clause with options</h3> <p>Partial renunciation of death benefits is also possible. However, it is strongly recommended that the subscriber organize its implementation by stipulating a beneficiary clause with options, in order to avoid the application of gift taxes between the renouncer and the second-ranking beneficiary. In fact, the renunciation will not be assimilated to a taxable indirect donation if the first-ranking beneficiary renounces a fraction of the death benefits according to the amounts already defined by the subscriber. In the absence of such a clause, any partial renunciation would be qualified as an indirect and taxable donation under the conditions of common law</p>. <h3>The dismemberment of the beneficiary clause</h3> <p>The dismembered beneficiary clause can also be an interesting transmission tool. It makes it possible to attribute to a beneficiary the status of usufructuary, while others are designated no-owners (most often the spouse for usufruct and the children for</p> bare ownership). <ul><li><strong>Dismembered employment clause:</strong> beneficiaries reinvest the death benefit in new dismembered assets (real estate, company shares, etc.).</li> <li><strong>Quasi-usufruct:</strong> the usufructuary can freely dispose of the sums, subject to reimbursement to the naked owners upon the expiry of the usufruct. This return claim can be secured by a virtual usufruct agreement</li></ul>. <p>Upon the death of the usufructuary, the sole owners recover the full ownership in total tax exemption.</p> <h2>Conclusion</h2> <p>Life insurance is both a financial investment and a key asset transmission mechanism. The drafting of the beneficiary clause offers a great deal of freedom to the policyholder, both in choosing beneficiaries and in the methods of distributing death benefits. It is therefore essential to anticipate its content to ensure the civil and fiscal coherence of the transmission.</p>