Life insurance: take care of your beneficiary clause

Life insurance has no equal when it comes to transmitting savings to descendants or relatives. On the death of the insured, the capital is paid, excluding the estate, to the beneficiaries. Beneficiaries ? The lucky ones that the insured has designated in the ad hoc clause of the contract. All benefit from a tax allowance of 152,500 euros (for payments made before age 70). Only sums exceeding this ceiling are subject to taxation of 20% from 152,501 to 852,500 euros (i.e. on 700,000 euros), then 31.25% beyond that. “The life insurance tax system only works in the presence of an identifiable beneficiary. Otherwise, the death benefits are included in the estate”, warns Caroline Emerique-Gaucher, notary of the Monassier Group, in Paris. Hence the importance of properly drafting your beneficiary clause.

Most contracts include a pre-filled beneficiary clause that you just have to tick. It usually provides that the capital will go “to my spouse, failing that to my children”. It is always more prudent, as is the case here thanks to the mention “failing that”, to designate one or more second-tier beneficiaries. In the present case, if the insured’s spouse is deceased when the contract ends, the sums will then be paid to the children, who are secondary beneficiaries. Otherwise, the money would join the deceased’s estate.

But if this standard clause is better than nothing, it is not always suitable. Nothing beats custom writing. You can thus set the share due to each other as you wish. The mention “by equal shares” ensures an equal sharing between all. But you are free to provide for an unequal distribution, for example “for one third to my son and two thirds to my daughter”.

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Beware of overzealousness

First pitfall to avoid in this exercise: sin by excess of zeal. “When it comes to a spouse or PACS partner, it is preferable to name the beneficiary either by his function or by his first and last name, but not to combine the two, in particular by proscribing a mention such as ‘my spouse Pierre Dupont”, warns Marion Capèle, director of the wealth solutions division at Natixis Wealth Management. This wording will be a source of difficulty in interpreting the clause if the insured, before his death, has divorced and remarried.”

Did the insured intend to gratify Paul Dupont or his husband at the time of his death? The judges will have to decide. Still with regard to your “spouse or PACS partner”, you could bitterly regret later not having included the following clarification: “provided that no divorce or legal separation proceedings are in progress” … Essential !

Concerning the children, the mention “born or to be born” is essential if you wish that a possible future descendant is not forgotten. Nor is the indication “living or represented” superfluous. If one of your beneficiary children dies before you, the share of the capital he would have received will be paid to his own children.

Spouse’s ability to waive

Some policyholders also provide their first-tier beneficiaries with a waiver option. It is often the spouse, who can “withdraw” in favor of the children or grandchildren. A strategy that is often wise from a tax point of view, since the spouse never has to pay inheritance tax, while the children are subject to it. Leaving them the benefit of life insurance so that they benefit from an additional reduction of 152,500 euros, each, is a good idea.

It is advisable to explicitly provide in the clause for this capacity of waiver of the first-rank beneficiary spouse.. “In order to avoid the occurrence of the risk of a reclassification as a donation of the capital thus transmitted by the spouse to the children, the clause must beneficiary must, in fact, provide for this possibility”, specifies Christine Valence, heritage engineer at BNP Paribas Banque Privée .

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Still with a view to conferring freedom of arbitration on its beneficiary, a so-called option clause is possible. “Such a clause allows the first-rank beneficiary to choose the share of the capital that is due to him. The different options must then be specified: three quarters, half or one quarter, for example. And indicate that the balance capital will be paid to the second-tier beneficiaries”, points out Caroline Emerique-Gaucher. Please note that it is not authorized by all insurers. In all cases, except when using a notary to draft the clause, it is prudent to have the clause validated by the insurance company.


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