Wealth & Succession practice, Life insurance

The life insurance beneficiary clause

The beneficiary clause is the provision in a life insurance contract that designates the person or persons who will receive the capital on the death of the insured. Its drafting determines the effectiveness of the transfer: a standard clause such as "my spouse, failing whom my children" is rarely suited to established estates. The firm assists with bespoke drafting, the dismembered clause (usufruct to the spouse, bare ownership to the children), the option clause and coordination with the tax rules of articles 990 I and 757 B of the French Tax Code.

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Why the beneficiary clause deserves bespoke drafting

The beneficiary clause takes precedence over the will and largely escapes the rules of succession: life insurance capital does not form part of the deceased's estate (French Insurance Code, article L. 132-12) and passes to the designated beneficiary according to the exact terms of the clause. This is precisely why its wording must be considered with the same rigour as a formal instrument of transfer.

The contract may be amended at any time as long as the beneficiary has not accepted the designation: article L. 132-8 of the French Insurance Code governs the policyholder's freedom to designate and revoke the beneficiary. A premature acceptance locks the contract and deprives the policyholder of any latitude to surrender or amend it, a point the firm systematically secures.

Taxation depends on the age of the insured at the time the premiums were paid. Premiums paid before age 70 fall under article 990 I of the French Tax Code; those paid after age 70 fall under article 757 B. A well-drafted clause allocates the capital among beneficiaries with these two regimes and the allowances specific to each in mind.

The firm deliberately limits the number of matters it accepts in order to guarantee the direct involvement of its partners on every file, and systematically assesses the relevance of its intervention before taking on an engagement.

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Our services on the beneficiary clause

01

Bespoke drafting

The standard clause proposed by the insurer reflects neither the family balance nor the wealth-planning objectives. The firm drafts a clause tailored to your actual situation.

  • Designation by name or by capacity, with ranking and representation in the event of predecease
  • Differentiated allocation among beneficiaries according to their respective allowances
  • Coordination with the overall estate plan and gifts already made
  • Prevention of recharacterisation as manifestly excessive premiums (Insurance Code art. L. 132-13)
  • Securing the right of revocation (Insurance Code art. L. 132-8), deposit of the clause with a trusted third party
02

Dismembered clause

Granting the usufruct to the surviving spouse and the bare ownership to the children protects the spouse while passing the capital to the next generation.

  • Usufruct to the spouse, bare ownership to the children, one capital sum, two levels of protection
  • Implementation of a quasi-usufruct over sums of money (Civil Code art. 587)
  • Drafting of a quasi-usufruct agreement governing the use of the funds and the restitution claim
  • Allocation of the EUR 152,500 allowance between usufructuary and bare owner on a pro rata basis (Tax Code art. 990 I)
  • Creation of the restitution claim, deductible from the estate on the second death
03

Option clause & tax coordination

The option clause leaves the spouse free to choose, on the policy's maturity, the share he or she wishes to receive, a rare instrument of flexibility that must be handled with precision.

  • Option clause: the spouse selects a share (for example 100%, 75% or the bare ownership), the balance passing to the children
  • Combined optimisation of the 990 I regime (before age 70) and the 757 B regime (after age 70)
  • Full exemption of the spouse or civil partner (TEPA law of 21 August 2007)
  • No taxation of the dismembered capital in the hands of the surviving spouse (Ciot ministerial answer of 23 February 2016)
  • Coordination with the household's financial wrappers, see financial taxation
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Lead counsel, Jonathan Bensaid

Founding partner of the firm, Jonathan Bensaid leads wealth transfer and estate planning matters, including the drafting of complex beneficiary clauses, dismembered structures and the coordination of life insurance, quasi-usufruct and gifts. He acts in France and on Franco-Swiss matters between Paris and Geneva, in coordination with private banks and family offices.

  • Beneficiary clause
  • Dismembered clause
  • Quasi-usufruct
  • Life insurance, 990 I & 757 B
  • Estate planning
  • France · Switzerland
— FAQ

Frequently asked questions

What is the beneficiary clause of a life insurance contract?

The beneficiary clause is the stipulation by which the policyholder designates the person or persons who will receive the capital on the death of the insured. Governed by article L. 132-8 of the French Insurance Code, it may designate the beneficiaries by name or by capacity (the spouse, the children born or to be born). The capital paid to the designated beneficiary does not, in principle, form part of the insured's estate (Insurance Code art. L. 132-12), which gives its drafting decisive significance for wealth planning.

Why avoid the insurer's standard beneficiary clause?

The standard clause "my spouse, failing whom my children in equal shares, failing whom my heirs" ignores the actual structure of the estate, blended families, the differences in allowances between beneficiaries and the objectives of protecting the spouse. A bespoke clause makes it possible to allocate the capital between the regimes of articles 990 I and 757 B of the French Tax Code, to include a dismemberment of ownership, to organise representation in the event of predecease and to avoid recharacterisation of the premiums as manifestly excessive (Insurance Code art. L. 132-13).

How does the dismembered beneficiary clause work?

The dismembered clause grants the usufruct of the capital to the surviving spouse and the bare ownership to the children. The spouse has the use of the funds for life, and the children receive full ownership on his or her death without further taxation. Where the usufruct relates to sums of money, it takes the form of a quasi-usufruct (Civil Code, article 587): the spouse may use the capital freely, subject to an obligation to restore an equivalent amount. See our dedicated page on the quasi-usufruct.

How is the EUR 152,500 allowance allocated under a dismembered clause?

For premiums paid before age 70, article 990 I of the French Tax Code grants an allowance of EUR 152,500 per beneficiary, followed by a levy of 20% up to EUR 700,000 and 31.25% beyond. Where ownership is dismembered, the usufructuary and the bare owner are each deemed beneficiaries in proportion to their share, determined under the scale of article 669 of the French Tax Code. The EUR 152,500 allowance is then divided between them pro rata to their respective rights. A precise allocation in the clause avoids unpleasant tax surprises.

How are premiums paid after age 70 taxed?

Premiums paid after the insured's 70th birthday fall under article 757 B of the French Tax Code. Only the amount of the premiums exceeding an overall allowance of EUR 30,500 (all beneficiaries combined) is subject to inheritance tax, according to the family relationship. The income and interest generated by those premiums remain exempt. It is often advisable to designate separate beneficiaries for premiums falling under 990 I and those falling under 757 B.

Is the spouse or civil partner taxed on the capital received?

No. The surviving spouse and the partner bound by a French civil partnership (PACS) are fully exempt from duties and levies on life insurance capital, under the TEPA law of 21 August 2007. This exemption applies both to capital falling under article 990 I and to capital falling under article 757 B. Dismembering the clause in favour of the spouse as usufructuary nevertheless remains useful to organise the transfer to the children as bare owners.

What does the Ciot ministerial answer contribute regarding the dismembered clause?

The Ciot ministerial answer of 23 February 2016 resolved an uncertainty: where the surviving spouse is designated usufructuary under a dismembered beneficiary clause, he or she owes no levy or duty on the policy's maturity, by reason of the statutory exemption. The children, as bare owners, benefit from the EUR 152,500 allowance in proportion to their share. The restitution claim arising from the quasi-usufruct will be deductible from the estate on the second death, which lightens the final transfer.

What is an option clause and who is it for?

The option clause leaves the first-ranking beneficiary, most often the spouse, free to choose, on the death of the insured, the share of the capital he or she wishes to receive: the whole, a fraction, or only the usufruct. The balance then passes to the next-ranking beneficiaries, generally the children. This flexibility makes it possible to adjust the transfer to the household's actual situation at the date of death, without locking in an allocation that might prove unsuitable. Its drafting requires great precision to avoid any ambiguity of interpretation.

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