When subscribing to a life insurance contract, the insurer will ask you to fill in the beneficiary clause of your contract, ie the person or persons who will receive the funds after your death. How to write it and what are the pitfalls to avoid?
When you take out life insurance, your insurer will ask you to fill in the beneficiary clause, ie the person(s) to whom you would like your money to be transferred in the event of your death. For the moment, this contract probably serves as your long-term savings and the question of succession does not appear to be of primary importance to you. However, it is very important to dwell on it. Here are three pitfalls to avoid when drafting the beneficiary clause.
Make do with the standard clause
Often, the beneficiary clause is a default clause: My spouse and my living or represented children, by default my heirs. A standard clause that works well in the case of a non-blended family and if you are married or PACS. If this is not the case, and your death occurs suddenly, the person who will have shared your life will not be able to perceive anything. It will be the heirs of the deceased, according to the order of priority, who will be able to benefit from it.
In this case, if you have not planned to unite legally, it would be preferable indicate the name and date of birth of your partner in the beneficiary clause. Ditto in the case of a blended family, and in particular if you do not have a parent relationship with one or more children but you wish to include them in the list of beneficiaries.
Life insurance: should we be satisfied with the standard beneficiary clause?
Do not update its beneficiary(ies)
In the event of a change in your family situation (dcs, marriage, divorce, birth, etc.), it is absolutely necessary to review the clause informs and update it. If you don’t think about it right away, reading your annual statement can help you. This is the perfect time to take stock of your contract and check that the beneficiaries are still those you initially wanted.
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Also, if you don’t want assign the same share of your savings to all your beneficiaries, this must also be specified in the clause. Your insurer cannot and will never assume what you had in mind when writing it. By default, beneficiaries will receive equal shares.
For instance: you have three children but you have decided to bequeath 50% to the first and 25% for each of the last two, it will be necessary to specify this.
The contract holder can also change or add one or more beneficiaries through a will. In this case, it is advisable to specify this to your insurer.
How to recover the capital of a life insurance
Obviously exaggerated premiums
This is where things get complicated. The heirs can in certain cases dispute the beneficiary clause of your life insurance. When taking out your contract, you have the option of designate your spouse, your heirs or anyone else. Your insurer will not be able to prevent you from doing so.
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After your death, the injured heirs can however invoke the concept of grossly exaggerated premiums and thus challenge your decision. Two conditions must be met: the premiums paid are higher that the rest of your assets and the contract have been subscribed for the purpose of claiming all rights to the estate.
Be careful though! There is no no rules, the calculation is made by the judge, on a case-by-case basis, specifies Maître Boris Vienne, notary at the notarial office of Cornebarrieu in Haute-Garonne. Several criteria will be taken into account, in particular age of insurance at the time of subscription. The more the subscriber is g, the more the judge will be able to wonder if he had wanted to evade the succession. The judge will also dwell on the payments, in particular whether they were made in one or more installments, and when. If they were carried out less than six months before the death, it is perhaps a question of a will of the subscriber to put his heritage on his life insurance to disinherit his heirs, adds Maitre Vienne, also spokesperson for the High Council of Notaries (CSN)
The taxman can also get involved
If the heirs can contest the beneficiary clause, they are not the only ones. Tax Administration can also put his grain of salt to check whether or not there is abuse of rights. To qualify as an abuse of tax law, two conditions must be met: the sums transferred within the life insurance policy are greater than the rest of the insured’s assets and the transfer took place shortly time before the predictable death of the insurance. And it’s not that easy to prove.
Example of overpayment
Here is a stop rendered by the 1st civil chamber of the Court of Cassation, on January 30, 2019, which illustrates what an abuse of rights is. In this case, Daniel Z. was 79 years old when he decided to pay during the year 2001 a total amount of 158,547 euros on three life insurance contracts, i.e. a monthly average of 13,212 euros. However, his tax notice for 2001 indicated that he had received 47,798 euros in retirement pensions and 6,732 euros in salary, an average of 4,544 euros per month. The payments on the life insurance contracts were therefore three times higher than his income.. Furthermore, Daniel Z. had no property assets. The magistrates decided that having regard to his age and his family and patrimonial situations, the premiums paid on the life insurance contracts in 2001 are manifestly exaggerated; that consequently, the value of his three life insurance policies will be transferred to the estate of Daniel Z. to be shared in accordance with the testamentary provisions. (Court of Cassation, 1st civil chamber, January 30, 2019, appeal n18-12045).
The taxation of life insurance in the event of death
If the judges establish that these two conditions (amount too high + clause modified just before the death) are true, the amount present on life insurance will be reinstated in the succession. This means that the costs inherent to the estate will apply and that the specific tax advantages of life insurance will be lost. Life insurance makes it possible to benefit from reduced taxation on the transmission of financial assets at the time of death. For premiums paid on the contract before the subscriber turns 70, the sums transferred benefit from a tax allowance of up to 152,500 euros per beneficiary. Premiums paid after age 70 and over 30,500 euros are subject to inheritance tax.
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