When subscribing to a life insurance contract, you must fill in the beneficiary clause of your contract, ie designate 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, which allows you to designate the person or persons to whom you want your money to be paid 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 is three pins fast when you write 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, failing my heirs. A standard clause that works well in the case of a non-blended family and if you are husband 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 marry legally, it would be preferable to indicate the name and date of birth of your partner in the beneficiary clause. Ditto in the case of a blended family, and especially if you are not related with one or more children, but you want to include them in the list of beneficiaries.
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 review the provided clause 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.
Life insurance: the 7 points to check on your annual statement
Also, if you don’t want not allocate the same share of your savings to all your beneficiaries, it will also have to 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.
Example. 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 via 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 challenge the beneficiary clause of life insurance. When taking out your policy, you have the option of designating your spouse, your heirs or anyone else. Your insurer will not be able to prevent you from doing so.
After your death, the injured heirs can however invoke the notion of grossly exaggerated premiums and thus challenge your decision. Two conditions must be met: the premiums paid are higher than the rest of your assets and the contract was taken out with the aim of claiming all inheritance rights.
Be careful though! There is no rule. The calculation is made by the judge, on a case-by-case basis. Several criteria are taken into account, in particular the age of the insured at the time of subscription. If the subscriber is g, we can wonder if he had wanted to avoid the succession. The judge may also dwell on the payments, their number and when they were made.
The taxman can also get involved
If the heirs can contest the beneficiary clause, they are not the only ones. The tax authorities can also add their two cents to verify whether or not there is an 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 higher than the rest of the heritage of the insured and the realization of this transfer took place shortly before the predicted death of the insurance. And it’s not that easy to prove.
Example of overpayment
Here is a judgment 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 a total amount of 158,547 euros in three life insurance policies in 2001, ie a monthly average of 13,212 euros.
But 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. Payments on life insurance contracts were therefore three times higher than its 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 the life insurance will be joins the estate. 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 a reduced tax on the transfer of financial assets at the time of the dcs. For premiums paid on the contract before the subscriber turns 70, the sums transferred benefit from a tax reduction 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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