Our Senior Wealth Planner for France, Benjamin Fiorino, shares insights into our cutting-edge expertise on the complex topic of dismemberment.
The Capitalisation Policy or Life Insurance?
In France, a capitalisation policy is almost systematically used for the reinvestment of dismembered capital. However, since the most recent Court of Cassation case law in October 2023, single life insurance policies have often become a better solution for optimising and planning your client’s estate.
The Concept of the Dismembered Beneficiary Clause
Principle
A dismembered beneficiary clause enables insurance death benefits to be efficiently passed to the insured’s heirs. It often designates the spouse as the “usufructuary” (the person who will have access to the capital during their lifetime) and the children as “bare owners” (the recipients of the capital upon the death of the usufructuary).
Upon the policyholder’s death, the death benefit[1] is paid in full to the usufructuary spouse, while the children, as bare owners, have a right to claim on the surviving spouse’s estate.
Tax Considerations
The advantage of this arrangement is that the children, as bare owners, are only taxed on a portion of the death benefit depending on the age of the usufructuary spouse (see table below). Meanwhile, their restitution claim is on 100% of the death benefit. The usufructuary spouse is exempt from inheritance taxation.
Case Study
At 68, Bertrand takes out a life insurance policy for €2,200,000 with the dual objective of protecting his wife, Laura, and ultimately passing his wealth efficiently to his children, Tom and Juliette. Consequently, he chooses a dismembered beneficiary clause.
Upon Bertrand’s death, Laura receives €3,000,000, and the children each have a claim of €1,500,000 on her estate while only paying taxation of €943,250 each (€216,015 tax per beneficiary).
Reinvesting the Dismembered Capital
Laura may decide to reinvest the €3,000,000 dismembered capital into a capitalisation policy or a life insurance policy, such as Private Wealth Portfolio France.
