Ester Carbonell van Reck, Senior Wealth Planner – Spain and LatAm, outlines how a mixed-term life insurance policy can be used to support deferred succession planning for a high-net-worth client in Spain.
The structure would allow the client to retain access to capital during her lifetime, while ensuring a controlled and tax-efficient transfer of wealth to her grandchildren under specific conditions.
The Client
Mrs. Gómez is a 65-year-old widow, Spanish national and resident in Madrid. She has two children and two grandchildren, all resident in Madrid. With a net worth of approximately €15 million, she wishes to retain access to her money during her lifetime while ensuring, on her death, that a portion is passed on to her grandchildren under certain conditions. These are namely that they reach a certain age and have time to prepare for the receipt of such significant wealth.
The Solution
Mrs. Gómez takes out a mixed-term unit-linked life insurance policy with Utmost Wealth Solutions for €5 million. The lives assured are Mrs. Gómez and her two grandchildren. She is designated as the first-rank beneficiary in the event of survival, with her grandchildren as second-rank beneficiaries. The beneficiaries in the event of death are her grandchildren’s legal heirs.
Key Features
- Conditioned termination right: On Mrs. Gómez’s death, the policy’s termination right is transferred to the second-rank beneficiaries (i.e. her grandchildren) only when (i) each has reached age 30, and (ii) at least 5 years have elapsed since the date of death. The grandchildren might also choose to extend the contract beyond that point.
- Deferral in practice: Until those conditions are met, the policy remains active, deferring the taxable event for the grandchildren and giving time for strategic financial planning.
- Post‑death governance: Mrs. Gómez can also establish in the policy that the grandchildren will be entitled to request a change of the custodian, discretionary asset manager, or investment strategy applicable to the policy after her death.
- Continuity on survival: If the grandchildren do not opt to terminate the policy on survival at that time, the policy continues until the last life assured dies, at which point the policy’s death benefit will be paid to their legal heirs.
The Benefits
- Liquidity for the policyholder: Access to liquidity during Mrs. Gómez’s lifetime through partial surrenders or termination upon maturity.
- Controlled distribution: Guarantees that the grandchildren receive the money when they reach defined age and timing thresholds.
- Planning window: A 5-year deferral period post-mortem for heirs to plan the transfer of wealth.
- Potential tax deferral given that the acquisition of the right to terminate the policy, and thus trigger taxation, is legally postponed.