Controlled distribution after death is a common requirement in succession planning for Belgian and Luxembourg residents. While many opt for complex and costly structures, they often overlook the effective and straightforward tools available under local insurance law. In particular, the post-mortem agreement, which enables the transfer of rights under a life insurance contract after the policyholder’s death, and the accepting (irrevocable) beneficiary clause offer powerful options for orderly succession planning.
Why Gifts Are Not Always the Answer
Succession planning through lifetime gifts is a well-established practice in Belgium and Luxembourg. Donors often attach conditions to gifts to retain a degree of control and prevent beneficiaries from misusing the assets. However, many high-net-worth individuals (HNWIs) choose not to make gifts during their lifetime – perhaps because heirs are too young or perceived as financially irresponsible.
The Case for Post-Mortem Control
This raises the question: can the same level of control be maintained after death? To achieve this, individuals often turn to complex structures such as a partnership, a company or a foundation. Yet, Belgian and Luxembourg insurance law offers lesser-known but highly effective alternatives through life insurance contracts, which can deliver similar outcomes with greater simplicity.
Transferring Rights After Death
Under both jurisdictions, policyholders hold key rights within life insurance contracts. These include the ability to determine or change the investment profile, surrender the policy, and designate beneficiaries. Importantly, these rights can be transferred to a third party, not only during the policyholder’s lifetime but also after their death.
To enable post-mortem transfers, the life insurance contract must remain in force following the policyholder’s death. This requires the designation of at least one additional life assured.
In such cases, the policyholder’s rights do not fall into the estate but are instead transferred according to a post-mortem appendix – a contractual addendum specifying the recipient of these rights. This appendix only takes effect upon death and can be amended at any time beforehand.
Designing A Post-Mortem Clause for Control
While often drafted as a straightforward transfer, the post-mortem appendix can be tailored into a powerful succession planning tool that offers very interesting possibilities for controlled distribution.
For example, it can stipulate that certain rights under the contract are temporarily transferred to a trusted individual. This person, appointed by the policyholder, supervises the distribution of the contract’s benefits to the ultimate beneficiaries, in line with the policyholder’s wishes.
To avoid inheritance tax implications for the trusted person, it is essential that the transferred rights do not include economic entitlements – such as the right to surrender the policy – but are limited to supervisory functions.