Life insurance, a key instrument in wealth management, has a notable singularity: its death benefit is outside the estate, while being subject to a specific tax regime that deviates from the common law of transfers. In this context, the beneficiary clause is the cornerstone of the contract's effectiveness. Among the techniques that can be employed, the dismemberment of this clause, when relevant, can meet converging civil and fiscal objectives: ensuring the protection of the surviving spouse while preserving the financial interests of the children.

However, our firm refuses any standardized approach. In wealth matters, there is no universal solution. Each situation requires a detailed analysis, taking into account the family composition, the subscriber's objectives, the nature of the assets being transferred, and the tax context. The dismemberment of the beneficiary clause does not deviate from this principle: it can only be considered after a thorough legal and fiscal evaluation.

The dismemberment of the beneficiary clause of a life insurance contract involves stipulating two distinct beneficiaries: one as usufructuary and the other as bare owner. This arrangement allows the planner, often a spouse and parent, to ensure the enjoyment of the capital by the surviving spouse while organizing its transmission in full ownership at a later date for the benefit of the descendants.

From a tax perspective, the capital paid out upon death is subject either to the regime of Article 990 I of the General Tax Code when the premiums were paid before the insured's 70th birthday, or to that of Article 757 B when these premiums were paid after that age.

Article 990 I provides for an individual allowance of 152,500 euros per beneficiary. Beyond this allowance, the capital is subject to a rate of 20% up to 700,000 euros taxable, then 31.25% beyond that. This preferential treatment is distinctly different from that of direct line transmissions under common law, which are subject to the scale of Article 777 of the CGI, where the brackets quickly exceed 20% and can reach 45%.

When the clause is dismembered, the distribution of value between usufruct and bare ownership is carried out according to the scale provided in Article 669 of the CGI. The value of the usufruct depends on the age of the usufructuary at the time of the insured's death. For example, the usufruct of a person aged 61 to 70 will represent 40% of the value, with the bare ownership accounting for the remaining 60%.

The designation of the surviving spouse as a usufructuary serves a protective purpose. Indeed, Article 796-0 bis of the CGI completely exempts the latter from any taxation on amounts received under a life insurance contract. However, this exemption must be analyzed in light of the rights of the bare owners.

Under the provisions of Article 990 I, the allowance of 152,500 euros is divided between the usufructuary and the bare owners in proportion to the value of their rights determined according to the aforementioned scale. Since the spouse is exempt, the share of the allowance that belongs to them is simply lost. This results in an erosion of the tax advantage to the detriment of the children.

On the other hand, within the framework of Article 757 B, the allowance of 30,500 euros, which is global and not individual, is redistributed equally among the bare owners in the case of an exempt beneficiary. Thus, the dilutive effect of the spouse's exemption is neutralized. This mechanism gives Article 757 B a more uniform effectiveness within the framework of the dismemberment.

The finance law for 2024 introduced in Article 774 bis of the CGI a rule excluding from deductibility in inheritance the restitution claims arising from quasi-usufructs on sums of money of which the deceased retained the usufruct.

However, the tax administration, in an update of the BOFiP on September 26, 2024 (BOI-ENR-DMTG-10-40-20-20), expressly excluded quasi-usufructs arising from dismembered beneficiary clauses from the scope of this exclusion. The corresponding restitution claims therefore remain deductible from the estate of the usufructuary, provided that their existence is certain, meaning formalized by a written document with a certain date prior to the death.

Practice thus requires establishing an agreement between the usufructuary beneficiaries and the bare owners, either through a registered private deed or by notarial act, in order to ensure the deductibility of the claim and avoid any post-mortem challenges.

Our firm recommends, when circumstances justify it, a clause known as a "smart drawer clause." It consists of stipulating a full ownership allocation in favor of the children within the limit of their personal allowance of 152,500 euros under Article 990 I of the CGI, and organizing a division of the surplus between the spouse in usufruct and the children in bare ownership.

Such a clause allows for maximizing tax efficiency: the 152,500 euro allowance is fully utilized by the bare owners, with excess amounts subject to reduced taxation according to the scale of Article 990 I rather than the more confiscatory scale of Article 777 of the CGI. It also ensures immediate liquidity beneficial to the heirs and preserves the rights of the spouse through usufruct.

This scheme again requires strict documentation: the agreement governing the restitution claim must be planned, drafted, and executed in advance.

The dismemberment of the beneficiary clause in life insurance embodies a subtle transmission technique, straddling civil law and tax law. While it can, in certain configurations, reconcile the imperatives of protecting the spouse and the goals of optimizing the transmission of wealth to the children, it should not be used indiscriminately.

The increasing complexity of tax texts, the strengthened regulation of quasi-usufructs, and the fragility of imprecise clauses impose a higher level of rigor in both drafting and prior analysis. It is therefore essential to evaluate, for each particular situation, the patrimonial, tax, and family consequences of such a choice.

In matters of inheritance, there is no room for approximation. There are only choices, assumed and framed.

Antoine AUFRAND
Founder Manager - Cabinet Hypérion Strategy