Life insurance, a flagship instrument of wealth management, has a notable peculiarity: its death benefit is outside the estate, while being subject to a separate tax regime derogating from the common law on transfers. In this context, the beneficiary clause is the cornerstone of the contract’s effectiveness. Among the techniques available, the dismemberment of this clause, when appropriate, can meet converging civil and fiscal objectives: ensuring protection for the surviving spouse while preserving the financial interests of the children.
However, our firm refuses any standardized approach. In matters of wealth management, there is no universal solution. Each situation requires a detailed analysis in light of the family composition, the subscriber’s objectives, the nature of the assets transferred and the fiscal context. The dismemberment of the beneficiary clause is no exception: it should only be considered after a rigorous legal and fiscal assessment.
I. The legal and fiscal regime of dismembering the beneficiary clause
The dismemberment of the beneficiary clause of a life insurance contract consists of naming two distinct beneficiaries: one in usufruct, the other in bare ownership. This scheme allows the planner, often a spouse and parent, to guarantee the enjoyment of the capital by the surviving spouse while organizing its deferred full ownership transfer to the descendants.
For tax purposes, death benefits are subject either to the regime of article 990 I of the General Tax Code when premiums were paid before the insured’s 70th birthday, or to that of article 757 B when those premiums were paid after that age.
Article 990 I provides for an individual allowance of €152,500 per beneficiary. Beyond this allowance, the capital is taxed at 20% up to €700,000 taxable, then 31.25% above. This preferential treatment is markedly different from that of ordinary direct-line transfers subject to the scale of article 777 of the GTC, whose brackets quickly exceed 20% and can reach 45%.
When the clause is dismembered, the allocation of value between usufruct and bare ownership is carried out in accordance with the scale provided in article 669 of the GTC. The value of the usufruct depends on the usufructuary’s age at the date of the insured’s death. For example, the usufruct of a person aged 61 to 70 will represent 40% of the value, the bare ownership the remaining 60%.
II. The case of the surviving spouse: an exemption with ambivalent effects
Designating the surviving spouse as usufructuary meets a protection objective. Indeed, article 796-0 bis of the GTC fully exempts the latter from any taxation on amounts received under a life insurance contract. However, this exemption must be analyzed in light of the bare owners’ rights.
Under article 990 I, the €152,500 allowance is apportioned between the usufructuary and the bare owners proportionally to the value of their rights determined according to the aforementioned scale. As soon as the spouse is exempted, the portion of the allowance that would have gone to them is simply lost. This results in an erosion of the fiscal advantage to the detriment of the children.
Conversely, under article 757 B, the €30,500 allowance, which is global and not individual, is reallocated equally among the bare owners if a beneficiary is exempt. Thus, the dilutive effect of the spouse’s exemption is neutralized. This mechanism gives article 757 B a more uniform effectiveness in the context of dismemberment.
III. The 2024 reform of quasi-usufruct: what impact for life insurance?
The 2024 finance law introduced in article 774 bis of the GTC a rule excluding from estate deductibility the restitution claims arising from quasi-usufructs on sums of money of which the deceased had retained usufruct.
However, the tax administration, in an update to the BOFiP on September 26, 2024 (BOI-ENR-DMTG-10-40-20-20), expressly excluded quasi-usufructs resulting from dismembered beneficiary clauses from the scope of this exclusion. The corresponding restitution claims therefore remain deductible from the usufructuary’s estate, provided that their existence is certain, i.e., formalized by a document bearing a certain date prior to death.
IV. The "smart drawer" clause: an adapted optimization strategy
Our firm recommends, when circumstances warrant, a so-called "smart drawer" clause. It consists of stipulating an outright allocation to the children up to their personal allowance of €152,500 under article 990 I of the GTC, and arranging a dismemberment of the surplus between the spouse in usufruct and the children in bare ownership.
Such a clause maximizes fiscal efficiency: the €152,500 allowance is fully used by the bare owners, the excess amounts bearing reduced taxation according to the 990 I scale and not according to the more confiscatory scale of article 777 of the GTC. It also ensures immediate liquidity useful to the heirs and preserves the spouse’s rights through usufruct.
This scheme again requires documentary rigor: the agreement framing the restitution claim must be planned, drafted and formalized in advance.
Conclusion
The dismemberment of the beneficiary clause of life insurance embodies a subtle transfer technique, on the border between civil and tax law. While it can, in certain configurations, reconcile the imperatives of protecting the spouse and the objectives of optimized transmission of wealth to the children, it should not be used indiscriminately.
The growing complexity of tax texts, the tightened framework for quasi-usufructs and the fragility of imprecise clauses demand an increased level of rigor in drafting as well as in preliminary analysis. It is therefore appropriate, for each particular situation, to assess the patrimonial, fiscal and family consequences of such a choice.
Antoine AUFRAND Founder Manager - Hypérion Strategy Firm
