Luxembourg life assurance is an excellent asset management tool that offers a personalised solution  fully tailored to clients’ needs. This legal framework allows the policyholder to entrust a sum of money to an insurer in order to make it profitable within the scope of a defined investment strategy, and to freely transfer the assets thus created to one or more beneficiaries determined by the policyholder. The beneficiary clause is particularly important for French tax residents. Let’s turn to the basic principles.

Who can be named as beneficiary[1]?

Only the policyholder can name the beneficiary(ies) who may be individuals (with or without a kinship) or legal entities (in this case, attention must be paid to the applicable tax regime i.e. exemption or taxation up to 60%).

Exception: if the lifeassured is a different person to the policyholder, consent is required[2] for the nomination.

In parallel with the ban on clauses justified on unethical or unlawful grounds, the law prohibits the nomination of certain persons as beneficiaries[3] such as members of the medical professions who treated a person during his or her last illness, legal trustees for the protection of adults, ministers of worship, etc.

Finally, it is important to note that the beneficiaries are revocable (except in the context of an accepting beneficiary) and that the applicant can always go back on his or her choice and appoint one or more persons.

Point of attention: in the case of a minor policyholder/life assured, the rules for nominating beneficiaries differ. Up to 16 years of age, the beneficiary clause must remain neutral and consistent with succession laws (e.g. “the heirs of the lifeassured” or “my legal heirs” – in proportion to their theoretical rights in the estate). From 16 years of age, it will be possible to draft another beneficiary clause by notarial deed (will)[4].

How is the beneficiary clause drawn up?

The beneficiary clause makes it possible to nominate the person or persons who will receive a lump sum upon the termination of the policy (death of the life assured or date of settlement previously agreed). To make this nomination, the applicant has a wide choice of options:

  • Within the life assurance policy
  • In a separate letter
  • In a will
  • In a deed filed with a public notary

Point of attention: the nomination must be signed by the policyholder. If it is not made within the life assurance policy, the insurer must be notified of the existence of this document so that he or she can ensure compliance with it when the policy terminates.

It is recommended that the beneficiary(ies) and the share of the beneficiary(ies) be designated specifically to avoid any need for future interpretation. The designation should enable identification when the lump sum becomes payable[5]. Some tips for drafting:

  • A clause made in favour of the spouse is assessed on the termination date of the policy, thus, the clause will refer to the person who has this capacity at the time of death
  • If the children are not named, it will be necessary to provide a notarial deed to the insurer for the payment of death benefits
  • Representation does not automatically come into play; depending on the case, it may be useful to provide second beneficiaries
  • The concept of heirs is more restrictive than the notion of beneficiaries of the policyholder. Indeed, the policyholder’s creditors are, for example, included in the beneficiaries
  • It is recommended to provide a percentage and not just an amount
  • It may provide for one or more beneficiaries with unrestricted ownership or split ownership

Regular updating enables the client’s personal situation and objectives to be monitored.

Points of attention: The beneficiary clause is essential because it ensures that the sums under the policy will not be added to the estate and will benefit from the tax regimes specific to life insurance, in accordance with the deceased’s wishes. Where there is no nomination, the death benefits are added to the policyholder’s/life assured’s estate and will be treated accordingly in civil and tax terms (i.e. taken into account for the calculation of the reserved portion of the estate and taxation of death duties after application of the lump-sum allowance and the scale according to the relationship between the deceased and the heirs regardless of the date of payment of the premiums and the age of the policyholder/life assured at the time of such payment).

What are the different types of beneficiary clause?

There are mainly 5 types of clauses, subject to acceptance by the insurer:

  • Beneficiary clause with full unrestricted ownership – allows the beneficiary to receive the death benefits with unrestricted ownership
  • Beneficiary clause with split ownership – protects the usufructuary while organising the transfer to the bare owners
  • Joint beneficiary clause with one part based on full ownership and one part based on split ownership – makes it possible to combine the advantages of the two aforementioned clauses
  • Beneficiary clause with options (or multi-phase clause) – allows the first beneficiary to choose the percentage he or she wishes, depending on his or her needs
  • Dependant beneficiary clause – allows a person to be rewarded while governing his or her behaviour

How can the beneficiary clause be changed?

The beneficiary clause may be amended at any time until the applicant’s death (except in the case of an accepting beneficiary). No specific formalities are required and nor is it required for the form chosen for amendments and that of the initial nomination to be aligned.

However, it is essential to inform the insurer of this in order for it to be able to make the settlement in accordance with the policyholder’s wishes.

Should the named beneficiary agree to the clause?

The beneficiary’s acceptance is not mandatory before the policy is terminated. Neither is it necessary for the beneficiary to be informed of the existence of the policy. However, if he or she is informed, he or she may ask to accept the policy. The law provides for two procedures for the acceptance of the beneficiary clause – in both cases the policyholder’s agreement is required:

  • Signature of a policy amendment by the policyholder (which is generally also the life assured), the insurer and the accepting beneficiary
  • Signature of a notarised document or not between the applicant and the accepting beneficiary, before it is notified to the insurer

The consequences of the beneficiary’s acceptance are as follows (valid for any acceptance made since 18/12/2007):

  • Impossible for the policyholder to change the identity of the beneficiary without the latter’s consent
  • Failure to make a surrender without the consent of the accepting beneficiary
  • Impossible to pledge the policy without the agreement of the accepting beneficiary
  • If the policy includes a term in the event of life, the policyholder may recover the amount at the end of the policy
  • In the event that the accepting beneficiary dies before the life assured, the policyholder is free to appoint the beneficiary of its choice and to make surrenders

Can the beneficiary waive the benefit of the policy?

Waiving the benefit of the death benefits represents a personal right of the beneficiary. It cannot be partial. It must be distinguished from refusing the estate and does not have any consequences on the estate. If no formalities are legally required, this waiver must be brought to the insurer’s knowledge (by letter).

The consequences of the waiver will depend on how the beneficiary clause has been drafted (second beneficiary, representation provided, increase clause, etc.).

Point of attention: in order to avoid the risk of any reclassification as a gift, the waiver “for the benefit of” must be avoided.

Fanny Perpere
Wealth Planner

Want to know more? Contact our teams.

The following topics may also be of interest to you:

[1] The nomination must not negatively affect compulsory heirs (i.e. clearly exaggerated premiums).

[2] Art. L132-8 of the French Insurance Code.

[3] Art. 909 of the French Civil Code and Art. L116-4 of the French Social Action and Family Code.

[4] In compliance with the provisions of Article 904 of the French Civil Code.

[5] Art. L132-8 of the French Insurance Code.