In the context of family wealth planning, the “head of the family” will frequently express their wish to ensure an absolute equitable treatment between the various beneficiaries designated to receive an inheritance. It is also commonplace for the “head of the family” to wish to plan for their wealth to be transferred down multiple generations while retaining maximum control over, and access to, the assets.

The flexibility of the Luxembourg life assurance contract is the perfect wealth planning tool for meeting these requirements.

During inheritance planning, the life assurance contract should therefore ideally be structured well in advance of the “head of the family’s” succession and the actual transfer of the assets in question. Given that the assets underlying the life assurance contract are invested in a fund affected by fluctuations on the stock market, the total amount allocated to each beneficiary may vary between the initial investment and the start of the succession process.

Certain clients state their wish for the initial investment to be equitable between all beneficiaries, but many prefer absolute equitable treatment when succession commences.

An “Umbrella” fund for greater equitable treatment at the time of succession

There is a solution! It takes the form of an “Umbrella” fund, as covered in Luxembourg circular no. 15/3 issued by the Commissariat aux Assurances. This dedicated shared fund, or “Umbrella” fund, enables multiple policyholders (with marital links or close family ties, in a direct or collateral line) to participate in a shared dedicated fund.

Note: the principle means that a life assurance contract may sustain multiple dedicated funds, collective internal funds and even external funds.

However, the contrary is normally prohibited! In principle, a dedicated fund may only cover a single contract.

By way of exception, OneLife may request authorisation from the Commissariat aux Assurances to open a dedicated “Umbrella” fund if certain conditions are met.

Please note that as the umbrella fund is a dedicated fund, the minimum investment of Euros 125,000.00  per contract is mandatory.

All contracts managed in an identical manner

The assets underlying the life assurance contract must be managed in an identical manner for each contract. Absolute equity of treatment is therefore maintained.

A single investment profile for all contracts

As the mode of management is identical, every requirement of the investment profile relating to one of the contracts must be applied to the other contracts. In other words, a required profile of global prudence (for a contract in the name of a minor, for example), must mean a generally “prudent mode” of management is applied.

An umbrella fund will notably enable a grandfather to structure the total assets to be transferred to his children and grandchildren in a clear and equitable manner, subject to compliance (with civil regulations covering legal inheritance, disposable portion and legal reserve).

An example of inheritance planning… using a dedicated umbrella fund

  • When taking out the policy

Let us take the case of a client with 2 daughters, Marie and Fanny, and 5 grandchildren (Nicolas, Adrien, Elisabeth, Valentin and Victoria). The client wishes to leave an equal share of the inheritance to each child and grandchild, while maintaining control during their lifetime and protecting the surviving spouse. The solution offered to the client would be to structure the capital by beneficiary, namely by taking out 7 different polices encompassed by a single mode of management via the umbrella fund.

  • On the decease of the first generation

In our example, the inheritance planning requires assignment of all the spouse’s rights to the person for whom the contract is intended. Given that the assets had been clearly subdivided between the different beneficiaries identified, and that the contracts are encompassed by a single mode of management, absolute equity is maintained on transfer of the inheritance. The contracts will therefore be structured as follows:

Each new policyholder will be at liberty to enjoy the rights to their particular contract as the structure has already been optimised from the inheritance standpoint for the grandchildren, who are not only classified as policyholders but also as beneficiaries of the contract, resulting in zero death duties on settlement of the contract.

Increasingly mobile families

Furthermore, given the increasing level of mobility among wealthy families, the dedicated “Umbrella” fund will solely be subject to Luxembourg prudential legislation whereas the issued contracts will be subject to different contractual, civil and tax rules depending on the policyholder’s place of residence.

Nicolas MILOS
Senior Wealth Planner


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