The accretion clause is, in legal jargon, defined as an onerous commutative and aleatory contract. As the contract presupposes at least two parties, it follows that the survivor has the chance to acquire something under the condition precedent of the co-contracting party’s death. The majority of legal literature states that the accretion agreement is based on two balanced conditions precedent.

The reason for this is simple: each party to the agreement assigns to the co-contracting party their joint interests in a (movable or immovable) property under the condition precedent of their predecease.[1] Consequently, when a specific event occurs (we will be talking about death in the context of this contribution), the share of one of the (predeceased) joint owners shall be acquired ex lege by the second.[2] The chances of gain and of loss of each of the joint owners depend on an uncertain future event, which is beyond the control of the parties.[3] This uncertainty lies not in the death of the co-contracting parties (a certain future event) but in the chronological order of the deaths of the joint owners.

It should be noted that, logically, the accretion clause implies the pre-existence of a joint ownership, i.e. jointly-owned property acquired by spouses married under the regime of separation of property. [4] For an application to life insurance, this criterion will naturally lead us towards a joint application.

As a reminder, a joint application for a life insurance policy implies a joint ownership created between the various policyholders of the same life insurance policy. In fact, the personal rights to the contract (attached to classification as a “policyholder” in the life insurance policy), i.e. right of redemption, right to change the beneficiary clause, arbitration[5], shall be exercised jointly by the joint applicants. This accretion agreement is independent from the legal practice on which it is based. Consequently, it may be entered into after conclusion of a life insurance policy, for example.

1. Legal conditions governing the validity of an accretion clause

As stated above, the accretion clause is an onerous commutative and aleatory contract. We may therefore deduce from this the conditions governing the validity of said clause.

• Onerous agreement: Article 1106 of the Civil Code states: “the onerous contract is that which subjects each of the parties to give or to do something”.[6] We may therefore conclude that each of the parties receives a reciprocal “chance” to receive something (the other’s undivided share). This classification as an onerous agreement is important, as it thus avoids classification as a gift (which would then be potentially restored to the succession and subject to reduction when a question of succession arises).
• Aleatory agreement: the aleatory and commutative nature of the agreement is considered as a sort of equality of opportunity, for each of the parties, to gain wealth. The conditions governing loss or gain in this sort of “gamble” must therefore be equivalent for each of the parties. Consequently, this implies:
  • That the contribution of each of the parties must be equivalent
  • That the chances of survival of each of the parties must be equivalent.

What happens if there is economic imbalance between the parties’ investments? It is recognised that such an imbalance does not call into question the uncertainty underlying any accretion agreement provided that the parties have equal chances at the outset. This is determined in light of actual circumstances, and therefore involves compensation. Is that feasible? A distinction should be made according to the region in question.

• In the Brussels and Wallonia regions, this compensation is entirely feasible. Case law precedent, which is flexible in such matters, seems to allow it.[7]
• In the Flemish region, VLABEL’s standpoint of 8 January 2018 states that life expectancy as well as one’s own contribution are concepts that cannot be compensated for. As this standpoint is open to criticism, security wants it to be respected in order to avoid any dispute.[8] Any request by the client to go against this standpoint in FLANDERS shall be subject to an analysis by and information from an external specialist consultant.

2. Accretion clause taxation – VLABEL version

With jurisdiction over inheritance tax and certain registration duties since 1 January 2015, the Flemish Region (Vlaamse BelastingDienst or “VLABEL”) is responsible for determining, auditing and collecting or refunding inheritance taxes and registration duties. VLABEL’s jurisdiction is based on the establishment, in the Flemish Region, of the tax residence of inhabitants of the Kingdom or, regardless of the tax residence of the concerned taxpayer, of a real estate property.

The issue that is of particular interest to us at this stage is the application, or otherwise, of Flemish inheritance taxes in the context of a joint life insurance policy (last-to-die configuration) with an accretion of the surviving policyholder’s rights (from the share of the predeceased’s policyholder’s rights) upon the first death. In various decisions, VLABEL has explicitly acknowledged that the accretion agreement is proving to be an effective tool in the context of inheritance optimisation, confirming the non-taxable nature of an accretion for rights relating to a life insurance policy.[9] However, VLABEL does not agree with regard to the sums assigned to the surviving policyholder in return for these rights, i.e. as soon as an insurance benefit occurs (redemption or liquidation of the policy). Consideration should therefore be given to the very basis of this standpoint of VLABEL: the distinction between the rights obtained under the (onerous) life insurance policy and the sums required by virtue of the exercise of these rights (exercise of the right of redemption which would be free of charge). Here is the source of the problem, and the majority of legal literature also disputes this distinction, which is described as artificial. By applying the law literally, there should be no taxation in the situation referred to provided that the accretion agreement is valid.

VLABEL has made a number of contrary decisions, and an official written confirmation would be desirable on this subject. This would put an end to any controversy.

For more information on this subject, please do not hesitate to contact our experts.

Nicolas MILOS – Senior Wealth Planner

 

 

   

[1] See the contributions on this subject of M. VAN MOLLE, D. MICHIELS, F. WERDEFROY or H. CASMAN.

[2] H. CASMAN, Notarieel Familierecht, Gand, Mys & Breesch, 1991, p. 183.

[3] Articles 1104 and 1164 of the Civil Code.

[4] E. DE WILDE D’ESTMAEL, “Appendix 2 – Accretion, survivor’s benefits and hotchpot clauses in the context of gifts of transferable securities”, in Les droits de succession et les droits de donation (Inheritance and Gift Taxes), Brussels, Larcier, 2014, p. 240.

[5] Article 169 et seq. of the law of 4 April 2014 on insurance, M.B. 30/04/2014.

[6] Article 1106 of the Civil Code, in force on 13/09/1807.

[7] Antwerp, 10/02/1988, T. Not., 1989, p. 320, Rev. Not. b., p. 437; Civ. Turnhout, 7/01/2005, C.A.B.G., 2006/6, p. 60.

[8] VLABEL, Standpunt No. 17044.

[9] See inter alia advance ruling BB 17046 of 19 February 2018.

Romain Chevalier, the new OneLife CCO, is interviewed by Bogdan Kowal of Club Patrimoine.

Club Patrimoine is a French social network of asset management professionals.

In it, Romain Chevalier presents OneLife and speaks about its acquisition by APICIL in January 2019 as well as the ongoing projects and news.

The place held by Luxembourg life assurance on the French market is also discussed, as are the various wealth solutions that OneLife can offer and their benefits.

Check out the interview to find out more.

 

Your business as an insurance intermediary is growing and you are considering selling OneLife’s insurance products outside your home market? To meet the needs of your increasingly mobile customers, you intend expanding into foreign markets? What are the opportunities open to you?

The situation as you understand it:

The business of insurance distribution (formerly insurance mediation) is highly regulated. Any insurance broker or agent must be authorised by the regulatory and supervisory authority before carrying on its activities. Once an insurance broker is authorised, it possesses a European passport (since the third life assurance directive of 10 November 1992), enabling it to conduct business in another European Union member state without being established in that state by way of the freedom to provide services. This means that the broker does not have to have a permanent establishment to provide services to customers outside the member state in which it is established.

It is this freedom to provide services that enables OneLife to offer its Luxembourg life assurance products in the European Union.

However, like insurance intermediaries, OneLife must first respect certain conditions before being able to pursue business in another Member Sate of the European Economic Area (EEA).

 

What you might not have known:

The two freedoms that allow insurance products to be distributed abroad are the freedom of establishment and the freedom to provide services, each of which has its advantages and drawbacks. Here is a brief presentation of these two freedoms.

1. Freedom to provide services

If you are registered with the FSMA (Financial Services and Markets Authority) in Belgium, the Luxembourg insurance commissioner (Commissariat aux Assurances – CAA) or the French register of insurance intermediaries (Organisme pour le Registre des Intermédiaires en assurance – ORIAS), then you possess the European passport. In order to sell insurance products in a market (Member State) other than the market in which you are established, you can choose to pursue your business in this other market by way of the freedom to provide services.

For example, for a French intermediary, articles L 515-1 et seq. of the French Insurance Code governs the procedure to follow in order to apply for an authorisation extension with respect to a foreign market:

1. Any (re)insurance intermediary or any insurance intermediary distributing insurance as an ancillary activity registered in France that intends pursuing business for the first time in another Member State under the freedom to provide services must first send the following information to the body that maintains the register mentioned in I of article L. 512-1 (ORIAS):

   1° Its name, address and registration number;

   2° The Member State(s) in which it intends pursuing its business;

   3° The category of intermediaries in respect of which it intends to pursue its business and, where applicable, the name of any (re)insurance company it represents;

   4° The branches of insurance concerned, if any.

   II – Within one month of receiving this information, the body that maintains the register mentioned in 1 of article L. 512-1 communicates the information mentioned in I to the host Member State’s supervisor. The aforementioned body then informs the (re)insurance intermediary or insurance intermediary distributing insurance as an ancillary activity that the host Member State’s supervisor has received this information and that it can begin to carry on its activity in that State. Where applicable, at the same time, the body informs the intermediary that the information concerning the rules protecting the general good applying to the activity intended to be conducted in the host Member State are published by this State, and that the intermediary must respect these rules in order to pursue its business there.

The Luxembourg law on the insurance sector in its articles 293 and 293-1, and article 269 of the Belgian law of 4 April 2014 on insurance prescribes the same conditions:

Extract from Article 269 of the law of 4 April 2014:

1. Any (re)insurance intermediary or insurance intermediary distributing insurance as an ancillary activity registered in Belgium that intends pursing its business in Belgium for the first time in another Member State by virtue of the freedom to provide services must first inform the FSMA in the form and conditions the FSMA has prescribed.

Within one month of receiving the information referred to in paragraph 1, the FSMA communicates the information to the host Member State’s supervisor.
After the host Member State has confirmed receipt of the information, the FSMA informs in writing the intermediary concerned that it has received the information and that the intermediary may begin conducting its activities.

When pursuing its business in the host Member State, the (re)insurance intermediary or insurance intermediary distributing insurance as an ancillary activity referred to in paragraph 1 must comply with the laws and regulations of this host Member State applying to (re)insurance intermediaries or insurance intermediaries distributing insurance as an ancillary activity in the interests of the general good. The FSMA informs the intermediary concerned where it can find the relevant host Member State’s rules of general good.
The register specifies in which Member States the intermediary may operate by virtue of the freedom to provide services.

2. Freedom of establishment

The freedom of establishment is the right for any authorised person to set up undertakings in another EU Member State. That is to say, an authorised intermediary may establish a permanent presence by setting up a branch or office (permanent establishment) in another Member State subject to respecting the particular procedure as prescribed by article L 515-3 of the French Insurance Code, article 291 of the Luxembourg law on the insurance sector and article 270 of the Belgian law on insurance.

However, this does not concern the creation of a subsidiary (a company) in another Member State, which must obtain specific authorisation from the host State’s supervisor in order to pursue its business of insurance distribution.

The prescribed procedure is similar in the 3 countries.

Extract from article L 515-3 of the French Insurance Code:

1. Any (re)insurance intermediary or any insurance intermediary distributing insurance as an ancillary activity registered in France that intends establishing a branch or permanent presence in another Member State under the freedom of establishment must first inform the body that maintains the register mentioned in I of article L. 512-1 and send the following information to that body:

   1° Its name, address and registration number;

   2° The Member State in which it intends establishing a branch or permanent presence in another legal form;

   3° The category of intermediaries in respect of which it intends to pursue its business and, where applicable, the name of any (re)insurance company it represents;

   4° The branches of insurance concerned, if any;

   5° The address, in the host Member State, for any correspondence concerning the communication of documents;

   6° The name of any person responsible for managing the branch or permanent presence.

   II – Unless the body that maintains the register mentioned in I of article L. 512-1 has reasons to doubt the appropriateness of the organisation structure or financial position of the (re)insurance intermediary or insurance intermediary distributing insurance as an ancillary activity compared with the intended distribution activities, it sends, within one month of receiving it, the information mentioned in I to the host Member State’s supervisor, which confirms receipt thereof. The aforementioned body then informs the (re)insurance intermediary or insurance intermediary distributing insurance as an ancillary activity that the host Member State’s supervisor has received this information.

   Within one month of receiving this information, the body that maintains the register mentioned in 1 of article L. 512-1 receives, from the host Member State’s supervisor, communication of the rules of general good applying in this State. The aforementioned body then informs the intermediary that it can commence to carry on its activity in the host Member State, provided it complies with these rules. If the (re)insurance intermediary or insurance intermediary distributing insurance as an ancillary activity has not received this information by the aforementioned deadline, it may establish the branch and begin conducting its activities.

   III – Should the body that maintains the register mentioned in article L. 512-1 refuse to send the information mentioned in I to the host Member State’s supervisor, it communicates to the (re)insurance intermediary or insurance intermediary distributing insurance as an ancillary activity, within one month of receiving all the information mentioned in I, the reasons for its refusal.

3. For each freedom, the procedure to follow before conducting any activity in another Member State

The intermediary must:

Then, the supervisory authority:

To sum up:

For the two freedoms, the procedures are clearly similar. However, whereas distributing insurance on a freedom of services basis is less complicated and less expensive than a permanent establishment in another Member State, which requires having a fixed business facility and resident staff, it can be an opportunity to offer services that are closer and more tailored to customers.

Whichever freedom is chosen by way of which the distribution of insurance is to be conducted, the activity cannot begin straight away and the intermediaries are advised to:

1. inform OneLife as soon as possible in order to ask them relevant questions;
2. anticipate their activity abroad in order to shorten the time spent on the regulatory administrative procedures and to respond to customers’ requests in good time.

You are an insurance intermediary and wish to grow your business abroad? OneLife’s experts are here to help you achieve this goal!

 

Author:  

 Jean-Nicolas GRANDHAYE – Corporate Counsel at OneLife

 

María and Juan are in their sixties and reside in Latin America.

They would like to invest part of their wealth they accumulated through the years, on Real Estate investments located on the Mediterranean Coast and to make sure it benefits their family members when the time comes.

To do so, they’ve been advised to channel their Real Estate investments through a life assurance solution.

Check out our video about the wealth planning solution for the García family!

María and Juan chose OneLife as their insurer. This allows them to have a dedicated Wealth Structurer and Real Estate Experts who accompany them in the process.

The customised investment structure that the García family and OneLife agreed on is portable, tax efficient and flexible. Moreover, their personal wishes regarding succession planning will be respected.

To find out what the detailed solution for the García family is click => here !