the dangers of leaving your heirs with a poorly drafted beneficiary clause

When subscribing to a life insurance contract, the insurer will ask you to fill in the beneficiary clause of your contract, that is to say the person or persons who escape the funds after your death. How to write it and what are the pitfalls to avoid?

When you take out life insurance, your insurer will ask you to fill in the beneficiary clause, that is to say the person or persons you want your money to be reversed in the event of death. For the moment, this contract is probably for you to save in the long term and the question of succession does not appear to be of paramount importance to you. However, it is very important to focus on it. Here are three things to avoid when writing the beneficiary clause.

Make do with the standard clause

Often, the beneficiary clause is a default clause: My spouse and my living or represented children, default my heirs. A standard clause that works well in the case of a non-blended family and if you are married or PACS. If this is not the case, and your death occurs suddenly, the person who will have shared your life will not be able to perceive anything. It will be the heirs of the deceased, according to the order of priority, who could benefit from it.

In this case, if you do not plan to unite legally, it would be preferable indicate the name and date of birth of your partner in the beneficiary clause. Ditto in the event of family recomposition, and in particular if you do not have a parent relationship with one or more children but you wish to include them in the list of beneficiaries.

Life insurance: should we be satisfied with the standard beneficiary clause?

Do not update its beneficiary(ies)

In the event of a change in your family situation (dcs, marriage, divorce, birth, etc.), it is absolutely necessary to review the clause informs and update it. If you don’t think about it right away, reading your annual statement can help. This is the perfect time to take stock of your contract and check that the beneficiaries are still those you originally wanted.

Life insurance: the 7 points check your annual statement

Also, if you don’t want assign the same part of your savings to all your beneficiaries, this must also be specified in the clause. Your insurer cannot and will never assume what you kept in mind when writing it. By default, beneficiaries will receive equal portions.

For instance: you have three children but you have decided to allocate 50% to the first and 25% for each of the last two, it will be necessary to specify this.

The contract holder can also change or add one or more beneficiaries through a will. In this case, it is advisable to specify this to your insurer.

How to recover the capital of a life insurance

The first obviously exaggerated

This is where things get complicated. The heirs can in certain cases dispute the beneficiary clause of your life insurance. When taking out your contract, you have the option of designate your spouse, your heirs or anyone else. Your insurer will not be able to prevent you from doing so.

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After your death, the lss heirs can however invoke the exaggerated manifestation premiums concept and challenge your decision. Two conditions must be met: the first verses are higher that the rest of your assets and the contract to subscribed for the purpose of claiming all rights to the succession.

Be careful though! He does not exist no rule, the calculation is made by the judge, on a case-by-case basis, specifies Maître Boris Vienne, notary at the notarial office of Cornebarrieu in Haute-Garonne. Several criteria will be taken into account, in particular insurance age at the time of subscription. The more the subscriber is g, the more the judge will be able to wonder if he had wanted to evade the succession. The judge will also dwell on the payments, in particular whether they were made in one or more installments, and when. If they were carried out less than six months before the death, it is perhaps a question of a will of the subscriber to put his heritage on his life insurance to disinherit his heirs, adds Maitre Vienne, also spokesperson for the Superior Council of Notaries (CSN)

The taxman can also get involved

If the heirs can contest the beneficiary clause, they are not the only ones. Tax Administration can also put his grain of salt to check whether or not there is abuse of rights. To qualify as an abuse of tax law, two conditions must be met: the sums transferred within the life insurance contract are greater than the rest of the insurance assets and the realization of this transfer took place little time before the planned dcs insurance. And it’s not that easy to prove.

Example of overpayment

Here is a judgment rendered by the 1st civil chamber of the Court of Cassation, on January 30, 2019, which illustrates what an abuse of rights is. In this case, Daniel Z. was 79 years old when he decided to pay during the year 2001 a total amount of 158,547 euros on three life insurance contracts, i.e. a monthly average of 13,212 euros. However, his 2001 tax notice indicated that he had received 47,798 euros in retirement pensions and 6,732 euros in salary, an average of 4,544 euros per month. The payments on the life insurance contracts were therefore three times higher than his income.. Furthermore, Daniel Z. had no property assets. The magistrates decided that having regard to his age and his family and patrimonial situations, the first verses on the life insurance contracts in 2001 are manifestly exaggerated; that consequently, the value of his three life insurance policies will be transferred to the estate of Daniel Z. to be divided in accordance with the testamentary provisions. (Court of Cassation, 1st civil chamber, January 30, 2019, appeal n18-12045).

The taxation of life insurance in the event of death

If the judges establish that these two conditions (amount too high + clause modified just before the dcs) are true, the amount present on life insurance will be reinstated in the succession. This means that the costs inherent in the succession will apply and that the specific tax advantages of life insurance will be lost. Life insurance makes it possible to benefit from a tax reduction on the transmission of financial assets at the time of death. For the first payments on the contract before the subscriber turns 70, the sums transferred benefit from a tax reduction of up to 152,500 euros per beneficiary. Premiums paid after age 70 and over 30,500 euros are subject to inheritance tax.

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