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Life insurance
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 Money, Saving, Life insurance: advantages of the dismemberment of the profit clause
Life insurance: advantages of the dismemberment of the profit clause
The mechanism of the dismemberment
The dismemberment of the profit clause makes it possible to designate several recipients of a contract of life insurance, a usufructuary but also one or more bare owners. A technique which optimizes the transmission, in particular tax point of view.
How that functions
“In 99% of the cases of dismemberment, the designated usufructuary is the spouse and the bare owners are the children”.
With died of the subscriber to the contract of life insurance, the death benefits are versed with the usufructuary. This last can then freely have this amount of money but must restore it with (X) the bare owner (S), at the end of usufruct, i.e. at the time of its death. The bare owners thus have only one credit on this sum: with died of the usufructuary, it is with them that will return the capital.
How to limit the risks
The risk is obviously that the usufructuary wastes the money of which he inherited with the outcome the contract life insurance. “For this reason it is recommended to integrate into the profit clause, a clause of re-employment of the funds, on a protected support - funds monetarist for example -, to prevent that the bare owners are not injured, Pascale Baussant specifies.
At all events, it is more advisable to call upon a notary who will advise you on the drafting of the profit clause. “
This last advertisement indeed a high degree of accuracy and must consider the most possible case of figure. It is necessary for example to envisage the recipient nomination of the contract if the usufructuary or the bare owners dies before the subscriber to the contract of life insurance.
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Tax interest
The large interest of the dismemberment of the profit clause lies in the fact that, with the death of the usufructuary, the bare owner recovers his credit on the succession without being imposed.
A very favorable context
Before 2005, the bare owners and the usufructuary all were regarded as recipients of the contract of life insurance and thus benefitted from an abatement of 152.500 euros then paid the tax of 20%.
However, a ministerial answer, in August 2005, indicated that the usufructuary was to be regarded as the only recipient of the death benefits and to thus benefit only from the abatement of 152.500 euros.
However, today, taking into account the new law of August 2007, the sums received by the spouse by the means of a contract of life insurance are exonerated from tax, specifies Pascale Baussant.
The death benefits of contracts whose profit clause is dismembered with the profit of the spouse thus escape the taking away from 20%. So the exemption is total as well for the usufructuary as for the bare owner!
It is thus the moment to benefit from this situation and to modify your profit clause if it is not dismembered. You can do it constantly, and, if you wish it, to even modify it again, at the time the recipient not accept the benefit of the contract.
There however, the whole of the professionals of the life insurance see there a “fault” in the system and it would not be surprising that the legislation evolves/moves still soon.
“At all events, it is advisable to integrate this mechanism of dismemberment in a more general reflexion on your succession, while taking into account, for example, the advantages which gets, on a tax level, your matrimonial mode.
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 Example:
Let us take the example of Mister X who is 65 years old during his last payment on his contract of life insurance. The death benefit rises with 300.000 euros. His wife is usufruitière and their child is bare owner.
Before the new law founding the exemption of the sums transmitted between husband, including by the means of the life insurance, Mrs X profited from an abatement of 152.500 euros on the transmitted capital, then it paid 20% on the difference (147.500 euros), that is to say 59.969 euros.
With final, the capital which it perceived was of 240.031 euros (300.000 - 59.969 euros). Consequently, the child had a credit on the succession of his mother of 240.031 euros which it touched while being completely exonerated of death taxes.
And if the premiums had been versed after 70 years, the credit acquired by the child was equal to the capital perceived gross by his/her mother, before the application of the article 757B, i.e. 300.000 euros.
From now on, the situation is much simpler. With the death of Mr X, the 300.000 euros which return to his wife are exonerated from tax, taking into account the new law on the transmission between couple. On his side, the child has a credit on the succession of his mother, of the same amount, 300.000 euros, always without paying tax.
The taxation when the recipient usufructuary is not the spouse
Article 757 B of the General Tax Code introduces the criterion of the age of the policy-holder. Thus, the payments carried out after its 70 years are fixed with the death taxes for the share exceeding 30.500 euros, except for the subscribed contracts before November 20, 1991 which escape this rule.
This imposition applies to the payments carried out but the interests are them completely exonerated.
Then, article 990 I of the cgi lays down a contractual tax of 20% on the capitals paid-up with a recipient by the insurance company at the time of the death of the policy-holder, when this last has less than 70 years. This taking away is decreased by an abatement of 152.500 euros per recipient. It relates to moreover only the payments carried out from October 13, 1998.
The abuse right
In a situation of the dismemberment, one could imagine that the usufructuary places the death benefit on a contract of life insurance, and that it designates as recipient the bare owner.
This last, which already acquired a credit on the succession of the usufructuary thanks to the dismemberment, will also perceive a death benefit, while profiting from the advantageous taxation of the life insurance. Thus, it would cumulate a credit on the exonerated succession of rights and a transmission except succession of the capital.
The solution is tempting but, in the facts, this mechanism is compared to an abuse right by the tax authorities. It is thus more advisable to be satisfied with the dismemberment and thus to avoid a payment of back taxes.
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