Dismembered life-insurance beneficiary clause: optimising the transfer

Quick answer. Dismembering a life-insurance beneficiary clause means designating a usufructuary (often the spouse) and bare owners (often the children). On death, the spouse receives the capital in quasi-usufruct: they may use it, while the children hold a restitution claim, deductible from the estate on the second death. For tax, the EUR 152,500 allowance per beneficiary (Article 990 I, for premiums paid before age 70) is split between usufructuary and bare owner according to the Article 669 scale; the spouse-usufructuary being exempt, only the children's share bears the tax. The result: the spouse is protected and the capital is passed to the children while avoiding double taxation.

Life insurance is a privileged transfer instrument: the capital paid on death goes to the designated beneficiaries, in principle outside the estate, with its own tax regime. But the beneficiary clause must be drafted carefully: it determines who receives what, and at what tax cost. We recall the fundamentals of the life-insurance beneficiary clause in a dedicated article. For a director, this contract often complements the other tools for transferring professional and private wealth, as we explain regarding the value of life insurance for a director.

Dismembering the clause is an advanced technique that reconciles two often-conflicting goals: protecting the surviving spouse by leaving them the use of the capital, and passing it to the children without needlessly increasing the tax. It is a matter of director's wealth management, to be handled rigorously.

Dismembering the clause means splitting the rights between a usufructuary and bare owners, on the model of dismemberment of ownership.

• The usufructuary (the spouse, most often) receives the enjoyment of the capital.
• The bare owners (the children, most often) receive ownership, without immediate enjoyment.
• Quasi-usufruct. As life-insurance capital is a sum of money, i.e. a consumable asset, the usufruct takes the form of a quasi-usufruct (Article 587 of the Civil Code): the usufructuary may use and spend the funds.
• The restitution claim. In return, a restitution claim arises for the bare owners, equal to the value of the capital received by the usufructuary. On the latter's death, this claim is set against their estate: the children deduct it from the taxable assets, which prevents the same capital being taxed twice.

For premiums paid before the insured's age 70, the capital falls under Article 990 I: an allowance of EUR 152,500 per beneficiary, then a levy of 20% up to EUR 700,000 and 31.25% above.

In case of a dismembered clause:

• The EUR 152,500 allowance is split between the usufructuary and the bare owner, in proportion to the value of their respective rights, determined by the Article 669 scale (according to the usufructuary's age).
• Where the usufructuary is the spouse or civil partner, they are exempt: the Article 990 I levy is due only on the tax value of the bare ownership, i.e. the children's share.

Concretely, the older the usufructuary (the spouse), the higher the value of the bare ownership under the scale, and the larger the children's taxable share. The drafting must take this into account. For premiums paid after age 70, a different regime applies (Article 757 B, with an overall EUR 30,500 allowance).

The elderly spouse. The older the usufructuary, the higher the bare ownership (children's share) valued under the Article 669 scale: the tax benefit of dismemberment varies with age.

The blended family. The dismembered clause allows fine organisation of the transfer between spouse and children from different unions, alongside other tools such as protecting the spouse. Bespoke drafting is essential here.

Premiums paid after age 70. They fall under Article 757 B, with an overall EUR 30,500 allowance: the tax reasoning differs, and the dismemberment must be reassessed.

• Formalise the quasi-usufruct. A quasi-usufruct agreement, ideally notarised and with a certain date, secures the restitution claim and its enforceability against the tax authority.
• Anticipate the restitution claim. Its deductibility on the second death requires it to be established and justified; a poorly formalised claim can be challenged.
• Measure the dissipation risk. The quasi-usufructuary can spend the capital: the children's claim may prove theoretical if the spouse's estate is insufficient.
• Take care over the clause drafting. A standard dismembered clause is rarely suitable: it must be drafted bespoke, with an adviser.
• Distinguish before and after age 70. The Article 990 I and 757 B regimes differ; the strategy is not the same.

Recently, a director wanted both to protect his wife and to pass to his two children the capital of a substantial life-insurance contract. A classic clause for the spouse alone protected the wife, but deferred the entire transfer (and its cost) to the second death. With his notary, we studied a dismembered clause: usufruct to the wife, bare ownership to the children. The wife kept the use of the capital in quasi-usufruct, and the children benefited from a restitution claim deductible from the future estate, optimising the transfer while respecting the Article 990 I allowance.

Our conviction, as accountants registered with the Ordre, is that the dismembered beneficiary clause is a powerful but demanding tool. It is not a matter of ticking an option: it requires bespoke drafting, formalisation of the quasi-usufruct and an overall view of the transfer, alongside the notary and legal advice. Poorly handled, it can create more problems than it solves.

Hayot Expertise advice. Before dismembering your clause, clarify your objective: protecting the spouse while passing to the children is the typical case. Have a bespoke clause drafted, never a standard template, and formalise the quasi-usufruct with a dated agreement to secure the restitution claim. Check the allowance split according to the spouse's age and distinguish premiums paid before and after age 70. And think overall transfer, with your notary and wealth adviser: life insurance is just one brick in the structure.