Didier, reader of Capital, asks us the following question: “Can we give our entire life insurance to the designated beneficiary, during our lifetime? Or is the amount paid to this beneficiary only upon the death of the donor? If my parent (of whom I am the sole heir) wanted to pay all his significant savings into life insurance, naming a third party as beneficiary, can I contest this payment, whether during his lifetime or after his death?
Hello Didier, and thank you for these questions which relate to the transmission of capital via life insurance. To answer your question, this savings product is essentially a transmission tool upon the death of the subscriber, but it may indeed be wise to start bequeathing part of it during your lifetime. Concerning protest, it is possible, but the conditions are quite strict.
How to give part of your life insurance during your lifetime?
To your first question, the answer is simple: life insurance is not a tool for donating during one’s lifetime. The life insurance holder can designate one or more beneficiaries (in the beneficiary clause of his contract). The capital will then be paid to them only upon the death of the subscriber.
However, life insurance remains a liquid savings product. In other words, its holder can make withdrawals (redemptions) whenever he wishes (redemptions are more tax-effective after the eighth anniversary of the contract). Once the desired amount is back in his bank account, he can dispose of it as he wishes, including making a donation to the people of his choice.
A parent can thus donate up to 100,000 euros per child without paying gift tax. This reduction is renewed every 15 years. Remember that this reduction is lower than that available for life insurance: payments made by the holder on their contract before turning 70 entitle them to a reduction of 152,500 euros per beneficiary. Beyond the age of 70, a reduction common to all beneficiaries, of 30,500 euros, applies.
For significant assets, it may therefore be wise to give part of your fortune during your lifetime to your children or grandchildren, so as not to reduce the life insurance reductions which are triggered upon death. Clearly, it is technically impossible to transfer the capital held in life insurance directly to a beneficiary, without making a prior redemption.
Can we dispute the beneficiary of life insurance?
Your second question concerns the hereditary reserve. In France, life insurance is called “non-inheritance” (article L132-12 of the Insurance Code), which means that the capital paid to the designated beneficiary largely escapes inheritance tax.
However, this rule has a limit, which is specifically intended to protect heirs like you. As an only child, you are a reserved heir and the law guarantees you a minimum share of your parent’s assets. You can challenge the fact that almost all of the savings were paid to a third party if this affects your minimum share. To do this, you must prove that the amounts paid for life insurance were clearly exaggerated in view of your parent’s financial situation. Or, that the latter did not have the necessary capacity for discernment when designating his beneficiary(ies).
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