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The dedicated umbrella fund: a family planning tool

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Luxembourg is a centre of international financial expertise in banking and insurance and attracts families and entrepreneurs looking for innovative solutions to meet their wealth planning needs.

For example, Family B who are British and resident in Portugal, have a number of financial and non-financial assets representing a sizeable legacy handed down from generation to generation. With a view to optimising the intergenerational and legal protection of these assets, the head of the family is looking for an asset structuring instrument which responds to his requirements in terms of preserving and passing on this legacy.

In order to prepare an intergenerational transfer of wealth, several legal instruments can be used and are available to individuals and their families, particularly when linked to a life insurance policy.

The Luxembourg life insurance solution

Provided certain rules are observed, the Luxembourg legislation on life insurance policies makes it possible to link several policies to a single dedicated internal fund: an "internal dedicated umbrella fund" or "internal dedicated family fund".

What is a dedicated "umbrella" fund and what are its terms and conditions?

  • It is a dedicated fund, linked to several insurance policies taken out either by the same policyholder or by different policyholders provided they are connected by marriage or by close family ties (up to the third degree of kinship) in a direct or collateral line;
  • The same investment management policy must be applied for all the policies associated with the dedicated fund, with no possible exception;
  • The fund is subject to authorization by the Commissariat aux Assurances (the Luxembourg supervisory authority for insurance);
  • Each of the policies linked to the umbrella fund must meet the minimum criteria established in terms of capital invested in order for them to be associated with a dedicated internal fund (€125,000).

Once the above requirements have been met, Family B plans to take out four life insurance policies by placing its assets in the family's dedicated internal fund as follows:

The advantages of choosing a dedicated internal family (or “umbrella”) fund:

The internal dedicated family fund or "umbrella" has the advantage of offering shared management of its assets, making it possible to secure and preserve the assets of the family and hand them on to future generations in a focused, controlled and equitable manner.

Structuring and planning the family inheritance with a life insurance policy is also possible and advantageous when done individually (for example, the father (policyholder) nominates his children as beneficiaries).

However, the difference between taking out a single policy and taking out multiple policies backed by a dedicated "umbrella" (or internal) fund is the possibility of linking the different insurance policies, taken out by different policyholders who are married to each other or are related by close family ties, up to the third degree either in a direct or collateral line (for example, cousins).

Moreover, even if the members of Family B live in different countries, the family owned internal fund has the additional advantage of being subject to the Luxembourg law on investment regulations[1], without thereby interfering either with the tax regime applicable to each of the insurance policies of the different family members (governed by the tax regime in each policyholder’s country of residence) or with their respective contractual right (that of the country of residence of the policyholder at the time of signing the policy).

As a result, the use of multiple policies, combining multiple policyholders, insured parties and beneficiaries, enables intergenerational and international (or cross-border) planning thanks to a strategy of controlled management of the risks.

 

Bâloise Vie Luxembourg has a team who are specialists in the structuring of insurance assets. Do not hesitate to contact us for more information about the possibilities available for asset planning through a unit-linked life insurance policy and the advantages of the solutions proposed by Bâloise Vie Luxembourg.

 

[1] Circular letter 15/3 from the Commissariat aux Assurances applicable to this type of underlying

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