Split beneficiary clause

Legal Department
December 3, 2015
The split beneficiary clause, a succession planning tool

The splitting of a beneficiary clause consists of the splitting of the capital paid to the beneficiaries. In order to optimise rights of succession and protect one's spouse, it may prove judicious to amend a "classic" clause in a life insurance policy, on which the premiums have been paid prior to the insured's reaching the age of 70, making it a split clause.

Why a split beneficiary clause?

Transferring the benefits of a life insurance policy to the spouse is often not the best strategy.

In the vast majority of situations, the beneficiary clause will designate the surviving spouse as the sole beneficiary of the life insurance policy. Since the death of the first spouse often occurs after both have attained 70 years of age, the surviving spouse can no longer benefit from the attractive tax treatment of life insurance if (s)he wishes to invest this money in a life insurance policy.

Thus the application of this standard clause could lead to a considerable increase in inheritance tax and render subscription to a life insurance policy pointless and ineffective.

The split beneficiary clause in a life insurance policy is therefore the perfect solution for protecting the spouse and reducing inheritance tax.

During his or her lifetime, the usufructuary spouse can benefit fully from the life insurance policy, but on his or her death it is the children, as bare owners,that will receive the capital free of inheritance tax.

Principles and mechanisms for splitting the beneficiary clause:

On the death of the insured, under the tax rules for life insurance, the capital is paid to the usufructuary (generally the spouse) who, under a quasi-usufruct*, can freely dispose of it and for example subscribe a capitalisation contract, which is a perfect vehicle for these funds.

The bare owner(s) who receive(s) no funds do(es) however retain a claim for the return of an amount equivalent to that of the capital paid out. On the death of the quasi-usufructuary, the bare owner(s) can exercise this claim against the quasi-usufructuary's estate in the amount of the death benefit paid (assuming the claim is not indexed). This claim, recorded as a liability of the estate, will then diminish the net assets of the estate subject to transfer duties on donations (gift tax). Moreover its reimbursement to the child(ren) is not subject to transfer duties on donations (gift tax).

* Since the usufruct refers to a sum of money, the surviving spouse benefits from a quasi-usufruct of the death benefit paid. The child(ren) then has or have free use of the entire capital, unless there is a use-of-funds clause and/or a clause imposing a deposit in guarantee. The split does not take place until the death of the insured. The quasi-usufructuary is therefore entitled to spend the money of the policy. However, the sums spent will constitute a debt to the bare owner(s), which will be applied against the quasi-usufructuary's estate.

The attractive tax treatment of the split beneficiary clause of a life insurance policy, in particular for premiums paid before the insured has reached 70 years of age

The settlement of the life insurance policy and the splitting of the capital between the usufructuary spouse and the children as bare owners takes place in a highly advantageous tax framework. In effect, the inheritance tax payable on the subscriber's death is reduced thanks to the advantages linked to life insurance and to splitting.

Article 990 I of the French General Tax Code allows bare owners to share the abatement of €152,500 with the usufructuary, but depending on the rights accruing to each in application of the scale set out in Article 669 of said Code, which classes the tax value of the usufruct and of the bare ownership by reference to the usufructuary's age:

AGE of the usufructuary VALUE of the usufruct VALUE of the bare ownership
Less than:    
21 years 90 % 10 %
31 years 80 % 20 %
41 years 70 % 30 %
51 years 60 % 40 %
61 years 50 % 50 %
71 years 40 % 60 %
81 years 30 % 70 %
91 years 20 % 80 %
Over 91 years 10 % 90 %


Thus the overall abatement of €152,500 is shared between usufructuary and bare owner in the same proportions. And it is advisable to apply as many abatements as there are pairs of usufructuaries and bare owners.

Note that the usufructuary cannot however benefit in total from an abatement of more than €152,500 on the entire death benefit received under the various life insurance policies in respect of the death of one and the same insured. Furthermore, when one of the beneficiaries named in the policy is exempt (as in the case of a surviving spouse or civil partner of the deceased), the fraction of the abatement not used by the exempt beneficiary cannot be used by the other beneficiaries of the policy.


Mr. and Mrs. X are married under the community of assets regime and have two children together. Mr. and Mrs. X are both 65 years old.

Mr. X has subscribed a life insurance policy for €500,000 following the sale of the family business. He has drawn up the beneficiary clause so as to provide for a split of ownership between the usufruct for his wife and the bare ownership for his two children.

Mr. X dies. Ownership of the capital of €500,000 is split between his widow and his two children.

Value of the capital transferred: €500,000.

Age of the usufructuary spouse: 65 years.

Value of the usufruct in application of Article 669 of the French General Tax Code: 40%, or €200,000.

Value of the bare ownership in application of Article 669 of the French General Tax Code: 60%, or €300,000.

Value transferred to the spouse = €200,000

Value transferred to each of the children = €150,000.

Premiums paid before the insured had reached the age of 70 years

There are as many abatements of €152,500 as there are pairs of usufruct and bare ownership.

In this case, two abatements of €152,500 will be applied:

  • Pair 1: Spouse with child 1.
  • Pair 2: spouse with child 2.

Each pair will be able to claim an abatement of €152,500 shared in accordance with the scale set out in Article 669 of the French General Tax Code.

  • 152,500 x 40% = €61,000 of abatement for the spouse
  • 152.500 x 60% = €91,500 of abatement for each of the children.

The spouse being as such exempt from tax, only the children will be taxed, at the rate of 20%*, on the amount exceeding their abatement, i.e. €150.000 - €91,500 = €58,500 giving €11,700 in tax to be paid.

*Note that from €152,500 to €700,000 the rate is 20%. Amounts above that are taxed at 31.25%.

Premiums paid after the insured reaches 70 years of age

In this case, the tax treatment is clearly less advantageous for the beneficiaries of a life insurance policy.

Pursuant to Article 757 B of the French General Tax Code, death benefits received are subject to inheritance tax in accordance with the degree of parentage existing between the beneficiary (donee) and the insured (donor) insofar as they relate to the fraction exceeding €30,500 of premiums paid after the age of seventy.

This amount of €30,500 of premiums paid is also shared, in application of Article 669 of the French General Tax Code, between the usufructuary and the bare owners.

In contrast with the abatement of €152,500, the abatement of €30,500:

  • relates to the sums paid as premiums for the life insurance policy and not to the capital acquired;
  • applies only once to all policies and all beneficiaries (and not to each beneficiary as in the case of the abatement of €152,500).

Contractual arrangements to provide for

The main drawback attaching to the quasi-usufruct is the risk that the holder of this right might squander the funds, since (s)he is free to consume the entire capital. The risk is then that the assets of the estate are insufficient to allow the bare owners to recover their claims.

Besides, in the absence of contractual arrangement, the quasi-usufruct (usufruct of a fungible asset) does not take account of the effects of inflation: the same sum has to be returned to the bare owners, regardless of the time elapsed.

Therefore contractual arrangements must be made with the main effect of protecting the bare owner beneficiary or beneficiaries:

  • Obligation to re-invest

It is possible to provide in the initial beneficiary clause that the capital will be paid to the usufructuary with the obligation to re-invest it: in an insurance policy, a portfolio of securities, etc.

  • Deed of receipt

The bare owner(s) must be able to obtain proof of their claim by a deed of receipt, whereby the quasi-usufructuary acknowledges having received the funds from the insurance company and being liable for their reimbursement to the bare owner(s) on his or her death.

It may also be wise to have the existence and amount of the reimbursement liability of the usufructuary's estate formally recorded by duly registered notarised or private deed.

In fact any means of ensuring settlement of the capital can be envisaged: obligation to post a bond, etc.

The insured thus has several possibilities: by personalising the beneficiary clause of the policy, (s)he can leave the usufructuary entirely free, or on the contrary restrict the usufructuary's freedom in order to provide more protection to the bare owners.


Splitting the beneficiary clause of a life insurance policy is an excellent means of preparing one's succession and protecting one's close family. Since drawing up such a clause is complex and depends on each situation, clients interested in this are advised to have specialists study their specific requirements and make all necessary provisions covering all possible situations in drawing up the clause.