Life Insurance And Estate Planning: Here Is What You Need To Know

Life insurance is a fundamental tool in estate planning. Life insurance for estate planning can help you transfer capital to one or more people you care about. In addition, by combining a donation and a life insurance policy with an accepting beneficiary, you can transfer your wealth in a tax-friendly way while maintaining control. What are the benefits of life insurance in estate planning?

Life insurance policies are an excellent tool for planning and asset protection, as their flexibility allows them to perform different social security and inheritance functions and at the same time to make the most of a series of civil and tax benefits.

Estate planning and life insurance

For these reasons, over the last twenty years, products have been strongly developed that, alongside the well-known social security function of the policies, have led to an evolution of new functions with distinctly financial characteristics: the so-called unit or index-linked policies.

Benefit clauses

Qualified as a life insurance contract, the unit-linked contract is a product that offers preferred options in the context of estate planning through its flexibility in the drafting of the beneficiary clauses, the integration of certain assets and special provisions. solicited by the lessees at the time of the subscription (example: payment phased to the beneficiary following the death of the insured).

While each case is unique, there are many possibilities for structuring and designing the respective beneficiary clauses and can be more complex or simpler depending on the policyholder’s wishes.

Although policyholders are allowed ample creative input when drawing up the beneficiary clauses, which derives from the principle of freedom of contract, the rules of inheritance law must, however, be respected. The lessees may, for example, at any time change the beneficiary clause and thus stipulate something completely different from what was originally planned, except in the case of an irrevocable beneficiary clause.

The beneficiary clause is irrevocable whenever there has been express acceptance of the beneficiary’s profit or the policyholder’s express waiver to modify it. Since the beneficiary clause is irrevocable, the prior written agreement of the beneficiary will always be necessary to exercise any rights arising from the contract.

Types of underlying assets

On the other hand, in the context of estate and wealth planning, the unit-linked contract is a product that allows the allocation of company structures (including family structures) and their respective structuring by the possibility of investing in products.

Tax benefits for business owners

Tax benefit

If the tax is inevitable at your death, life insurance can be useful to your estate to pay this debt without having to liquidate your property. Schedule insurance policies that will be payable to the estate to cover the taxes that would result from the disposition of your property. Not insignificant detail: any life insurance product is not taxable.

Donate to a charity

You can also use your life insurance policy to donate to a charity. During your lifetime, as a donor, if you pay the premiums of an insurance policy on your life of which an organization is a policyholder and the beneficiary, you are entitled annually to a tax credit for charitable donations on premiums paid only.

The insurance product has no fiscal impact. On the other hand, if you are the policyholder and upon your death, the insurance proceeds are paid, in accordance with your wishes, to a charity, the taxpayer will grant a corresponding charitable donation credit. the amount of insurance paid. This credit can be carried forward as needed over the previous year.

Estate planning

Estate planning involves organizing the transfer of one’s estate in a proper way during one’s lifetime. At a tax-friendly price, but legally. Estate planning involves organizing the transfer of one’s estate in a proper way during one’s lifetime. At a tax-friendly price, but legally.

Estate planning allows you to take steps during your lifetime to transmit your assets according to your personal wishes. Anticipating your estate allows you to:

  • Protector benefit some relatives;

  • Pass (part of) your estate to people other than your legal heirs;

  • Lighten the inheritance tax your heirs are liable to;

  • Anticipate inheritance by transmitting assets before your death.

Depending on the circumstances, there are different ways to achieve your estate planning objectives, which include wills, beneficiary designations, proxies, insurance, trusts, tax planning, charitable donations, and foundations.

It all depends on your situation. In your case, it could simply be to update the named beneficiaries of your insurance policies, so that the funds go directly to them (and not as part of your estate, which could reduce probate fees). Or, it could be a more complex strategy, such as establishing a trust to hold assets or assets. A trust can help you protect and preserve the assets that will be transferred to your beneficiaries, especially if you have special needs or concerns that arise from an expensive lifestyle.

Long-term financial planning

Sharing the inheritance

Who will inherit what? Succession is a complex matter. The legislator has elaborated very detailed legislation, so that it may seem ambiguous to the uninitiated. Within this legal framework, the various matrimonial property regimes, in particular, are of paramount importance: outright separation, community status, freehold common property, and various other “alternative matrimonial regimes”. Similarly, a testamentary will can influence sharing, kinship, etc.

However, there are three main novelties:

  • The part reserved for children – that is to say, the part to which they can always claim legally if they wish – decreases. This means that the share you can dispose of as you see it increases.

  • Parents can no longer claim a part “reserve” of inheritance.

  • Parents can enter into an inheritance agreement with their children to establish succession agreements.

Circumstances that require reconsideration of your estate plan

There are circumstances that might require you to update your estate plan, as follow:

  • Death of the spouse

  • Marriage or second marriage

  • Birth of a child or a grandchild

  • Death of a beneficiary

  • Buying or selling a business

  • Beneficiary with special needs (requires special fiduciary planning)

  • Death of the liquidator named in the will

  • Purchase of foreign goods

Do not give everything too fast

All giving today to avoid significant taxes later on to your loved ones should never be done in haste. Besides, perhaps it is not even necessary. If your wealth is limited to the family home and a limited amount of savings, for example, as is the case for most people, you do not really need to worry about inheritance rights that your heirs will have to pay.