When settling an estate with a notary, the question of which life insurance policies to declare or not comes up regularly. Under what conditions are these investments really "outside the estate"?
What is the difference between life insurance and death insurance?
The term "life insurance" covers two different formulas:
- savings-type "in the event of life",
- in the event of death".
When a person takes out life insurance in the event of death, a lump sum (the amount of which is fixed at the time of purchase) is paid to the beneficiary named in the policy. In the case of "term life insurance", the policy covers death up to a given date. However, if the insured is still alive at the end of the contract, the sums paid are forfeited. With whole life insurance, the insurer undertakes to pay the capital sum to the beneficiary regardless of the date of the insured's death.
Life insurance, on the other hand, is more akin to a savings product. The policyholder receives a lump sum or a life annuity if he or she is still alive at the end of the policy. Some so-called "combined" policies cover both life and death. The insurer undertakes to pay a lump sum or annuity either to the insured (if alive on the date stipulated in the contract), or to the designated beneficiary in the event of the insured's death before the date stipulated in the contract.
Do I have to declare the life insurance policies taken out by the deceased to the notary?
According to article L 132-12 of the French Insurance Code, life insurance policies are "outside the estate". In reality, things are much more complex. There are numerous exceptions that bring these contracts within the scope of ordinary law, in terms of taxation and inheritance rules. In practice, the beneficiary of an "out-of-inheritance" life insurance policy does not have to pay inheritance tax. However, to be certain of this, and to avoid being caught out by the tax authorities, it is essential to inform your notary of all the details of the deceased's estate, so that he can make a declaration that reflects reality.
Contracts paid into after the policyholder's 70th birthday are subject to inheritance tax, after a tax allowance of €30,500. Your notary must therefore check that the tax allowances have not already been "absorbed" by taxable life insurance policies. To ensure that the estate runs smoothly, it is therefore preferable to "play the transparency game" with your notary.
What about non-denominated policies?
Undenominated life insurance policies are those taken out by the deceased's spouse. Do they need to be declared when the estate is settled? Since the BACQUET ministerial reply of 29/06/2010, confirmed by the CIOT ministerial reply of 23/06/2016, life insurance policies taken out by a married spouse must be declared to the notary and included in the assets of the estate declaration for half. This declaration of inheritance will enable the surviving spouse to inherit half of the life insurance policy, with no inheritance tax, no ceiling and no age limit.
Stéphnie Swiklinski