Life insurance and the declaration of inheritance is a delicate subject, so many notaries have developed bad habits that it is decidedly complicated to question, even if it would be entirely in the interest of the heirs.
In the current state of the texts, both of the civil code and of the general tax code, at the death of one of the spouses married under the community regime, the life insurance contracts taken out by the surviving spouse should ALWAYS be declared in the community assets and therefore in the inheritance assets for half. However, few notaries do this.
This is a major civil and fiscal error. It is an error that does not allow the application of the civil code and can therefore be at the origin of a misappropriation of inheritance to the detriment of the children of the first marriage or certain heirs for example, but also a major error that results in double taxation of inheritance tax.
The situation is actually quite simple to understand (which you can obviously learn more about in our books
Life insurance policies taken out by the spouse of the deceased are joint assets that must be declared in the estate declaration.
Spouses married under a regime of community have common property (real estate and movable property acquired during the marriage with the income from work, but also the income from own property) and own property.
At the death of the first spouse, when the succession of the deceased spouse has to be settled, the notary is in charge of listing the deceased’s assets in order to organize the devolution of the estate to the heirs.
The notary will have to calculate the value of the deceased’s patrimony: real estate, investments, money in bank accounts, cars, furniture, jewels, …
Schematically, the value of the deceased’s patrimony that will be transmitted to the heirs is composed of half of the common property and the totality of the own property received by donation or inheritance before or during the marriage.
This raises the delicate question of bank investments and life insurance policies taken out by the surviving spouse. Spouses married under the community regime often hold life insurance policies or bank investments such as PEL, Livret A, LDD, PEA, …. These investments can be subscribed in either the name of the husband or the wife, without losing the character of joint property.
According to the application of the theory of title and finance, it is not because the Livret A, the PEL or the life insurance contract is subscribed in the name of Mr or Mrs that the money saved therein belongs to Mr or Mrs. In the absence of proof to the contrary, called a reinvestment clause, these investments, including the life insurance, will have to be considered as joint property, and therefore as inheritance assets for half (because each spouse owns 1/2 of the joint property).
This is why the declaration of inheritance must mention all the investments made by the couple, including the investments made in the name of the surviving spouse.
But notaries often forget to declare the spouse’s life insurance policies.
Unfortunately, notaries often forget to declare the life insurance policies taken out by the spouse of the deceased. They declare the PEL, the “livres A”, the LDD, the cars, but they forget to declare the life insurance contracts of the spouse for a reason that I cannot understand.
This omission is very serious, both from a civil and a fiscal point of view.
Let’s take an example to understand the serious consequences of this error.
Mr. and Mrs. X are married under the community regime. Together they have a patrimony of 2 000 000€, including a life insurance contract subscribed by Mrs X for an amount of 800 000€ (which cannot be considered as being fed with a manifestly exaggerated premium).
Mr and Mrs have two children.
Mr. dies and when declaring the estate, the notary “forgets” to mention the life insurance policy taken out by Mrs. Thus, the community assets are estimated at 1 200 000€ and the inheritance assets transmitted to the heirs (usufruct for the spouse and bare ownership for the two children) are estimated at 600 000€.
By forgetting to declare the life insurance policy taken out by Mrs., the notary considers that the said life insurance policy belongs fully to Mrs. as part of her own property, even though it was funded with money belonging to the couple.
A few years after the death of the husband, the wife becomes angry with one of her children for X reasons that we all know in families.
Madame de colère then decides to modify the beneficiary clause of her life insurance contract in favor of only one of the two children.
At the death of Mrs. X, the child designated in the beneficiary clause will receive the capital of 800 000€ alone, thus depriving the other child of an inheritance that he should have received upon the death of Mr. X.
In order to receive this 800 000€, the beneficiary child will have to pay a 20% lump sum tax on the capital exceeding 152500€, i.e. -+130 000€.
This is an extremely common case of misappropriation of inheritance. It can be found in case of family tension between the surviving spouse and one of the children, but also in blended families with a strategy that leads to disinherit the child of the first marriage.
And above all, a declaration in the estate assets, which allows an unexpected tax optimization.
This oversight is all the more astonishing, and a serious error of judgment, since the declaration of the said life insurance policy as part of the community assets and therefore as part of the estate assets for half will allow the beneficiary to benefit from an unhoped-for tax exemption (not to say incredible).