Most people who set up an assurance vie spend a great deal of time thinking about where to invest the money inside it. Very few spend any time thinking about the beneficiary clause. Could you imagine setting up a trust but then omitting to detail who gets what?
The beneficiary clause is not a formality. It is the part of the contract that determines who receives the proceeds when you die, and in many cases, how much tax they will pay on what they receive. Get it right, and the assurance vie does exactly what it is supposed to do. Get it wrong and much of the planning value can be lost, sometimes entirely.
This article focuses specifically on beneficiary clauses and what UK expats in France need to be aware of. For a broader look at how assurance vie compares to UK trusts as a planning tool, our earlier article Trusts vs Assurance Vie: What You Need to Know is a good starting point.
As with all areas of cross-border financial and tax planning, everyone’s situation is different. This article is intended to provide a useful overview, not personal advice, and we always recommend speaking with a qualified adviser before making any decisions.
What the Beneficiary Clause Actually Does
One of the defining features of an assurance vie is that the proceeds sit outside your estate on death. They do not pass through the French succession process in the normal way. Instead, they go directly to whoever is named in the beneficiary clause, under the terms of the insurance contract.
This is what makes assurance vie such a useful tool for inheritance planning in France. The succession rules here are strict, particularly regarding reserved shares for children. But because assurance vie proceeds fall outside the estate, they largely bypass those rules and can be directed more freely.
The beneficiary clause is the mechanism that makes this work. Without a valid, clearly drafted clause, that outside-the-estate status can be compromised.
The Problem with the Default Clause
When you take out an assurance vie, the provider will include a standard beneficiary clause. The most common version names the spouse first, then the children in equal shares, then the legal heirs. It is tidy, and it sounds reasonable.
For a straightforward French family, it may work well enough. For most expats in France, it is unlikely to reflect what they actually want, and in some cases, it can create real problems.
Consider a few of the situations we regularly encounter. A couple who are not married and not in a PACS. A family where one partner has children from a previous relationship. Someone whose spouse has already died and whose named beneficiaries are no longer the right people. Or simply someone who wants to leave different amounts to different people, rather than splitting everything equally.
In all of these cases, the default clause will either produce the wrong outcome or create a dispute or both. The standard wording was not designed with cross-border family structures in mind, and it shows.
There is also a more technical issue. Some default clauses use the phrase “my heirs” without naming individuals. This can, in certain circumstances, draw the proceeds back into the estate and subject them to the normal succession process, which is precisely what the assurance vie was designed to avoid.
How Clause Wording Affects the Tax Treatment
France provides a significant tax advantage on assurance vie proceeds received by named beneficiaries, but the rules are specific, and the wording of the clause matters.
For premiums paid into the policy before the age of 70, each named beneficiary can receive up to €152,500 free of French inheritance tax. Above that threshold, a flat rate applies. This allowance applies per beneficiary, so the total tax-free amount across the policy depends on how many people are named and how the proceeds are split between them.
For premiums paid after the age of 70, the rules change. The total of those premiums above €30,500 is brought back into the estate for inheritance tax purposes, with the growth on them remaining outside the estate. This distinction is something many people are not aware of when they top up an existing policy later in life, and it is one reason why timing and structure matter.
The key point is this: the tax advantages above are only available if the beneficiary is correctly and unambiguously named. Vague or contested clauses can lead to disputes between beneficiaries and the insurer, which can delay payment for a considerable time. In some cases, the legal proceedings that follow can be expensive enough to erode the very advantage the policy was supposed to create.
If the clause is unclear, the insurer may have no option but to pay out to the estate, thereby losing all inheritance tax and succession benefits.
We would highlight that this is an area where interaction with the UK-France double tax treaty may also be relevant, particularly for UK-resident beneficiaries receiving proceeds from a French policy. It is not straightforward, and it is one of many reasons why seeking proper advice before putting a clause in place is important.
Please be aware that the Article 990-I threshold of €152,500 and the age 70/€30,500 figures mentioned above are correct as of the time of writing, but French tax thresholds are subject to periodic revision.
The Options Beyond the Default
The good news is that assurance vie contracts offer considerably more flexibility than many people realise. The default clause can be replaced entirely, and the alternatives range from simple to considerably more complex.
Naming individuals specifically, with full identification details, is the most straightforward improvement over the standard wording. It removes ambiguity, makes the insurer’s job easier when the time comes, and reduces the risk of a dispute.
However, the most foolproof way is to appoint a notaire to manage the clause on your behalf. They essentially act as a trustee, dealing with the clause entirely separately from the estate. The insurer simply follows the instructions as laid out by the notaire. Any complications, and the notaire can iron them out directly with the insurer. Many might deem this unnecessary; however, it adds peace of mind.
This way, sequential and conditional clauses are also possible. A clause can provide that if the primary beneficiary predeceases you, the proceeds pass to a named secondary beneficiary rather than reverting to the estate. This sounds obvious, but the standard clause does not always handle it cleanly.
Some contracts allow for a more complex arrangement known as a démembrement, which splits the benefit between a usufruct holder and a bare owner. This can be a useful planning tool in the right circumstances, but it is genuinely technical and not something to approach without advice.
Specific Considerations for UK Expats
UK nationals living in France face a layer of complexity that French nationals do not. Several points are worth being aware of, even if the details of each will depend on your own circumstances.
Brussels IV, the EU Succession Regulation, allows individuals to elect for the law of their nationality to govern the succession of their estate. Many UK expats in France make this election, often on the advice of their notaire, to avoid the reserved share rules that French law applies to children.
However, assurance vie proceeds sit outside the succession estate, so a Brussels IV election does not directly affect them. They follow the terms of the contract, not the succession law. The two should not be confused, and in our experience, they sometimes are.
It is also worth considering what happens if your circumstances change after the policy is in place. Divorce, remarriage, the death of a named beneficiary, children coming of age, or a significant change in assets can all make an existing clause inappropriate. The insurer will not prompt you to update it. That responsibility sits with you, and it is easy for a clause set up ten or fifteen years ago to no longer reflect what you want.
Finally, UK-resident beneficiaries receiving proceeds from a French assurance vie may face questions about how those proceeds are treated for UK tax purposes. This is not something French law addresses, and it is another area where taking advice in both jurisdictions is worthwhile.
Final Thoughts
An assurance vie is a powerful planning tool, but only if the details are right. The structure creates the opportunity; the beneficiary clause determines whether that opportunity is actually realised.
In our experience, the beneficiary clause is the part of the contract that receives the least attention at the outset but causes the most problems later. It is worth spending time on it, and worth reviewing it periodically as your situation changes.
As we noted at the start, this article is intended to give you a useful overview of the issues involved, not to provide personal advice. The right approach will depend on your family situation, your assets, your residency status, and a range of other factors specific to you. If you would like to discuss how this applies to your own circumstances, we would be happy to help.
An initial consultation with Kentingtons is provided at no cost (subject to a minimum of €350,000 in liquid assets) and with no obligation. To make the most of that conversation, we ask you to complete a short, confidential questionnaire in advance, which takes around seven minutes. This allows us to focus the discussion on what matters most: your situation and how we can help.