Depending on the country of residence, on which parts of the policy should a wealth transfer strategy be based?
Introducing risk management to wealth planning - new solutions for nordics
Life insurance as part of estate planning
Anticipating one's professional and personal succession has today become a major challenge when one has to take into account family and personal specificities but also all the national rules governing succession.
Depending on one’s country of residence, different solutions may be available: wills, trusts (or its Civil Law adaptation, the “fiducie”), gifts, family wealth management companies, foundations, life insurance policies, etc.
At the heart of this legal arsenal, the Luxembourg life insurance policy appears as one of the most effective tools, particularly thanks to its portability and flexibility.
What is estate planning
Organising in advance the transfer of one's estate to the person (or persons) nominated in accordance with the transferor’s wishes.
Why organising one’s estate planning
The main objective of estate planning is therefore to ensure that the nominated beneficiaries receive the maximum amount of the bequest, with attention paid to the legal constraint, bearing in mind that several national legislation can compete with each other.
Factors to be considered in estate planning
It is crucial to have a complete knowledge of the transferor’s current situation and all the characteristics of his estate :
- his beneficiaries,
- his mobility,
- his family situation and its complexity,
- the assets constituting the estate to be transferred and their localisation.
However, while professionals need to be familiar with the analysis of their clients' international situation, it must be said that national legislation has not always been able to evolve as quickly.
In an international context, it is also necessary to analyse several national inheritance laws that will potentially compete with each other.
The luxembourg life insurance contract: an estate planning tool
A number of different wealth structuring tools which, alone or in combination, may be useful as part of estate planning. The life insurance policy, and in particular the Luxembourg life insurance policy, is one of these tools.
The advantages of the Luxembourg life insurance policy in estate planning
The Luxembourg life insurance policy used for estate planning purposes will often be structured with the transferor as the policyholder and the insured. It has some serious advantages and makes it possible, in particular, to :
- derogate from the usual inheritance rules relating to the designation of the beneficiaries (while respecting the reserved portion, which may differ depending on the policyholder’s country of residence);
- arrange for "skipping a generation";
- draft a free beneficiary clause, more or less sophisticated;
- smooth out the impact of inheritance tax;
- amend the life insurance policy during the term of the policy, in many essential aspects;
- tailoring the underlying investments with respect to the policyholder’s profile;
- “follow” the policyholder on a change of residence;
- benefit from the famous Luxembourg "security triangle".
Succession planning through a combination of life insurance and other legal asset management tools
In addition to the above-mentioned advantages of flexibility, portability and capital preservation, the Luxembourg life insurance policy is also compatible with other asset management instruments.
There are for example :
- life insurance and trust;
- gift and life insurance.
Planning one's succession therefore means starting a long and complex process which requires multiple areas of expertise in order to ensure maximum preservation of the estate and respect for the transferor wishes. It must be prepared, refined and perfected.