Those who want to determine for themselves to whom their assets belong after their death can have a will drawn up. A life insurance policy in which the testator designates a self-selected beneficiary is a valuable alternative.
If you do not take specific measures through a will or a marriage contract, your assets will be distributed upon your death in accordance with the legal rules. That means that it will go to your partner and your children in the first place. If you do not have one, the other family members will also be shown.
Perhaps you have a reason to decide for yourself to whom your assets should belong. For example, you can give one child more than another, for example because it has cared for you for a long time. Or you can choose a loyal friend over a relative or family member with whom you had little or no contact.
The part that you can freely dispose of is limited. If you have children, you can only allocate half of your assets freely to the person you prefer. The other half must go to your children anyway. They are therefore the so-called reserve heirs protected. If too much has been allocated to others, they can reclaim a part.
Until recently, your parents were also partly reserve heirs if there were no children, but that is no longer the case since the most recent reform of inheritance law.
Choice of beneficiary
One of the options for favoring third parties is through a life insurance policy. In it, the policyholder can designate a person of choice as beneficiary. At the end of the contract or upon the death of the policyholder, he / she will receive the provided amount.
Benefit in the life insurance contract takes precedence over the provisions in the marriage contract and the will. Only if no other beneficiaries have been determined in the insurance contract or if the beneficiary is ‘the estate’, will the insured capital be distributed in accordance with the provisions of the marriage contract or the will.
To be able to choose a beneficiary yourself, the policyholder must be of age. If this is not the case, the estate is automatically designated as the beneficiary and the distribution follows the legal rules.
Another advantage of working with a life insurance policy is the flexibility to change the beneficiary. If the beneficiary dies for the policyholder, he can appoint a new person. He can do the same if his relationship with the beneficiary becomes blurred. He does not even have to inform him.
The life insurance policy can also always be terminated by the policyholder, or ‘bought off’ in the jargon. The money then returns to him after deduction of the costs. However, care must be taken to avoid the tax consequences of a surrender.
Please note: if the life insurance beneficiary has actually accepted the contract, the policyholder can no longer revoke the contract unless the beneficiary agrees.
In the event of a death, inheritance tax is payable on the payment of a life insurance policy.
But there is also the possibility to optimize the succession for tax purposes. For example, parents can make a donation in cash to their children on the condition that they invest it in a life insurance policy with the parents as beneficiary, who accept it. In that case, the children cannot spend the money without the parents’ agreement. If the parents are the first to die, the property falls free and the policyholders are free to spend it. In that case they do not have to pay inheritance tax if the insurance has been running for at least three years. If the parents do die within three years after the hand shift that forms the basis of the investment, they will still be counted for the calculation of that inheritance tax.
The ‘problem’ of the three years can be adjusted by an additional temporary life insurance policy, which provides for the payment of an amount corresponding to the expected inheritance tax should the parents die in that period. If they live longer than three years, there is no longer a problem.