June 15, 2022
Meeting Georges
Georges is married to Mireille under the regime of separation of assets. They live together in Lyon, where they work as senior executives and enjoy a comfortable income. The couple’s two children, Jeanne and Pierre-Alain, are in their late twenties. They have both successfully embarked on their professional careers and live with their respective partners in Paris and Bordeaux. They appear to have firmly decided to spend their lives in these cities.
His objectives
- Invest the cash liquidities he does not need to fund his lifestyle
- Have funds available as security for a potential property acquisition
- Prepare for the transfer of his assets
The OneLife solution
Georges’ objectives are clear and his broker knows that tax regimes in France are not sufficiently flexible to satisfy his asset management preferences and his real estate and inheritance objectives. With support from the experts at OneLife, he is able to develop a bespoke solution.
The solution proposed by the OneLife advisors is to take out a Luxembourg life insurance policy:
- Georges will be the policyholder, it is his life that will be insured
- By incorporating a beneficial split ownership clause, on Georges’ decease Mireille will become the usufructuary and his children will become the bare owners
The flexibility of the Luxembourg life insurance policy enables multiple investment vehicles to be combined within the same policy:
- A “Buy & Hold” specialised insurance fund (‘SIF’) for the “paper property” element. This fund will invest in a series of French unlisted bonds, issued by one or more French companies investing in real estate. The bonds will be held until maturity, as provided for under Buy & Hold SIF rules.
- An “advisory management” SIF for the element composed of more traditional assets. The liquidities invested in this component of the policy will be entrusted to a Luxembourg custodian bank and enjoy the enhanced protection provided by Luxembourg life insurance policies. Georges will be assisted by a financial investment advisor in order to best distribute his investments among investment funds specialising in European equities. The advisor will consider the other investments directly held by Georges when making proposals, in order to develop a complementary strategy.
Meeting the objectives
From a wealth management point of view
- Combining the SIF Buy & Hold and the SIF Advisory Management will enable Georges to meet his investment objectives.
- In the event of a real estate purchase in the future, the SIF Advisory element of the policy will enable Georges to access a Lombard loan or provide security for a loan without having to redeem the policy, allowing continuation of his asset and succession planning objectives.
From a tax point of view
During the lifetime of the policy
- For as long as Georges does not redeem his policy, whether in part or in whole, the identified solution will remain tax neutral for him.
- In the absence of surrender, holding French bonds within the policy is neutral.
- Other forms of income and/or those which emanate from other countries from UCITS investments may be subject to withholding when they are paid in the country of origin of each asset.
On settlement of the policy.
On the decease of Georges, the policy will enjoy the same tax treatment as a French life insurance policy:
- Application of the favourable life insurance tax regime for the premiums paid by Georges as they have been paid in his sixties, i.e. before the 70th birthday of the person whose life is insured (Art. 990 I CGI).
- Thanks to the split ownership of the beneficiary clause, the usufruct will be transferred to Mireille and the bare ownership to the children, with favourable tax treatment depending on the age of the usufructuary at the time of policy settlement and in accordance with French tax law. On the decease of the usufructuary, the children will acquire full ownership without additional taxation.
- The wording of the beneficiary clause also enables flexibility to be retained. Accordingly, if Mireille does not need the funds when the policy is settled, she may waive her usufruct and full ownership will pass on to their children, Jeanne and Pierre-Alain.
Conclusion
Thanks to the support received from OneLife experts, Georges’ broker was able to find a bespoke solution that fully meets his objectives which is both legally and fiscally secure.
Want to know more?
Discover in our whitepaper the benefits of Luxembourg life insurance and its application through some practical cases.
The following topics may also be of interest to you: