Split beneficiary clause (usufruct and bare ownership)

A standard beneficiary clause names one or more people in full ownership. A split clause divides the benefit between a usufructuary and bare owners. As the benefit is a sum of money, which is consumed by use, the usufructuary in principle holds a quasi-usufruct, provided for by article 587 of the French Civil Code: the usufructuary may freely dispose of the funds, but must return their value on death. The bare owners then hold a restitution claim against the usufructuary's estate. The mechanism serves a precise aim: giving the surviving spouse use of the money for life while guaranteeing the children that they will eventually receive it. It has a sought-after tax effect. Taxation on the policyholder's death is split between usufructuary and bare owners according to the tax scale for usufruct, based on the usufructuary's age; the spouse being exempt, only the bare ownership is taxed. On the usufructuary's death, the restitution claim is deductible from his or her estate, which reduces inheritance tax. The clause demands careful drafting: providing for what happens if a beneficiary dies first, organizing security for the restitution claim, failing which the children remain exposed to a usufructuary who has spent everything.