# Life Insurance as a Succession Tool > Unit-linked policies from Luxembourg and Ireland as a capital wrapper: liquidity for inheritance tax, tax deferral, direct transfer to beneficiaries, and asset protection. Author: Мария Плотникова — юрист, Family Office (https://wiki.private.law/authors/plotnikova) Last modified: 2026-07-21T17:08:00.000Z Canonical: https://wiki.private.law/en/life-insurance-succession Topics: structures Jurisdictions: eu, global Semantic tags: company --- ## Origins The idea of holding capital inside an insurance policy grew out of Anglo-Saxon estate planning. In the United States, wealthy families have for decades kept insurance proceeds outside the estate tax through an ILIT (Irrevocable Life Insurance Trust); in the United Kingdom, a policy is written [in trust](https://wiki.private.law/en/trust-basics) so that the payout does not fall into the estate. In the 1990s and 2000s, Luxembourg and Ireland built a distinct industry on this: unit-linked policies for internationally mobile families, recognised in several countries at once. Today it is a standard instrument in the [family office](https://wiki.private.law/en/family-office) toolkit. ## Concept In estate planning, a life insurance policy works as a wrapper for investment capital. Through a unit-linked policy the family holds a portfolio inside the insurance shell: income inside the policy grows tax-deferred, and the owner fixes in advance who receives the payout, and in what proportion, when the insured event occurs. The assets are managed by a licensed insurer, and the investment strategy is agreed with the holder. > 🍓 A unit-linked policy is a wrapper for a portfolio: tax deferral inside the policy, direct payout to designated beneficiaries, and liquidity for inheritance tax. ## Luxembourg and Ireland The benchmark is Luxembourg, with its triangle of security: the client's assets are segregated and held with a custodian bank, and the arrangement between the insurer, the bank and the regulator (the Commissariat aux Assurances) is approved in advance. The holder is protected by a super-privilege: on the insurer's insolvency, their claims are satisfied first, ahead of other creditors. Ireland offers comparable reliability inside the EU. Both jurisdictions issue policies that are recognised in most countries and adaptable to the holder's tax residence — French, Spanish or Italian. ## Why Use It in Succession First, liquidity: the policy payout gives heirs ready cash to settle inheritance tax (IHT, estate tax) without a rushed sale of the business or real estate. Second, speed — the sum goes to the designated beneficiary directly, bypassing [probate](https://wiki.private.law/en/multi-jurisdiction-wills); a cross-border estate can drag through probate for months, sometimes years. > ⚙️ Beneficiaries and the policy structure are coordinated with forced heirship and tax residence. In some countries the payout sits outside the estate, in others it is counted within it; this is settled at the structuring stage. ## Tax Logic > 🔗 **Related** > [Private Foundations](https://wiki.private.law/en/private-foundations) · [Succession Planning](https://wiki.private.law/en/succession-planning) · [Trusts and Inheritance Tax](https://wiki.private.law/en/trusts-inheritance-tax) · [Inheritance Tax and US-situs](https://wiki.private.law/en/us-estate-tax) · [Family Office](https://wiki.private.law/en/family-office) · [How a Trust Works](https://wiki.private.law/en/trust-basics) · [Wills and Probate](https://wiki.private.law/en/multi-jurisdiction-wills) · [Trusts and CFC](https://wiki.private.law/en/trust-taxation-russia-cfc) · [Intestate Succession in Russia](https://wiki.private.law/en/russian-intestate-succession) · [PPLI](https://wiki.private.law/en/ppli) · [Universal Life (Singapore)](https://wiki.private.law/en/universal-life-singapore) · [Premium Financing (Singapore)](https://wiki.private.law/en/premium-financing-singapore) Inside the policy the investment income is usually untaxed until payout — a lawful deferral. At payout the tax depends on the country of the holder and the beneficiary, and in a number of jurisdictions the policy grants a direct inheritance-tax relief. This does not undo transparency: cash value insurance contracts fall under the CRS and automatic exchange, so the balance and income are visible to the tax authorities. ## How It Works by Jurisdiction ### France French assurance-vie is the model of a preferential regime. Under Article 990 I CGI, sums from premiums paid before the policyholder turns 70 are exempt up to €152,500 per beneficiary; above the limit, 20% up to €700,000 and 31.25% beyond. Premiums paid after 70 fall under Article 757 B: a single €30,500 allowance across all beneficiaries, then the ordinary succession scale, while the accumulated investment income remains untaxed. ### Italy In Italy, the life insurance payout does not form part of the estate and is exempt from inheritance tax (imposta di successione) — regardless of the amount or the beneficiary. The basis is Article 1920 of the Civil Code: the beneficiary's right arises directly against the insurer, not as a transfer mortis causa. The investment income on a unit-linked policy may nonetheless be subject to Italian income tax. ### United Kingdom The British classic is a policy written in trust. The payout then falls outside the estate and is not subject to [IHT](https://wiki.private.law/en/trusts-inheritance-tax) (40% above the nil-rate band of £325,000, plus a residence nil-rate band of £175,000; both thresholds frozen until April 2031). A policy in trust passes to beneficiaries at once, without waiting for probate. From 6 April 2025 the UK moved from domicile to a long-residence test: worldwide IHT catches anyone who has been a tax resident for 10 of the last 20 years. ### United States In the United States, the life insurance payout is free of income tax but is included in the taxable estate if the insured retained incidents of ownership over the policy (§2042 IRC). The solution is the ILIT again: the policy is owned by an irrevocable trust, and the sum passes outside the estate. From 2026 the federal estate and gift tax exemption is fixed at $15 million per person (the One Big Beautiful Bill Act, indexed to inflation), with a 40% rate above it. For non-residents with [US-situs assets](https://wiki.private.law/en/us-estate-tax) the exemption is incomparably small, around $60,000, and here the policy helps cover an unexpected bill. > 🧭 The policy is matched to the tax residence of the holder and the beneficiaries: a Luxembourg or Irish shell adapts to the French, Italian, British or US regime. So the jurisdiction, the structure and the list of beneficiaries are fixed before the first premium is paid. ## Russia: Beneficiary and Personal Income Tax Under Russian law, a personal-insurance payout goes directly to the designated beneficiary and does not form part of the estate (Art. 934 of the Civil Code) — the mechanics are close to a Western policy written in trust. On tax: payouts under voluntary life insurance contracts with a term of five years or more are subject to personal income tax (NDFL) only on the income exceeding the premiums paid, uplifted by the average annual key rate of the Central Bank (Art. 213 of the Tax Code). A foreign unit-linked policy held by a Russian resident is visible through the CRS, and [intestate succession](https://wiki.private.law/en/russian-intestate-succession) sets the order of heirs if no beneficiary is designated. [CFC](https://wiki.private.law/en/trust-taxation-russia-cfc) taxation usually does not apply to the policy itself, but each structure is checked individually — for the specific insurer, the policy's contents and the scope of the holder's rights. ## Evolution Thirty years ago the policy was prized partly for its opacity. The CRS and automatic exchange closed that off: the shell remains convenient for tax deferral, direct transfer of capital and liquidity for succession, but as a concealment tool it no longer works. Tax authorities challenge "frontal" schemes with no economic substance, so a modern policy is built with a real insurance component and a careful tie to residence. Against this backdrop, PPLI (private placement life insurance) and unit-linked wrappers remain a growing segment of private wealth management. > 💡 The policy works in tandem with a will, a trust and a foundation: the will distributes the assets, the trust or foundation manages them over the long run, and the policy provides instant liquidity at the moment of transfer. > ⚠️ With an incorrect structure, the payout will be included in the estate and taxed on a par with the other assets. The policy's jurisdiction, the beneficiaries and the tax regime are agreed in advance — before the first premium is paid and with forced heirship in mind. **🧭 Check your case**: [Inheritance Navigator](https://wiki.private.law/en/succession-planning) — which law governs, where forced heirship applies, and what taxes arise. This material is for reference purposes and does not constitute individual legal advice. --- ## Sources - [GOV.UK — Inheritance Tax](https://www.gov.uk/inheritance-tax) - [GOV.UK — Inheritance Tax: gifts](https://www.gov.uk/inheritance-tax/gifts) - [IRS — Estate tax](https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax) --- ## Factual claims - Inside the policy the investment income is usually untaxed until payout — a lawful deferral. - In the United States, the life insurance payout is free of income tax but is included in the taxable estate if the insured retained incidents of ownership over the policy (§2042 IRC). - Under Russian law, a personal-insurance payout goes directly to the designated beneficiary and does not form part of the estate (Art. - 🧭 Check your case: Inheritance Navigator — which law governs, where forced heirship applies, and what taxes arise.