What about inheritance tax on life insurance?
A life insurance policy allows you to build up a good supplementary pension and make life easier for your loved ones financially. Can inheritance tax be a problem?
A life insurance policy can offer different guarantees. For example, you can opt for death coverage, disability coverage, waiver of premium benefit in the event of disability, etc. You can also use life insurance to build up a good pension capital. But who will benefit from the capital in the event of death? And will the beneficiary have to pay inheritance tax on the capital?
When you take out a life insurance policy, you designate a beneficiary in the case of survival and a beneficiary in the case of death. You can also opt for additional death coverage. This additional coverage is worthwhile, especially if you do not want your loved ones to have financial worries after your death.
Inheritance planning
Life insurance (in the form of branch 21 or branch 23 products) is often used by parents when planning their inheritance. Parents give a sum of money to their children, by hand or as a bank deposit. For their part, the children take out term life insurance for the amount of inheritance tax expected on the donation, in the event that the parents die within three years of the donation. In the policy, they refer to themselves as the beneficiaries, and their parents as the insured.
If the parents die within three years of the donation, the insured capital is transferred to the children so that they do not have to pay inheritance tax on the amount. The paid capital is then used to pay the inheritance tax due.
Inheritance tax
The capital built up in the context of a life insurance policy falls outside the estate, since you receive the sum not as an heir, but via a contractual clause ("stipulation in favour of a third party"). In the past, life insurance was sometimes used to "disinherit" partially or totally the rightful heirs (children or spouse). However, it is not possible to completely disinherit rightful heirs, not even with life insurance. They are always entitled to a minimum share of the inheritance.
The beneficiary of a life insurance policy also pays inheritance tax. These rates vary from one region to another, and depend on the amount of the capital and the degree of kinship with the deceased. A first-order beneficiary will pay less than someone in the second or third order.
It is important to know that in a limited number of cases, a will has priority over life insurance. In the absence of a beneficiary, the amount of a life insurance policy will go to the estate of the policyholder (= the insured). The legal heirs then receive the capital in their capacity as heirs. If a will has been made, the provisions in the will for capital sharing will be reviewed.
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