Inheritance planning is a crucial aspect of financial management, ensuring that your assets are distributed according to your wishes after you pass away. While it may seem like a task for the wealthy, anyone with property, savings, or valuable possessions should consider inheritance planning. Without a proper plan, your loved ones could face significant financial burdens, including hefty inheritance taxes.
Understanding Inheritance Tax
Inheritance tax is payable to the Revenue Commissioners when the value of the inherited assets exceeds a certain threshold. For assets inherited from parents, the threshold amount is €335,000. Any amount above this threshold is taxed at 33%. For example, if a child inherits €500,000, they would be liable for €54,450 in inheritance tax, even if the full threshold is available to them.
The thresholds are lower for other relatives and non-relatives:
- Grandchildren, siblings, and nieces/nephews: €32,500
- Others (including non-married partners): €16,250
How Inheritance Planning Helps
By strategically planning your inheritance, you can ensure that your assets are protected and your beneficiaries are not burdened with large tax bills. One effective tool for inheritance planning is a Whole of Life insurance policy, which can be specifically set up to help pay inheritance taxes.
Section 72 Life Insurance
A Whole of Life insurance policy can be designated as a ‘Section 72’ Life Insurance policy under the Capital Acquisitions Tax Consolidation Act 2003. This type of policy is designed to help cover inheritance tax liabilities. The benefit paid out from this policy, when used to pay inheritance tax, is not itself subject to tax, providing a tax-efficient solution for your heirs.
Benefits of Whole of Life Insurance in Inheritance Planning
- Financial Security: Provides a lump sum payout upon death, which can be used to cover inheritance taxes, funeral costs, outstanding debts, and ongoing living expenses for your beneficiaries.
- Fixed Premiums: Premium payments remain the same throughout the policy, providing predictability and ease of budgeting.
- Guaranteed Payout: The policy ensures a payout whenever death occurs, offering peace of mind that your loved ones will receive financial support.
- Optional Add-Ons: Options like Indexation help combat inflation, ensuring the value of your cover increases over time.
How Much Cover Do You Need?
Determining the right amount of coverage involves assessing your personal circumstances and financial goals. Consider the value of your assets and the potential inheritance tax liability. Consulting with a financial advisor can help you make an informed decision tailored to your needs.
Steps to Set Up a Section 72 Life Insurance Policy
- Assess Your Assets: Evaluate the total value of your estate and determine the potential tax liability.
- Choose Coverage Amount: Decide on a coverage amount that will sufficiently cover the inheritance tax and any other expenses.
- Consult a Financial Advisor: Work with a professional to ensure the policy meets all legal requirements and is set up correctly.
- Regularly Review Your Policy: As your circumstances change, such as an increase in asset value, ensure your policy remains adequate.
Conclusion
Inheritance planning is an essential step to secure your legacy and protect your loved ones from financial hardship. By setting up a Section 72 Whole of Life insurance policy, you can ensure that your beneficiaries are not left with a hefty tax bill and can enjoy the full value of the assets you leave behind.
For more detailed advice and to set up a policy that meets your specific needs, contact Roban Financial. Our experts will guide you through every step of the process, ensuring that your inheritance planning is comprehensive and effective
