Inheritance Tax and Insurance

Now that the liability date, the 30th of September, for the payment of Inheritance and Gift Tax has passed, and, I hope, you have all discharged your liabilities, I think it might be helpful to look at a way whereby you yourself can assist your own beneficiaries in paying the tax. This can be done by means of taking out a special insurance policy referred to as a Section 72 policy.
Normally the proceeds of a life insurance policy would form part of the inheritance and a beneficiary would have to pay tax on the proceeds of the policy itself but by using these Section 72 policies the proceeds of the policy do not form part of the inheritance and in fact are used to pay the tax payable on the rest of the inheritance. If any of the proceeds of the policy are left over after the tax liability has been discharged then the excess is liable to inheritance tax.
The policy must be in a form approved by the Revenue Commissioners. There must be annual premiums paid by the insured during his or her life. The premiums can be paid monthly but a single premium policy would not qualify. The policy must be expressly made under Section 72 Capital Acquisitions Tax Consolidation Act, 2003 for the purpose of paying Inheritance Tax arising upon the death of the insured or within one year of the death. As well as a single life policy a joint life policy can be taken out by two spouses or two civil partners. The proceeds are payable on the death of the survivor of the spouses of civil partners or on the simultaneous death of both.
Traditionally these policies have been expensive and therefore uncommon. However, as with a lot of things their cost has actually come down. The Irish insurance company, Acorn Life, who provide these policies, gave me an illustration of a husband and wife, aged 61 and 59 respectively, who by taking out a joint life policy for a monthly premium of €100.00 could provide life cover of €514,800.00 which would be available to enable their children to pay Inheritance Tax. This would be of considerable assistance to the beneficiaries and would mean that property or other assets would not have to be sold to pay the tax.
A similar policy under Section 73 of the same Act can be used for the payment of Gift Tax. The gift must be made within one year of the policy becoming payable. Similar provisions apply to these policies as apply to Section 72 policies but also there must be a minimum of eight years funding period. However the proceeds can be used during this period if the insured dies or becomes critically ill.
Anybody who thinks they may leave their families with an Inheritance Tax liability upon their death should seriously consider taking out this policy. It certainly would do no harm to get a quotation.
-Hugh Joyce