One way of Avoiding Inheritance Tax - A Section 72 Insurance Policy

In this article, I wish to discuss the issue of inheritance tax insurance, more particularly known as the Section 72 policy.

"The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin" 

Interesting words from Mark Twain!

We all want to minimise our obligations to the Revenue Commissioners, and that's perfectly understandable! One effective strategy to consider is taking out an inheritance tax insurance policy, commonly known as a section 72 policy. This proactive step can significantly reduce the inheritance tax burden on your beneficiaries after your passing.

This policy is designed to cover any inheritance tax liability that arises on your death. Essentially, it is a life assurance policy set up under trust for your beneficiaries. The funds from this policy will ensure that your loved ones won't face financial stress or the need to sell assets in order to cover inheritance tax payments. Plus, there's a fantastic benefit: the policy proceeds are not themselves subject to taxation if they are used to pay the inheritance tax!

While Section 72 policies can be a valuable asset in your estate planning toolkit, determining their worth depends on your unique situation. Let me break down the pros and cons to give you clarity.

PROS

1. Tax Efficiency: The most compelling advantage is that the proceeds from a Section 72 policy are exempt from inheritance tax (CAT). This means that your beneficiaries can enjoy the full benefit of your estate without worrying about unexpected tax obligations.

2. Peace of Mind: Having the assurance that your family is protected from potential financial burdens grants you a comforting sense of security. You can rest easy knowing you're looking out for their future.

3. Flexibility: Section 72 policies provide various options regarding the type of policy you can choose—be it single-life or joint-life—and you can customise the coverage amount to fit your needs.

CONS

1. Cost: One aspect to be mindful of is that Section 72 policies can be expensive, particularly for older individuals or those with existing health conditions.

2. Complexity: The regulations surrounding these policies can be intricate. To navigate them effectively, seeking professional advice is essential to ensure you're making the best choices for your situation.

3. Limited Availability: Keep in mind that not all life insurance companies provide section 72 policies, and there may be age restrictions that apply to eligibility.

So, when might a Section 72 policy be a wise investment?

- If you own a substantial estate likely to incur inheritance tax,

- If safeguarding your beneficiaries from unexpected financial responsibilities is a priority,

- And if you have the means to cover the premiums comfortably.

Important Considerations

- Always consult with a financial advisor: Getting advice from a qualified professional can be invaluable as you assess your unique circumstances and determine whether a Section 72 policy aligns with your financial goals.

- Regularly review your policy: Life and your financial situation change. It's a good practice to periodically revisit your section 72 policy to ensure it remains aligned with your evolving needs.

Ultimately, deciding whether a section 72 policy is right for you is a personal choice. By thoughtfully weighing the advantages and challenges and seeking expert guidance, you'll be well-equipped to make a choice that aligns with your aspirations for the future! Your proactive planning can lead to peace of mind for both you and your loved ones.