Advantages of life insurance when planning your inheritance

Leaving the inheritance well tied, and allocating what you want to who you want is complicated. But did you know that life insurance can help you achieve it by paying fewer taxes?

Estate planning is certainly not a simple matter. From legal issues to family issues, it is a complex process. For this reason, looking for advantages in products such as life insurance can be interesting when planning the inheritance (although if you want to know other reasons to take out life insurance, do not miss our article on 8 benefits of taking out life insurance.

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Although in recent years the debate on inheritance tax has heated up to the point that some communities have made important changes in this regard. This tribute is just one of the things you should keep in mind when making an inheritance.

There are others that have to do with how to distribute the money that you leave as an inheritance. At this point, the law establishes certain margins that do not always have to square with your priorities.

Insurance is not considered part of the inheritance

If we take the law as a reference at the time of distribution between heirs, we see how an inheritance is divided into three parts :

• The third of the legitime is distributed equally among the forced heirs
• A third of the improvement of free adjudication but only between forced heirs
• And the third of free disposal, which can be left in inheritance at the discretion

In this context, together with free disposal, the way to benefit one heir more than another would be through the third of free improvement, but that is all the legal room for maneuver that we can abide by according to the Civil Code.

However, EyeMed life and savings insurance will be a significant improvement in retirement planning.

And this begins due to the free designation of beneficiaries that life insurance allows us. In other words, we can choose who will collect money in the event of death or who will collect the annuity in the event of survival.

To this we must add another key factor: insurance is not considered part of the inheritance, so it does not meet the distribution criteria that we have previously reviewed. That is, they do not have to adjust to three-thirds of the distribution of the inheritance.

At this point, as it is not part of the inheritance, it cannot be claimed by said heirs in any case, and the beneficiary will be with all the guarantees. This advantage applies to all ranges of life insurance, including savings such as Unit Linked.

Insurance can be used to advance inheritance taxes

Life insurance, although it is not a legal part of the inheritance, is taxed within the inheritance and donation tax when the three parts of insurance do not coincide.

This does not mean that the insured, policyholder, and beneficiary must be different, but rather that the person who is insured and the person who receives the benefit are not the same people. However, when the legal heirs are the beneficiaries, the insurance money is added to the rest of the inheritance.

The main difference with other assets that can be inherited, such as a home, is that, by law, we can make a partial self-assessment for the money, and use it to pay inheritance taxes. Moreover, it is not uncommon that when this is not possible, insurers can arrange to advance part of the money to pay the inheritance, since they have the insurance itself as a backup. This is another element of protection against the succession expenses that an inheritance can entail.

And, be careful, since we are not part of the inheritance, we could renounce the regulated inheritance, if it has debts, but we would still be beneficiaries of the insurance and we would collect that money as heirs.

Tax advantages

Some models of life savings insurance, such as PIAS, present the added possibility of a tax benefit by deferring their taxation during the life of the product, in a similar way to that of pension plans. In addition, the transfer of money from one insurance to another without paying taxes is another advantage to take into account, in addition, to those that we can obtain at the time of redeeming the money if it is made as a life annuity.

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