Taxation on the death of the subscriber
Remember that the tax authorities distinguish the payments made on the contract according to the age of the subscriber at the time of payment: before or after 70 years.
While the capital paid into the contract before the age of 70 is exempt from duty up to an amount of 152,500 euros per beneficiary (article 990 I of the General Tax Code), premiums beyond 70 are taxed. long before.
Enacted by article 757 B of the General Tax Code (CGI), the rule applicable to sums paid on the contract from the age of 70 is as follows for all contracts taken out since November 20, 1991:
- Duty free on sums paid up to 30,500 euros. It is calculated on all contracts opened in the name of the deceased combined.
- Beyond this amount, taxation of inheritance tax according to the degree of kinship between the subscriber and the beneficiary.
- Exemption from the share of capital representing accumulated interest.
Reminder : the capital paid before or after the age of 70 is fully exempt from duties as long as the beneficiary is the surviving spouse or the civil partnership partner. The rule is also applicable to single brothers and sisters, widowers, divorced or separated, over fifty years of age or disabled and constantly domiciled with the deceased for at least five years.
>> Read also – Life insurance: comparison, taxation, inheritance … All the answers
An opportunity to seize to organize your succession advantageously
Despite the misconception that life insurance is no longer advisable after 70 years, buying a policy and paying premiums is still advantageous when you look more closely. Indeed, even after 70 years, the paid-in capital is not limited. You can thus invest as much as you wish for the benefit of your spouse or PACS partner, who are totally exempt from duties, but also for the benefit of other beneficiaries subject to inheritance tax.
>> Take advantage of the services on Capital.fr to optimize your financial investments, better manage your real estate, be better covered by your insurance, control your expenses, boost your career and your retirement, and which will help entrepreneurs to succeed
Life insurance after 70 provides 2 advantages:
- It offers a rebate of 30,500 euros – which no other investment (booklet A and other booklets, etc.) will give you!
- It completely subtracts the interest obtained by the contract from inheritance rights. What no other investment whatsoever can do …
Example: Take the case of an uncle who, on his 70th birthday, opens a new contract in which he designates his nephew and niece as beneficiaries in equal parts, and on which he first pays 50,000 euros, then each year 6,000 euros ( 500 euros per month). Knowing that his life expectancy at age 70 is a little over 14 years (14.4 years according to INSEE in 2018), the cumulative capital excluding interest would be 134,000 euros on his death at 84 (50,000 + ( 14 x 6,000 euros) Assume an average annual interest of 3.5% over the period of 14 years. At the end of the day, the cumulative interest would amount to 54,687 euros. That is to say a final capital on death of 188,687 euros.
Let us now examine how the unwinding of the contract will take place and compare with the taxation to which the nephew and niece would have been liable without a life insurance contract.
- Excluding life insurance, half of the sum of 188,687 euros would have returned to each of the nephews and nieces (assumed in the example to be the sole heirs or legatees). Or a share of (188.687 / 2) = 94.343.50 euros for each of them. In the context of an ordinary inheritance, nephews and nieces are each entitled to a deduction of € 7,967 on their share. Each would therefore have a taxable portion of 94,343.50 – 7,967 euros = 86,376.50 euros. The rights between uncle and nephew / niece amounting to 55% of the total amount after deduction, i.e. 86,376.50 euros x 55% = 47,507.08 euros, each would have left after taxation, the sum of 38,869.42 euros (86,376.50 – 47,507.08).
- As part of the life insurance contract taken out and funded after 70 years, the sum of 188,687 euros reached on the day of death (assuming that the uncle does not have other contracts taken out after 70 years) would have been broken down between paid-up capital and accumulated interest. Only the share of paid-in capital (i.e. a total of 134,000 euros), and after deduction of 30,500 euros, would have been subject to taxation at the same rate of 55%. According to the following calculation: 134,000 euros – 30,500 euros = 103,500 euros / 2 = 51,750 euros (each person's share before tax). Taxation due by each of the nephews and nieces = 51,750 x 55% = 28,462.50 euros. That is to say a portion net of tax accruing to each of 23,287.50 euros. But the interest produced by the contract is not taxed (ie a sum of 54,687 euros), it is to be divided into two equal parts net of tax. Or 28,843.50 euros. Each of the nephews and nieces will therefore receive, thanks to the life insurance, a share net of tax of 23,287.50 euros + 28,843.50 euros = 52,131 euros per person.
In the example taken, each beneficiary will therefore receive 13,261.58 euros (52,131 – 38,869.42) more if the uncle has opted for a life insurance contract. In total, a profit of more than 26,523.16 euros on the uncle's estate!
To note : during his lifetime, the uncle could of course make withdrawals, while benefiting from the allowance provided for partial withdrawals. Up to 4,600 euros of exempt profit for a single person, increased to 9,200 euros for a couple.
Good to know : in the context of payments made after 70 years, the longer you live, the more your contract will generate tax-exempt interest for the beneficiaries named in the contract.
>> Read also – Buyout of the life insurance contract: principle and taxation
Tips for optimizing your life insurance after 70
To take full advantage of the benefits described above, certain precautions should be taken. Even if you already have one or more other contracts taken out before age 70, past 70, take out another contract to simplify management in the event of partial withdrawals and not to mix the applicable taxes. In the absence of this precaution, if you mix the payments before and after 70 years, the withdrawal will be withdrawn in proportion to the capital paid under each of the two plans.
Life insurance, even after age 70, can be a way to enhance your wealth and can be a source of regular additional income.
But in the current context of investments with very low yields, to succeed in your operation both in terms of inheritance and in terms of asset valuation, you will have to be draconian in the selection and choose a good contract. A “good” contract is:
- Reduced fees (no or very few payment fees and reduced management fees: 0.70% maximum).
- A good fund in euros (in the current context of falling bond yields, some insurers, thanks to careful management of the portion of the fund invested in equities and real estate, still manage to serve a revaluation rate that is sometimes significantly higher than the announced average by profession and which should stand between 1% and 1.3% for 2019).
- A selection of quality units of account allowing to boost the performance of the contract by taking a limited risk (20 to 30% of the capital will be invested in these financial supports – patrimonial or flexible funds – allowing to boost its return.
- A delegated management offer at an affordable price. Managing oneself (in so-called “free” management) your unit-linked contract is not given to everyone since it requires time and a minimum of knowledge in financial matters. This is why it is necessary for the insurer to offer its client a mode of delegated or managed management at an acceptable cost.
By respecting all of these selection criteria, you will be able to make the most of the undeniable advantages offered by life insurance after 70 years.
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