Life insurance after 70: taxation and inheritance


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Life insurance after age 70 suffers from a bad reputation given its less favorable tax framework after this age. However, this investment remains an interesting tool for structuring one’s savings and makes it possible to anticipate the transmission of one’s assets to one’s relatives at a lower cost. The proof through two concrete examples

Summary:

  • Life insurance: attractive taxation before age 70

  • After age 70, the taxation of life insurance is less advantageous

  • Interest on payments after age 70 is exempt from inheritance tax

  • Tips for optimizing your life insurance after 70

  • Life insurance after 70: two examples of optimization of inheritance rights

  • Life insurance after 70: precautions to take

Life insurance: attractive taxation before age 70

The taxation of life insurance in the event of the subscriber’s death is particularly attractive. Indeed, each beneficiary of a life insurance contract can receive at the time of the succession up to 152,500 euros in total tax exemption. For this, the sums must have been invested by the insured before he turned 70. Beyond this amount, it is taxed at a flat rate of 20% up to 852,500 euros (ie the allowance of 152,500 euros + 700,000 euros) and at the rate of 31.25% beyond that. These reductions are added to the one applicable for the

calculation of inheritance tax. Consequently, by subscribing to a life insurance contract for the benefit of their children, each parent can transmit to each 152,500 euros in addition to the abatement of 100,000 euros. That is a total of 252,500 euros totally free of tax on their estate.

After age 70, the taxation of life insurance is less advantageous

For payments made after age 70, the

taxation applicable to a life insurance policy is less advantageous even if the investment remains attractive. Indeed, the premiums paid on the contract benefit from an abatement limited to 30,500 euros. This amount must be shared between all the beneficiaries of the contract. Indeed, it is then directly linked to the subscriber and not to the contract. Even if the investor has taken out several life insurance contracts, there will be only one reduction. Above this amount of 30,500 euros, the premiums received by each are subject to the

inheritance rights depending on the family relationship with the insured.

Making payments on a life insurance policy after age 70 may therefore seem less advantageous. Nevertheless, the deductions provided for by inheritance tax apply in addition to the deduction of 30,500 euros. Thus, an only child will be able to benefit from a reduction of 100,000 euros on the estate of a parent, in addition to the reduction of 30,500 euros.

Transmit the capital saved to your spouse

Before or after age 70, the capital paid into life insurance contracts is fully exempt from inheritance tax when the beneficiary is the surviving spouse or PACS partner. This exemption also applies to brothers and sisters, if they are single, widowed, divorced or separated, aged over 50 or disabled and domiciled with the deceased for at least five years.

Interest on payments after age 70 is exempt from inheritance tax

Even if it only allows the transmission of 30,500 euros tax-free, life insurance after age 70 has certain advantages. Whatever their amount, the gains generated by the premiums paid after the age of 70 completely escape inheritance tax. The framework of life insurance is therefore much preferable to an investment in another tax-paying savings product.

To know

Even after 70 years, the amount of paid-in capital is not limited and you can therefore invest for the benefit of the beneficiaries of your choice.

With the lengthening of life expectancy, these gains can reach a comfortable sum at the death of the subscriber of the contract. For example, for 100,000 euros invested at 2.5% per year, the valued capital reaches 144,830 euros after fifteen years of savings. If the insured pays this sum at age 70 and dies at age 85, the 44,830 euros in earnings are subject to the taxation applicable to withdrawals on his death and the beneficiaries of his life insurance policy recover the remaining earnings tax-free.

Invest in a life insurance contract as soon as possible

According to the latest INSEE discounts, in 2021 in France, life expectancy at birth was 85.4 years for women and 78.6 years for men. At 30, 50 or 75, placing money in a life insurance contract is always interesting. Indeed, the capital remains liquid (partial or total redemption is possible at any time if necessary) and can provide a good return depending on the media selected according to your risk profile.

Tips for optimizing your life insurance after 70

From the age of 70, it may be wise to take out a second life insurance contract and stop funding a first contract already open, especially if it reaches the ceiling of the allowance of 152,500 euros per beneficiary. Such an operation makes it possible to isolate the sums invested after 70 years and consequently to have a vision of the gains generated and the taxation in the event of death. In addition, in case of need for money, the insured can favor redemptions on life insurance contracts opened with a tax precedence of more than eight years.

It is also recommended to

designate different beneficiaries for each contract, taking into account the applicable reductions. For example, a good reflex is to designate your spouse as beneficiary of the life insurance contract opened after 70 years. This will not be unfavorable to him since he is totally exempt from taxes during the succession. At the same time, you can reserve the benefit of your contract opened before age 70 for beneficiaries who do not have a legal allowance, such as a third party with no direct family relationship.

To know

Assuming a capital return of 5% per year, the capital invested doubles in about fifteen years.

Life insurance after 70: two examples of optimization of inheritance rights

For example, an aunt opens a new contract after 70 years to which she appoints three nephews in equal shares. She pays 100,000 euros, then 300 euros per month, or 3,600 euros per year. On his death at age 88, i.e. eighteen years later, the accumulated capital is 164,800 euros (100,000 euros + (18 x 3,600 euros). With, for example, an average annual interest rate of 3%, interest accumulated will amount to 90,588 euros for a final capital at death of 255,388 euros.

What inheritance for a capital of 255,388 euros transmitted by an aunt to her three nephews?

Caption: In the context of inheritance tax, a nephew benefits from a legal allowance of 7,967 euros and applies 55% tax.

Thus, each nephew will receive 7,651 euros more if their aunt opts for a life insurance policy after age 70. In total, 22,953 euros in taxes are saved.

Life insurance after 70: precautions to take

It is still possible to invest a large part of one’s wealth in life insurance after 70 years. However, you must be careful not to overdo the payments made on your contract. In fact, your

compulsory heirs (your children, or your surviving spouse if you have no descendants) could consider themselves wronged and seek legal reinstatement in your estate of the premiums deemed manifestly excessive. However, judges rarely retain the excess, unless you invest a substantial part of your assets knowing your days are numbered.

Also consider the risk of recovery from the tax administration. If you take out a life insurance policy shortly before your death for the sole purpose of passing on most of your assets to a third party while avoiding inheritance tax, the tax authorities could consider that it is acts as an indirect gift, taxable as such and reportable in your estate.

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