Estate Planning : A Section 72 Insurance policy

Estate Planning : A Section 72 Insurance policy is to provide an additional lump sum on death that should cover the tax liability due on the inheritance of your assets.

A Section 72 Insurance policy is to provide an additional lump sum on death that should cover the tax liability due on the inheritance of your assets. The proceeds of this policy do not form part of the estate for tax purposes. This was previously known as a Section 60 policy.

When you die, and your estate is passed onto your nominated beneficiaries, and inheritance taxes, if payable, are deducted before assets are distributed. The current capital acquisition tax (CAT) rate payable is 33% on any amount over the personal thresholds allowable. There are three groups of thresholds. The thresholds vary depending on the relationship between the beneficiary and the deceased.


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CAT thresholds peaked in 2009 at €542,544 for Category A. Have asset values such as house prices and pension funds increased or decreased since 2009? The current CAT threshold for Category A is €335,000. Apparently, there are only two certainties in life, death, and taxes.

In 2020, net receipts for CAT were Category A €156m, Category B €217m, Category C €57m for a total of €430million.


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Key feature of a Section 72 insurance policy include:

  • The whole of life insurance policy must be a Revenue approved policy.
  • The Section 72 policy must be commenced before aged 75.
  • The insurance policy is expressly effected under Section 72 for the purposes of paying inheritance taxes on death.
  • The whole of life insurance policy can be single life policy or a joint life second death policy effected by spouses or registered civil partners.
  • The Section 72 policy must be effected on the life or lives of the disposers who also must pay the premiums.
  • Any portion of the proceeds not used to pay off the inheritance liability will be liable itself to inheritance tax.
  • The Section 72 policy must have a ratio of sum assured to annual premiums of at least 8:1.


    Of course, this Section 72 insurance policy option is just one aspect of inheritance tax planning.

    References:
    Revenue: Net Receipts for Capital Acquisitions Tax
    Capital Acquisitions Tax (CAT) thresholds, rates and aggregation rules
    Capital Acquisitions Tax (CAT) Guide

    • Written by Pat Leahy Certified Financial Planner (CFP)

    Published 2022-03-28

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