Surrendering your Life insurance contract with a view to making a donation is possible at any time. But how to avoid taxes? This is the question asked by one of MoneyVox readers. Here’s how to optimize the transmission of your assets.
Question from Nicolette, April 14
“I am over 90 years old and I would like to withdraw from my life insurance without charge. How much can I give without inheritance fees and am I free to give to anyone? »
Hello Nicolette and thank you for your question. You wish to make a surrender on your life insurance contract to make donations and if possible without having to pay taxes on these donations. Although several tax reductions exist, it will be difficult to guarantee total absence of taxation. Let’s proceed step by step.
Surrender of a life insurance contract
Partial withdrawal from a life insurance contract is free of charge. Furthermore, if your contract is more than 8 years old, you benefit from a tax reduction of 4,600 euros (or 9,200 for a couple subject to joint taxation) on the interest withdrawn. In fact, capital is not taxable.
Beyond this reduction, interest is subject to tax. The tax applied depends on the date of payments, with two different scenarios.
For the interests attached to payments made until September 26, 2017, you will have to choose between taxation on the scale or a flat-rate withholding tax of 7.5%. This choice is made at the time of redemption and is irrevocable.
For capital gains linked to payments made after September 26, 2017the insurer will carry out a compulsory flat-rate withholding (PFO) of 7.5%. When filing your income tax return, however, you will be able to opt for scale taxation (global option for all investment income) if more advantageous.
Taxation of life insurance: the rules in the event of surrender, before/after 8 years
The rules for taxing donations
Let’s move on to another question of yours, Nicolette: are you free to give your money to anyone? Yes, in theory… but this donation does not concern a member of your family and rather a friend, know that the amount will be imposed from the first euro, out of present use. No reduction is applied.
Attention on the other hand, do not squander your life insurance to give everything to a person who is not one of your heirs: beyond the question of taxes, this could give rise to a conflict situation between this person and the beneficiaries. The latter are entitled to their hereditary reserve. The “available portion” can be given to whomever you wish, but again without encroaching on the hereditary reserve.
Life insurance certainly offers a “bridge” outside of inheritance but only in the event of death: the money withdrawn from your life insurance during your lifetime will be taken into account at the time of inheritance. If the amounts are disproportionate, the heirs will be able to assert their rights.
Inheritance: can you disinherit your wife and children?
If it comes to giving money within your familyhere again, still ensure fairness between heirs if the amounts are significant in relation to your assets.
Then, on purely tax aspects… If you wish to make a donation to members of your family, a reduction is applied depending on the relationship.
| Who receives the money? | How much ? | When ? | Declaration necessary? |
|---|---|---|---|
| Present of use | |||
| All (regardless of the parent link) | Without precise limit but of a reasonable amount1 | For a one-off event (birthday, Christmas, wedding, birth, etc.) | |
| Exemption for family donations of money | |||
| Childgrandchild, great-grandchild2 | €31,865 by beneficiary3 | Ceiling valid on 15 years | |
| Gift tax allowances | |||
| Husband Or | €80,724 | Ceiling valid on 15 years | |
| Child | €100,000 for every child | ||
| Grandchild | €31,865 for each grandchild | ||
| Great-grandchild | €5,310 by beneficiary | ||
| Brother or sister | €15,932 by beneficiary | ||
| Nephew or niece | €7,967 by beneficiary | ||
1 No more than 1% to 2% of the assets and/or annual income of the donor, according to case law.
2 Or even nephew or niece in the absence of descendants.
3 Under conditions: donor under 80 years old, and adult beneficiary or emancipated minor.
Please note that this exemption limit is applied over a period of 15 years. If you have made other donations in the last 15 years, the amounts are cumulative.
Donation: how to give money to your children or loved ones, and how much?
A gift to prepare your estate?
If this withdrawal and this donation aim to anticipate your inheritance, think twice, because life insurance offers very advantageous taxation and the amounts transmitted through this means at the time of death do not enter the estate. Each beneficiary (with or without family ties) benefits from a tax relief up to 152,500 euros for all payments made before your 70th birthday.
For more recent payments, made after the age of 70taxation applies only to capital and no longer to interest: an exemption on first 30,500 euros is applied, but for all contracts held (same insurer or not) and no longer per beneficiary.
On the other hand, Nicolette, donations made during the 15 years preceding the death are then counted in the inheritance. They are reducing the reduction of 100,000 euros per child, for example.
Before making any surrender of your life insurance contract, it may be wise to rather review the beneficiary clause. Indeed, you have the possibility of designating by name the beneficiaries of your contract and even the distribution of capital between beneficiarieseither in “equal shares”, or by a defined proportion or even by imposing precise amounts. The beneficiary clause can be modified at any time.
Life insurance: the three pitfalls of the beneficiary clause
