What happens if I inherit a life insurance policy?
July 5, 2024 | 40,00 EUR | answered by Wilhelm Ackermann
Dear tax advisor,
My name is Konrad Schillinger and I have a question regarding inheritance tax in relation to a life insurance policy. My uncle recently passed away and left me a life insurance policy in his will. I am unsure about how this insurance policy will be treated for tax purposes and whether I will have to pay inheritance tax on it.
The current situation is that I have not yet received the payout from the life insurance policy, as the death occurred recently. I am concerned about potentially having to pay high taxes afterwards and would like to be informed in advance to avoid any potential problems.
My question to you as an expert in inheritance tax is: What happens when I inherit a life insurance policy? Do I have to pay inheritance tax on it, and if so, how much? Are there ways to minimize or completely avoid the tax burden? I would greatly appreciate a detailed response to gain clarity on this matter.
Thank you in advance for your assistance.
Best regards,
Konrad Schillinger
Dear Mr. Schillinger,
Thank you for your inquiry regarding inheritance tax in relation to a life insurance policy. I understand your concerns and would like to help you clarify this matter.
First of all, I would like to inform you that life insurance policies are generally subject to inheritance tax. This means that you will usually have to pay inheritance tax on the value of the life insurance policy that you inherited from your deceased uncle. The value of the life insurance policy is determined at the time of the inheritance. In your case, since the death has occurred recently and you have not yet received the payout from the life insurance policy, the value will be determined at the time of the payout.
The amount of inheritance tax you will have to pay on the life insurance policy depends on various factors, such as your relationship to the deceased, the value of the life insurance policy, and the tax-free allowance you are entitled to. In Germany, there are tax-free allowances up to which no inheritance tax is due. These allowances depend on your relationship to the deceased. Spouses and children have higher tax-free allowances than more distant relatives or non-relatives.
However, there are ways to minimize or even avoid the tax burden on the life insurance policy. One option would be to transfer the life insurance policy to a tax-advantaged pension scheme. These schemes usually benefit from favorable taxation in the event of inheritance. Another option would be to use inheritance clauses to reduce the tax burden.
It is important to address the issue of inheritance tax early on and seek professional advice if necessary to avoid tax pitfalls. I am available for individual consultation to analyze your specific situation and provide you with the best possible solutions.
I hope this response has been helpful to you and I am available to answer any further questions you may have.
Best regards,
Wilhelm Ackermann
Tax consultant
