Family Protection for Cohabiting Couples

When structuring life assurance for cohabiting clients and their family, it is important to remember that cohabitants have no automatic rights to their deceased partner’s assets under the Succession Act.

So, if you are cohabiting and have no Will in place, the proceeds of a life assurance policy could end up in the hands of the deceased’s ‘next of kin’, their parents or even their brothers and sisters, if the arrangement is not structured correctly.

With the possible exception of the family home, the total value of all assets passing between two people who are not married or civil partners, are liable to Inheritance and Gift Tax, regardless of how long the couple are living together. This includes the value of any life assurance benefits.

If the beneficiary did not pay the premiums, or if the beneficiary is not the legal spouse or registered civil partner of the person who paid the premiums, the plan proceeds will be liable to Inheritance Tax.

From a tax perspective ‘partners’ are treated as ‘strangers’ for Inheritance Tax purposes with a threshold of only €16,250 (currently) tax-free. The balance is currently taxed at 33%. Where there are children of the current or a previous relationship there can be confusion over who the proceeds of the life assurance contract will be paid to, as well as how the proceeds will be taxed.

For example, a new client recently asked me to set up a Life Assurance policy for her protection needs. This client is not married to her partner, but they have one child. They had initially received (bad) advice to set up a dual life Term Assurance plan along with their joint life Mortgage Protection plan.

In this instance, I recommended they each set up an individual Life Assurance policy on the other person (i.e. Life of Another) with the premiums being paid from their individual bank accounts. It may be slightly more expensive than a joint/dual policy, but they will potentially avoid a future tax bill of 33% as described above.

In the event of death, who will receive the plan proceeds?

The sum assured will automatically be paid to the policy owner in the event of the death of a partner. If both were to die during the term of the plans, the proceeds will go to the estate. In the case of my client, she will leave the entire estate to their son.

Start Protecting Your Child’s Future

Ever since your children entered the world, you’ve done everything you can to protect them, giving them endless love and attention.

But what about protecting your little ones’ financial futures? As a good friend quoted, ‘the days are long but the years are short’. So the earlier you start taking steps to securing a happy financial future for your kids, the better.

Life insurance

If life insurance has never been a priority, now that you have a family, it could be the ideal time to make it one. Having cover in place will help protect your loved ones if something were to happen and they were no longer able to rely on your income.

Similar to other types of cover, you can tailor your life insurance to suit your needs, choosing from different levels and a range of optional extras.

For instance, critical illness cover can be added to your policy so that if you were diagnosed with an illness covered by the plan, you will receive a cash sum. This money can help to relieve the financial worries associated with critical illnesses, covering time spent off work, ensuring you can still pay household bills, and funding specialist treatment.

And what would happen if you were forced to take a prolonged period of time off work? Adding income protection to your life insurance policy would replace some of your earnings if you can’t work.

Make a will

Not the most pleasant task – but if anything were to happen to you, you want to be certain your family is provided for and cared for by the people you would choose.

You can either write a will yourself, hire a solicitor or use a will-writing service; make sure you research each option thoroughly before deciding, as they all have pros and potential drawbacks.

Part of the process involves you appointing an executor, who will be responsible for carrying out the instructions left in your will. Executors need to be aged over 18 and can be listed in your will, so it could be your spouse or family member.

Savings options

Driving lessons, college, weddings may all seem like a world away, but planning how to build a savings pot to help fund your children’s future will give you a head start.

With the aid of our new financial planning tool we can highlight how best to use your money in order to plan for you and your family’s future. This tool processes all your incomings and outgoings to give a clear picture of where you stand financially, guiding you to make the correct decisions.

Protecting Your Legacy

Saving enough of your hard-earned money into your pension to prepare for retirement is a good idea. But how do you protect what you have saved and make sure it goes to your family

 The advantages of having a retirement fund include tax relief on your contributions, tax-free growth on its investment and you can take a tax-free lump sum at retirement of up to €200,000. However, if you were to pass away what you leave behind as a legacy financially, including your pension, will more than likely be subject to tax.

Your Total Retirement Fund

Think of your total retirement fund as a pot. If you leave your pot to your child it will potentially be subject to inheritance tax or income tax. By using a small proportion of the value of your pot on an annual basis you can set up and pay into a life insurance policy, which will cover the tax bill that will inevitably be due. In this case, 100% of your child’s inheritance from your retirement fund can be protected.

You may or may not be familiar with what is known as a Section 72 life insurance policy which is used to help offset an inheritance tax liability. It is a special insurance policy taken out specifically to help pay taxes arising from inheritance. If setup correctly, the money paid out, when it is used to pay these taxes, will not be subject to tax.

You may leave your Approved Retirement Fund to your husband or wife to make use of when you pass away. It won’t be subject to inheritance tax but any money they take out of it will be liable to income tax.

• If they decide to cash in the entire fund it will be subject to PAYE at marginal rate

(plus PRSI and USC).

• If they don’t take any money out, the fund will still be subject to tax. From the year they turn age 61 ‘Imputed Distribution Rules’ will apply which means income tax is payable on an annual minimum withdrawal amount drawn down from the fund.

And when your spouse passes away the retirement fund may then be left to your children. Alternatively, you could consider leaving your retirement fund to your children.