Protecting the financial safety net of the family

        In the rapidly changing era, wealth is not just a number, but also a carrier of family security and dreams. According to Allianz Group's 2024 Global Wealth Report, Taiwan's per capita net financial assets are as high as EUR 148750 (approximately NTD 5.21 million), ranking fifth globally and second in Asia. This not only demonstrates Taiwan's economic resilience, but also highlights the importance of proper wealth management. Many people may wonder, 'My assets are not large, is wealth management related to me?' In fact, as long as you have property, there is a need for preservation; As long as there is an inheritance and successor after death, one will face the problem of inheritance. This issue of "Finance Column" will introduce life topics that everyone needs to understand.

        Four types of property: inheritance strategies for different types of property

                The first step in inheriting wealth is to understand the types of personal assets. Generally speaking, property is divided into four categories:

        1. Cash assets: including Taiwan dollar/foreign currency deposits, over-the-counter stocks, funds, and easily tradable securities such as bonds. This type of asset is the easiest to value and allocate.

        2. Equity assets: Company shares held by business owners or major shareholders, the transfer of which involves the revaluation of company assets and changes in control rights, with far-reaching impacts.

        3. Real estate: Fixed assets such as land and houses are the main source of wealth for most people and also the focus of inheritance planning.

        4. Life insurance: Due to the exemption of insurance benefits from Article 8 of the Inheritance Tax Law, parties do not have to wait for the payment of inheritance tax to obtain them, and the funds do not need to be included in the inheritable or special distribution of the estate, thus having special inheritance advantages.

        Different types of property are subject to different laws and management methods. It is recommended to choose the most suitable inheritance method based on the characteristics of each type of property. Among the four major types of property, real estate is often the most difficult project for Taiwanese families to inherit. According to statistics from the Directorate General of Budget, Accounting and Statistics, the ownership rate of residential properties by citizens will exceed 84% in 2023 (Note 2), indicating that 8 out of every 10 people will face the issue of real estate inheritance in the future. Here are real cases assisted by Far Eastern International Bank's family trust consultant team to share the wisdom of real estate inheritance.

        The Real Estate Inheritance Wisdom of Retired Civil Servants

        A 65 year old retired civil servant has a son and a daughter (all unmarried), and owns multiple real estate properties. He plans to gift one of the properties inherited in the past two years to his child (with a market value of approximately NTD 100 million, a land announcement present value of approximately NTD 50 million, and a house appraisal present value of approximately NTD 1 million), hoping that the Far Eastern International Bank team can provide tax planning advice that can ensure fair inheritance and reduce the tax burden on his children.

        Generally speaking, there are four methods for inheriting real estate:

        Method 1: "Direct Inheritance": Elders designate real estate to their children through a will (subject to the provisions of the Civil Code regarding special inheritance). This method is the most direct and can exempt land value-added tax (Article 31 of the Land Tax Law), but may face higher inheritance tax as there is no early gift to reduce the total amount of inheritance.

        Method 2, "Annual Gift": After dividing and holding the real estate, it is given annually within the annual gift tax exemption. For example, parents can use the annual NTD 2.44 million gift tax exemption to complete the tax-free transfer of real estate worth approximately NTD 50 million after 11 years.

        Method 3, "Gift with Burden": When a father gives his son a house, he can also transfer the mortgage to his son, which is called "Gift with Burden". If the National Taxation Bureau evaluates that the son has the ability to bear the mortgage, when calculating the gift tax, the current price of the real estate can be used to subtract the balance of the mortgage, effectively reducing the gift tax.

        Method 4: "Second parent buying and selling": Parents first give cash to their children in annual installments, accumulate sufficient funds, and then the children purchase real estate from their parents. This method can save the relevant fees and agency fees for multiple property transfers of "annual gifts".

        The final choice of retired civil servant clients

        The real estate inheritance in the above case has two main focuses: one is the cost of recently inherited real estate (related to tax control), and the other is owning multiple real estate properties under one's name (involving reasonable distribution). After evaluating the client's needs, the Far Eastern International Bank family trust consultant team has tailored a 6-year property transfer plan:

        1. The couple first used 6 years to donate NTD 2.44 million to their son each year, accumulating nearly NTD 30 million in funds.

        2. The real estate loan to be gifted is NTD 30 million.

        3. Gift the property to the son in a 'burden bearing' manner, with the son bearing the mortgage.

        There are many tips for inheriting real estate, and through appropriate planning, multiple forms of gifting and inheritance can be utilized simultaneously to achieve tax reduction goals. The above solution is flexible and adaptable, and can assist customers in completing property transfer in the 7th year. If you wish to be completely tax-free, you can continue to give gifts until the 11th year, and then execute second degree transactions, which will exempt you from gift tax. In addition, if a customer owns multiple real estate properties, it is not easy to transfer them completely tax-free during their lifetime. If they are willing to use a 10% gift tax rate instead of a 15-20% inheritance tax rate, it is also a wise move.

        Some people may ask, why not choose 'waiting for inheritance'? There are three reasons: firstly, the main purpose of the client is to reduce the inheritance tax burden on their children after inheritance; Secondly, the retired civil servant's real estate with a current value of over NTD 50 million is a recent inheritance income. If he chooses to gift or sell it, the calculation of his land value-added tax will be more tax efficient than other long-term held real estate; Finally, tax planning should not only consider one type of tax, nor should it only take into account the tax burden of one generation. If children sell real estate in the future, their derivative costs should also be taken into account (such as the real estate integration tax). Therefore, saving inheritance tax must be considered comprehensively. As for how to conduct sand table deduction? What are the details of tax planning and 'second degree transactions'? Welcome to Far Eastern International Bank's "Ten Music Not Set" Podcast channel for more knowledge.

        Asset preservation: not just digital protection

        Another important aspect of wealth inheritance is "asset preservation". According to the 165 Anti Fraud Dashboard of the National Police Agency of the Ministry of the Interior, in November 2024, the average amount of fraud in Taiwan was nearly NTD 500 million per day, and most of it could not be recovered. Therefore, when managing overall assets, it is recommended to make good use of tools such as insurance and trusts to build a protective wall for family wealth. For different types of assets, preservation strategies vary, for example, "equity assets" need to consider corporate governance and control issues; Real estate can be flexibly utilized through trust design; Cash assets should pay attention to investment risks and fraud prevention; And 'insurance' can balance the functions of protection and inheritance. Deeper preservation measures also include preventing individuals with foreign surnames from dividing family property through marital relationships. The recent artist's Big S incident highlights the complex family dynamics and emotional connections involved in heritage inheritance.

        Wealth Inheritance: Family Wisdom Beyond Numbers

        The wealth journey of life can be summarized into three stages: "creating wealth", "guarding wealth", and "passing on wealth". When people first enter the workplace, they focus on creating wealth; Entering middle age, start planning how to protect accumulated assets; In later years, inheritance becomes the most urgent issue. The successful inheritance of wealth is not only about tax savings or property distribution, but also the art of maintaining family harmony. Many families, due to improper handling, eventually develop legal disputes, deviating from the original intention of elders to maintain the family.

        Whether you own equity, real estate, cash assets, or insurance, wealth inheritance and preservation are common issues for two or even multiple generations. The Far Eastern International Bank family trust consultant team understands that every family is unique, so they put themselves in the client's shoes and consider various possibilities, from regulatory details to the emotions and needs of each family member, to tailor the most suitable inheritance plan for the client. I suggest everyone to start planning early and create a better future for their families.

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                reference material:

        Note 1: Xie Fangping (October 14, 2024), "Allianz Global Wealth Report releases Taiwan's second highest per capita net financial assets in Asia," Central News Agency.

        Note 2: Ministry of the Interior Police Administration, "165 Fraud Dashboard".

        Note 3: Executive Yuan (October 14, 2024), "National Conditions Introduction - Housing Conditions and Home Quality".

        *Image source: Freepik

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