Gifts, wills, and insurance - the three most important papers for inheritance

        Inheritance is a life issue that everyone will encounter. A business owner once said, "My biggest fear is not to bring down the company, but to have the hard-earned money of my whole life fall into the hands of someone after I die." This sentence made me deeply understand how complex inheritance is and how worth preparing for early. When assisting clients in comprehensive financial planning, the three aspects of wealth creation, wealth preservation, and wealth transmission are indispensable, among which the most difficult is often "wealth transmission". Who to give money to, how much to give, when to give it, and whether one still has the right to speak after giving it - these four questions involve law, taxation, and human nature, and a slight mistake can bury hidden dangers. In this issue of 'Finance Column', from a practical perspective, we will introduce you to the three most important tools in inheritance planning - gifts, wills, and insurance.

        Advance gift: not just wealth, but also the continuation of will

                In terms of distribution, the person to whom the money should be left is theoretically determined by his own will, but if there is no prior arrangement, it will be up to the legal heirs and the inheritance system of the civil law to the final say (Articles 1138 and 1144 of the civil law). There are four common active distribution methods: "advance gift", "pre made will", "trust planning", and "designated beneficiary of insurance", each with its own advantages and disadvantages.

        Taking "early gift" as an example, the advantage is that after a property gift, it does not belong to future inheritance (except for special gifts under Article 1173 of the Civil Code, such as marriage, separation, and business gifts). Even if it meets the requirements of Article 15 of the Inheritance and Gift Tax Law, which states that "gifts made two years before death are subject to inheritance taxation," it is only a hypothetical inheritance under the tax law.

        Although early gifting can exempt the issue of distribution, it also represents that the donor has lost control over the gifted property. If the donor wants to retrieve it later, whether claiming a "gift with burden" or "the recipient has not fulfilled their maintenance obligations" (Articles 412 and 416 of the Civil Code), they need to provide evidence. Therefore, it is recommended to first examine and weigh their own ideas on inheritance planning. If they do not care about control, early gifting is also a good method and can reduce the dispute space during inheritance. In addition, each person has an annual gift tax exemption of NTD 2.44 million. If used properly, wealth can be transferred in batches year by year to achieve efficient tax planning. However, careful evaluation is necessary, and one must first reserve their retirement savings before considering gifting.

        Pre made Will: A Warm Letter of Family Emotional Communication

        The practice of "making a will in advance" is suitable for situations where one does not want to lose control of property too early, or where inheritance is more tax efficient than gift giving (such as the old system of low land to real estate ratio). If there is no pre will, once the heirs cannot reach an agreement on the division of the estate, they can only hold it in a joint manner, which may be inconvenient for future disposal. It is more likely that due to the majority rule mechanism in Article 34-1 of the Land Law, a small number of heirs may be forced to accept the result of property disposal when they are unable to exercise their right of first refusal. At this point, the important inheritance tool of "will" comes into play.

        Many people cannot accept a pre made will. In fact, its content does not necessarily only regulate the distribution of inheritance, but can also be seen as a family letter, writing expectations for children, family traditions, and the inheritance of entrepreneurial spirit, in order to maintain emotions between generations. I once met a father who wrote a paragraph in his will for each of his children: reminding the eldest son not to lose his entrepreneurial spirit, expressing his unspoken pride to his daughter, and explaining to his son that family harmony is more important than wealth. When the notary reads it out in front of the family, everyone present is moved - this is the true power of wills.

        The drafter can perform the posthumous affairs according to their free will through a will, but according to the law, there can only be five forms of a will (self written, notarized, sealed, ghostwritten, and oral). If the regulations are not followed, the will is likely to become invalid and can only be returned to the starting point, and held in accordance with Article 1144 of the Civil Law in the form of statutory inheritance or public joint ownership.

        Which type of will is better? I usually recommend using a 'notarized will' because compared to a self written or ghostwritten will, without notarization, both can easily lead to mutual attacks among heirs, claiming that the will is invalid, and even going to court, entering into time-consuming litigation procedures, causing emotional rifts in the family. However, if a will is notarized, as it has legal effect and is filed by the court notary office, there is no need to worry about the will being lost or hidden. After the testator passes away, the heir can check on the notary network, which is much more transparent and credible than other types of wills. It is worth noting that a will cannot violate the "special reservation", and if there is a conflict, the violated part is invalid.

        Insurance: a safe haven for fair distribution of assets

        Perhaps you may ask, 'What should I do if I want to freely distribute my property?' At this point, 'insurance' can play a crucial role. Insurance has a "designated beneficiary system", where the beneficiary can be any person, multiple persons can be designated, and the proportion can be adjusted at any time. According to Article 112 of the Insurance Law, the insurance amount is agreed to be paid to the designated beneficiary upon the death of the insured, and the amount cannot be used as the insured's estate, and is naturally not subject to the constraints of abandonment of inheritance and special distribution. In addition, insurance also has the function of "reserving tax sources". Before the inheritance tax is fully paid in accordance with the law, heirs are not allowed to divide the estate or transfer it, which has led to many heirs falling into difficulties due to insufficient cash. In contrast, as long as the documents are complete, the insurance benefits can be paid within 15 days at the earliest, and there is no need to wait for the tax payment certificate from the National Taxation Bureau. It can be used as a tax payment special fund in a timely manner, which is currently the most efficient tax source preparation tool in inheritance planning.

        However, it should be reminded that insurance premiums may still be recognized under Article 7 of the Taxpayer Rights Protection Law, which states that they are subject to the principle of substantial taxation and may be included in inheritance taxation. Common situations include insurance premiums for elderly people, insurance premiums for illness, and insurance premiums that are much higher than insurance premiums. It is important to pay attention when planning.

        Inheritance does not necessarily have to be layered, and each of the above tools has its own irreplaceable aspects. How to achieve fair, just, and transparent inheritance and distribution tests the precise designation of distribution attribution in the will. If paired with trust tools, it can make wealth inheritance more secure and worry free. Inheritance is never something that needs to be prepared until 'that day', it can be positioned now. If you want to learn more about related topics, please click on the link https://tinyurl.com/3e8p4duh Listen to the wonderful podcast program "S3E9 Money in Life Series/Triangle Exercises on Insurance, Tax Burden, and Inheritance" titled "Ten Joys Without Money in Life".

                *Image source: freepik

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