Section 72 Policies: The Silver Bullet of Estate Planning?

Section 72 life assurance policies are often hailed as a valuable tool for estate planning. Specifically enacted with the sole purpose of paying Capital Acquisitions Tax (CAT), they are considered by many to be the cornerstone of estate planning.

However, it’s essential to understand the specific characteristics of these policies and to investigate other, often more cost effective, options for your legacy planning.

Understanding Section 72 Policies

Section 72 policies are Whole of Life insurance plans providing a lump sum benefit upon the death of the life/lives assured. These policies can be established under Section 72 of the Capital Acquisitions Tax Consolidation Act 2003, and are primarily used for inheritance tax planning. The policy does not have a fixed end date.

Maintaining Section 72 Status

To retain Section 72 status, the policy must comply with all relevant laws and Revenue rules throughout its term. Any changes made to the policy should be carefully assessed to prevent the loss of Section 72 status, as it cannot be reinstated once lost.

Determining the Suitability of Section 72 Policies

While Section 72 policies have their merits, they should not be the first consideration in estate planning. Prioritising structured lifetime planning to minimise tax liabilities is often a more effective approach.

However, there are situations where a Section 72 policy may be recommended:

• Leaving a “clean” solution – parents or benefactors aiming to minimise tax burdens on their children or beneficiaries.
• Utilisation of CAT thresholds – when CAT thresholds have been fully utilised, and other gifting opportunities have been exhausted.
• Preserving family property – estates primarily consisting of property that both parents and children wish to retain within the family. This avoids the need to sell property to settle tax obligations.
• High guaranteed incomes – clients with substantial guaranteed incomes, such as defined pension benefits.
• Corporate wealth and surplus cash – situations where wealth is tied up in a company. Any surplus cash remains within the company rather than in the hands of the children.

Section 72 Policies: Not a Silver Bullet

While Section 72 policies are not a guaranteed solution for all estate planning scenarios. They can play a role in specific circumstances. Understanding when they are the preferred solution is crucial.

Partnering with Everlake for Estate Planning

At Everlake, we provide comprehensive guidance throughout the estate planning journey. We assist clients in identifying the most suitable strategies tailored to their unique circumstances. Collaborating closely with the client’s other advisors, we ensure that all solutions are meticulously evaluated from legal, taxation, and financial planning perspectives. This allows us to structure solutions correctly, including Section 72 policies where appropriate, maximising client value.

Conclusion

When it comes to estate planning, Section 72 policies offer potential benefits, particularly in specific situations. However, they should be approached as part of a comprehensive strategy that considers various factors, including Gift and Inheritance Tax (CAT), Revenue regulations, capital gains tax in Ireland, inheritance tax thresholds, and the preservation of family wealth. By working with experienced professionals and exploring a range of options, individuals can optimise their estate plans and protect their legacy.

Read more in our Guide to Estate Planning