Purchasing life insurance is one way many people plan for asset succession, and it may also have tax-saving effects. However, whether the tax authority will include the insurance proceeds in the estate for estate tax purposes is still determined under the substance-over-form principle.
Q2：How do the tax authorities determine the policyholder’s purpose?
A2：The tax authorities mainly evaluate the eight risk factors mentioned above, rather than the cause of the insurance claim. For example, if the policyholder dies in an accident, it is generally less likely to be regarded as a prearranged concealment, transfer, or avoidance of estate tax.
Q3：How do the tax authorities assess the policyholder’s financial situation?
A3：They will review the decedent’s income, lifetime assets, and whether substantial borrowing was used to transfer assets through insurance policies. For example, if the decedent borrowed NT$50 million from a bank and, at age 80, purchased a large NT$50 million policy with a single premium payment of NT$50 million, the tax authorities may determine that the main purpose of the policy was tax avoidance.
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Category
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Risk Factor
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1
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Single-Premium Policy
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The policyholder pays the entire premium in one lump sum.
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2
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Purchasing Insurance at an Advanced Age
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In practice, when a person over the age of 65 purchases insurance, the insurance agent may be required to note this in an assessment report. Current court decisions generally treat purchases made after the age of 70 as insurance purchases at an advanced age, especially where there is active conduct in purchasing life insurance.
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3
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Purchasing Insurance After Serious Illness
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The person purchases insurance only after already knowing that they have a serious illness.
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4
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Short-Term Insurance Purchase Before Death
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The insured passes away shortly after the policy is purchased. If life insurance was actively purchased within the three years before death, it may more easily be viewed as an attempt to avoid estate tax.
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5
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Multiple Insurance Purchases in a Short Period
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The insured purchased two or more insurance policies within two to three years before death.
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6
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Large Insurance Amount
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There is no fixed statutory threshold for the amount. The key issue is whether the insurance proceeds account for a high proportion of the total estate.
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7
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Borrowing Money to Pay Premiums
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The policyholder borrows from a financial institution or from another person to pay the insurance premiums. Borrowing from heirs to pay the premiums may also be problematic.
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| 8 |
The total premiums paid are higher than or equal to the insurance proceeds plus interest.
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- The tax authorities will conduct an overall assessment of these eight risk factors. The existence of any single factor does not necessarily mean that estate tax will be imposed. Other factors will also be considered, such as the policyholder’s purpose in purchasing the insurance, health condition, and income status.
2. Q&A on the 8 Risk Factors Under the Substance-over-Form Principle
Q1：What does it mean to purchase insurance while already ill?
A1：It refers to a situation where, at the time of applying for insurance, the applicant has already been diagnosed by a doctor, has been using medication long-term, and deliberately conceals the medical condition.Q2：How do the tax authorities determine the policyholder’s purpose?
A2：The tax authorities mainly evaluate the eight risk factors mentioned above, rather than the cause of the insurance claim. For example, if the policyholder dies in an accident, it is generally less likely to be regarded as a prearranged concealment, transfer, or avoidance of estate tax.
Q3：How do the tax authorities assess the policyholder’s financial situation?
A3：They will review the decedent’s income, lifetime assets, and whether substantial borrowing was used to transfer assets through insurance policies. For example, if the decedent borrowed NT$50 million from a bank and, at age 80, purchased a large NT$50 million policy with a single premium payment of NT$50 million, the tax authorities may determine that the main purpose of the policy was tax avoidance.
3. Death Benefits Are Not Subject to Estate Tax, but Amounts Exceeding NT$37.4 Million Must Be Included in Income Tax Calculation
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Under the Income Basic Tax Act, for life insurance and annuity insurance where the beneficiary and the policyholder are not the same person, the portion of death benefits that does not exceed NT$37.4 million per household for the year is excluded from the calculation.
- Reminder: health insurance benefits, accident insurance benefits, and life insurance or annuity insurance benefits where the beneficiary and the policyholder are the same person are not included in individual basic income.
4. Insurance Benefits Are Not Included in the Total Estate, but Beneficiary Designation Matters
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Under Article 113 of the Insurance Act, if no beneficiary is designated in the policy, the insurance claim payment will be included in the insured’s total estate and may result in estate tax liability.
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The same issue may also arise if the beneficiary dies before or at the same time as the insured, and there is no contingent beneficiary or separate designation of legal heirs as beneficiaries.
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