The capital constituted within the framework of a funeral contract escapes inheritance and transfer duties.
At the tax level, the sums constituting the funeral capital are not considered an inheritance received on heritage but a benefit paid by the insurer. Since the cost of the family funeral service reaches, on average 1,550$ in Australia in 2022, according to the UFC, and rarely exceeds 10,000$. Thus, the capital does not enter your estate.
Funeral insurance benefits from a tax regime similar to life and death insurance.
We remind you of the exemption thresholds and conditions that apply to life insurance.
For sums paid before the subscriber turns 70, the beneficiary is granted an allowance of 52,500$. The premium is taxed at 20% up to 70,000$, then at 31.25%.
For sums paid after the subscriber turns 70, an allowance of 30,500$ applies to all premiums. Beyond this sum, there is reinstatement in the succession and subjection to inheritance tax that you need to know.
The exemption from rights or taxation is total when the designated beneficiary is the PACS partner or the spouse.
Advantageous taxation, but to be approached with care
A capital constituted within the framework of funeral insurance cannot normally reach the amounts provided for by the allowances. Does this mean that the contributions paid in the context of funeral insurance are systematically exempt from tax?
The reduction provided for by the law is global. The administration considers all the premiums paid by the deceased after their 70th birthday, taking into account all the beneficiaries and all the contracts. If several beneficiaries are designated, they share the deduction in proportion to the capital allocated to them.
The contributions paid under funeral insurance are added to the death benefit that may be constituted via death insurance and to the amounts paid under life insurance. Therefore, the funeral insurance contributions may raise the overall level of contributions paid sufficiently to exceed the abatement threshold.
The taxation applicable to contributions collected for funerals remains particularly advantageous. Remember that the capital paid to the beneficiary is initially intended to cover all funeral expenses outside the estate framework.
Explicit designation of beneficiaries
If you want to take advantage of the tax advantages of your funeral insurance contract and avoid your loved ones having to pay inheritance tax on the capital donated, clearly designate beneficiaries in your funeral insurance contract.
If there is no longer a beneficiary or if you have omitted to identify one, the capital of the funeral contract would be found in the estate and would therefore be subject to transfer duties.
Choose the right funeral insurance policy.
You can choose between several types of funeral insurance policies.
It would help if you first chose the nature of the cover taken out:
- Capital contract: the insurer pays capital to a beneficiary, who is responsible for organizing the funeral. The beneficiary is required by law to use the capital to finance the funeral services but can freely use any balance after payment by the funeral operators;
- Service contract: the insurer pays the capital to a funeral operator who organizes the funeral, respecting the insured’s wishes.
Waiting periods and exclusions
Some funeral insurance policies provide for a waiting period. During this period, which generally begins when the contract is signed, the capital will not be paid if the covered risk occurs: only the premiums already paid by the insured will be paid to the beneficiary. Often, the waiting period of a funeral agreement concerns death by illness.
A possible deduction of funeral expenses
Funeral expenses are deducted from the estate’s assets for a maximum of $1,550 or less if the assets are less than this (Article 775 of the General Tax Code).
You can also deduct funeral expenses not paid by the estate from your taxable income if the deceased is a relative. Supporting documents may be required by the tax department:
- Proof of payment of fees.
- Proof of obligation to supply.
- A document attesting to the absence of inheritance assets.
You declare these sums as alimony paid to an ascendant.
Death and funeral insurance: similar taxation, different objectives
The objective of funeral insurance is not to build up significant capital to protect loved ones from financial need after their death but to finance the funeral costs of the deceased. If you want to build up capital to pass on to your loved ones, taking out death insurance at the same time is much more appropriate for building up significant capital.
You can also associate several contracts :
- Funeral insurance, with a capital or service contract intended to cover the funeral;
- Death insurance or death-invalidity insurance, to protect loved ones through the payment of a lump sum;
Life insurance is a savings product with payment of the capital saved to a designated beneficiary in the event of the holder’s death, which benefits from a favorable tax framework.
Discover Funeral Provisions and choose between a capital or benefit formula. No medical formality is required up to 80, and your contributions are revalued yearly.
Do you have questions? Would you like to be accompanied in your search for the contract that best suits your situation? The AÉSIO mutual advisers offer you pension solutions adapted to your situation and your plans.