When transferring death benefits between heirs, attention must be paid to tax treatment

When an insured person who has life insurance dies, the death benefit is paid to the beneficiary.

In this case, the insurance money does not become inherited property.
(Unless the beneficiary is the insured person)

Life insurance is not inherited property because it is paid based on the life insurance contract.
(It is not subject to estate division)

For the purpose of inheritance tax, it is taxed by being considered as inherited property.

For example, let’s say the mother is the deceased and the heirs are children A and B.

Child A is designated as the recipient of the mother’s death benefit of 10 million yen
(The mother pays the insurance premiums.)

Child A’s 10 million yen insurance payment is subject to inheritance tax.

And then, Child A transfers 5 million yen to child B to divide the 10 million yen insurance benefit equally with child B.

In this case, the 5 million yen transfer is recognized as a gift from child A to child B, so care must be taken.
(The death benefit is the exclusive right of beneficiary Child A, so Child B has no share.)

However, this does not apply when transferring money by compensation division.

For example,

Child A inherits 10 million yen of land .
(with the additional 10 million yen death benefit mentioned above)

Child B has no inheritance property.

Consider this case.

Child A acquires the property, and Child B has no property to acquire.

This violates Child B’s reserved share.

For example, if an agreement is reached in the inheritance division negotiations that Child A will pay Child B 5 million yen, equivalent to 1/2 of the 10 million yen of the land, as compensation in return for acquiring the land, this is not considered a gift.

In this case, the 5 million yen becomes Child B’s inheritance property, and inheritance tax is levied on the following inheritance property.

Child A: 10 million yen of land – 5 million yen in cash = 5 million yen

Child B: 5 million yen in cash

As such, when transferring death benefits between heirs, care must be taken with tax treatment.

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都築太郎税理士事務所/Tsuzuki Taro Tax Accountant Office

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