Understanding residual debt insurance!
You've probably heard of residual debt insurance. But what does it mean and do you need it?
A partner in a civil union shall be treated as a spouse for tax and social matters but NOT for estate and inheritance matters. They are not automatically the heir of their partner.
In practical terms, on the death of one of the partners and without the existence of a will, the surviving partner will not inherit and can only continue to live in the family home free of charge for a maximum period of one year.
If there is joint ownership of property under a property settlement agreementt, the surviving partner shall be the joint owner with the legal heirs, e.g. any children or, if there are no children, the parents and/or brothers and sisters of the deceased. Should the deceased have legal heirs, the surviving partner will still have the option of remaining a joint owner, purchasing the share from the heirs or selling his/her jointly-owned share.
If there are no children, the partners are free to dispose of their assets as they chose and to leave all of their property to each other – including, where applicable, the shared home – by means of a will. If the civil partnership has been in force for longer than three years at the time of the death of one of the partners, all property that is given to the surviving partner shall be subject to the same regime as married couples vis-à-vis inheritance tax to be paid.
Should there be any children, the surviving partner can only inherit, from the will, the disposable share. This share varies depending on the number of children:
However, the deceased can bequeath usufruct for the property, notably, the shared home, via his/her will, subject to the abovementioned shares. The children are, therefore, bare owners and shall only become freehold owners upon the death of the surviving parent.
In fiscal terms, if the partners have been joined by a civil partnership for at least three years at the time of the death of one of the partners, the surviving partner shall benefit from the same tax relief as married partners vis-à-vis inheritance tax.