Will or Insurance — Which Best Ensures Your Assets Go to Your Loved Ones?

There are many ways to transfer assets, each with its own advantages and disadvantages. Among them, wills and insurance are common methods of asset transfer. This article compares the effectiveness of wills and insurance as estate planning tools. 

Will 

According to civil law, there are five types of wills: handwritten wills, notarized wills, sealed wills, dictated wills, and witnessed wills. A will allows the testator to distribute their assets according to their wishes after their passing. However, from an inheritance perspective, whether a will can truly fulfill the testator’s expectations depends on several factors. 

Statutory Reserved Share 

The statutory reserved share is a legal provision that guarantees a minimum inheritance portion for heirs. It is typically either one-half or one-third of the legally assigned inheritance share. The relationship between inheritance share and statutory reserved share is shown in the table below: 

Heir Relationship	Inheritance Share	Statutory Reserved Share
Spouse + Children	Equally divided among all heirs	1/2 of the inheritance share
Spouse + Parents	Spouse: 1/2, Parents: 1/2	1/2 of the inheritance share
Spouse + Siblings	Spouse: 1/2, Siblings: 1/2	1/3 of the inheritance share
Spouse + Grandparents	Spouse: 1/2, Grandparents: 1/2	1/3 of the inheritance share

According to civil law, as long as the will does not violate the statutory reserved share, the testator has the freedom to distribute their assets through the will. However, if a will infringes upon an heir’s statutory reserved share, the heir can claim their rightful portion. 

For example, suppose Ms. W has two children, Y (elder sister) and Z (younger brother). Ms. W creates a will stating that all her assets, totaling NT$12 million, should go to Y. According to inheritance laws, Y and Z should each receive half of the estate, meaning NT$6 million each. The statutory reserved share guarantees that each of them is entitled to at least half of their legal inheritance portion, which is NT$3 million (1/2 of NT$6 million). Since Ms. W’s will leaves nothing to Z, it infringes on his statutory reserved share. As a result, Z can claim NT$3 million from the estate. 

This example illustrates that while a will allows for asset distribution as per the testator’s wishes, civil law ensures that each heir receives at least a statutory reserved share. Therefore, even if the testator favors a particular family member, they cannot legally exclude other heirs from receiving their statutory reserved share. 

Insurance 

Like a will, insurance allows assets to be distributed to designated family members. By naming a beneficiary, the policyholder ensures that the insurance payout goes directly to the specified person upon their death. 

Using the same example of Ms. W, suppose she does not create a will but instead purchases life insurance, naming herself as the policyholder and insured person, and Y as the beneficiary. Upon Ms. W’s passing, the insurance payout would go entirely to Y. Additionally, Y would still inherit a portion of Ms. W’s estate based on inheritance laws. 

This example highlights a key benefit of insurance: the payout to a designated beneficiary is not considered part of the estate. This means that if an heir is also the named beneficiary (as in the case of Y), they can receive both the insurance payout and their rightful inheritance portion. 

However, if the policyholder and beneficiary are different individuals, the insurance payout may be subject to taxation. Death benefit payouts exceeding NT$37.4 million must be included in the beneficiary’s taxable income for Alternative Minimum Tax (AMT) calculations. 

For instance, suppose Ms. W’s life insurance policy has a death benefit of NT$40 million. When she passes away, Y receives the payout. Since the exemption threshold is NT$37.4 million, the excess NT$2.6 million must be included in Y’s taxable income for AMT purposes. 

Comparison of Wills and Insurance

Items compared	Will	Insurance
Asset Distribution	Distributes estate as specified in the will	Pays death benefit to the designated beneficiary
Scope of Distribution	Entire estate	Death benefit only
Tax	Subject to estate tax	Subject to Alternative Minimum Tax (if applicable)
Heir/Beneficiary Rights	Cannot violate statutory reserved share – cannot fully exclude any legal hei	No estate tax: insurance payout is not part of the estate. However, it may be taxable taxf
Modification	Requires legal procedures to amend the will	Requires policyholder and insured person’s signature to change beneficiary

Both wills and insurance have advantages and disadvantages when it comes to estate distribution. Choosing the most suitable estate planning tool depends on the individual’s circumstances. It is advisable to consult a professional accountant for further guidance.