WHAT HAPPENS IF I DIE WITHOUT MAKING A WILL?
Irish Law provides that your spouse is entitled to your entire estate if there are no children, and otherwise two-thirds (one third goes to your children). If you do not have a spouse, your entire estate goes to your children (children of a deceased child taking their parent’s share) and if none, to your parent: and if both parents are deceased, then to your brothers and sisters.
WHERE DO I START?
- Your assets, their value and where they are located:
It is important that after your death your Executors will have details of all your assets and know where to find bank books, shares/savings certificates, deeds, life policies and all relevant information.
- Nearest Relatives
Set out the names of your spouse, children or other dependants (including their dates of birth) or otherwise your closest living relatives and their addresses.
Choose the person[s] best suited to carrying into effect the provisions of your Will. An advantage of making a Will is that your beneficiaries avoid the cost of an Administration Bond required where no Executors are appointed. A minimum of two are recommended and if you are a senior citizen at least one of those should be younger than you.
- Proposed Division of Your Estate
The usual format is:
- Cash legacies (e.g. friends, charities, religious).
- Bequests of specific property (e.g. jewellery, furniture, etc.).
- Any other special provisions (see “special circumstances”).
- Residuary bequest (which may comprise most of your estate).
- Restrictions (where a Will is made)
Under Irish Law your spouse has a legal right to a minimum share of half your estate where there are no children, and otherwise one-third. Your children do not have any minimum entitlement but are enabled to apply to court if you fail in your moral duty to make paper provision for them in accordance with your means, taking into account their position in life. Your spouse also has a right to require that the family home and household contents be included in his/her share (and the share of minor children).
- Special Circumstances/Assets
Special considerations arise if:
< Any of your beneficiaries are under 18 years of age (see “married with young children”).
< Suffer from a disability (see “discretionary trust”).
< If a farm or business is involved or if your dwellinghouse is the main asset (see “no cash assets” and “discretionary trusts”).
- Funeral Wishes
Your Executors will require to know whether your remains are to be cremated and your burial wishes and any other details concerning funeral arrangements.
WHAT IF I’M MARRIED WITH YOUNG CHILDREN?
Reciprocal Wills are common where each spouse leaves his/her estate to the other. Consider provisions for children in the event of neither surviving:
A Guardian is the person you select to take over your role as parent in rearing your children under 18 years. Trustees may be appointed to manage the assets in your estate; it is not uncommon for an Executor also to be named as a Trustee. Your Will should include sufficient management and discretionary powers to enable your Trustees sufficient latitude in making maintenance and any other payments for the benefit of your children.
- Provision for Children
You may wish your estate to be divided equally between your children on reaching a specified age (possibly with income payable from age 18); alternatively you may prefer a discretionary trust for your children until the youngest reaches age 18 (including a restriction on the sale of the home until then).
WHAT IF I’M SEPARATED OR DIVORCED?
Separation of itself does not extinguish succession rights; however, such rights may be extinguished or renounced under a separation agreement or judicial separation, or can be precluded by court order on divorce.
In the case of divorce, a former spouse for whom proper provision has not been made during his/her lifetime may apply to court for relief within 6 months from the date of grant of probate or grant of administration. Personal representatives are required to make reasonable attempts to notify the former spouse. Such relief is not available to a former spouse who has remarried.
If not married to you, your “partner” will have no succession rights and will therefore be limited to whatever rights he/she may establish in contract (e.g. where he/she has financially contributed to the purchase of a property, or where he/she is entitled under your Will).
WHAT IF I HAVE NO CASH ASSETS?
Where your assets comprise a house, business or farm and you do not have sufficient cash, this can be left to a preferred beneficiary subject to and charged with legacies in favour of others. In the case of an elderly brother/sister, consider a life interest.
WHAT IS THE SIGNIFICANCE OF JOINT PROPERTY?
Property held jointly (rather than in separate shares) passes to the survivor where there is clear evidence that this is intended. However, there are legal rules or presumptions which may prevent the property from so passing.
With bank accounts, it is not unusual to open a joint account for convenience (e.g. where the original holder is elderly and immobile) or for a specific purpose (e.g. to pay for the funeral). It is therefore important when opening such accounts to specify in writing whether the proceeds are intended to pass to the survivor beneficially, or to take specific steps to ensure that your intention is clear as to what is to happen to the account on your death.
WHAT IS A DISCRETIONARY TRUST?
This provides your Trustees with full power to apply capital and income at their discretion for the benefit of your beneficiaries without having to achieve equality between them. A discretionary trust can be useful where beneficiaries are young, suffer from a disability, are elderly, for a dependant relative and for tax planning purposes for larger estates.
CAPTIAL ACQUISITIONS TAX
Capital Acquisitions Tax (CAT) is a tax on gifts and inheritances. Generally inheritance tax will be due if property is inherited on the death of any person (i.e. under a Will or on intestacy).
TAX FREE THRESHOLD
A gift or inheritance from a husband or wife is not liable to inheritance tax. This will only apply to a legal spouse and to divorced persons in certain circumstances. A “partner” is treated as a stranger for tax purposes.
If you leave property by Will to someone other than a spouse then the first portion, known as the tax free threshold, is taken free of tax. The amount of the tax free threshold depends on your relationship to the beneficiary.
CAPITAL ACQUISITIONS TAX (Inheritance and Gift Tax)
*In the case of an absolute inheritance, a parent falls into Group A
Base date for aggregation of gifts/inheritances taken after 5 Dec. 2001: 5.12.91
From 26.3.84 - 30.11.99, aggregation arises between all group thresholds
From 01.12.99, aggregation is limited to aggregation within each group.
Rate of Tax Inheritance/Gift
Threshold amount Nil
Small Gifts Exemption = €3,000 per individual
In certain circumstances, certain types of property e.g. government stocks left to persons who are not resident or domiciled in Ireland, or heritage property, may be exempt from CAT, depending on the circumstances of each case.
HOW CAN THE IMPACT OF INHERITANCE TAX BE REDUCED?
It is important to plan the passing of your assets so as to minimise the tax that your beneficiaries need to pay.
Step 1 Look at the reliefs available.
Step 2 Look at the option of giving a gift.
Step 3 Look at dividing up your property to use all available tax free thresholds.
Step 4 Look at providing a fund to pay CAT (insurance).
WHAT RELIEFS ARE AVAILABLE?
- AGRICULTURAL PROPERTY
If a certain percentage of the beneficiary’s property (after an inheritance) consists of agricultural assets, then the beneficiary may qualify for agricultural relief, so that the value of the agricultural property he/she inherited is discounted by a certain percentage when making the CAT return.
- BUSINESS PROPERTY If business property is inherited then the beneficiary may be entitled to claim business relief so that the value of the business property inherited is discounted by a certain percentage when filing the CAT return.
- FAVOURITE NEPHEWS/NIECES
If the beneficiary is a nephew or niece who worked full time in the business with you for five years, and you leave the business to him/her then he/she will be entitled to the same tax free threshold as a son or daughter in relation to that property.
- MINOR CHILD OF DECEASED CHILD
If you leave property to a grandchild who is the child of your deceased child, and under the age of 18, then that grandchild will be entitled to the same tax free threshold as a son or daughter.
- SURVIVING SPOUSE RELIEF
If property is left to the spouse of a deceased member of your family, that spouse will be entitled to the tax free threshold amount that the deceased family member would have been entitled to in relation to that inheritance.
N.B. Each relief has conditions that must be met. Professional advice should be obtained when considering whether a particular relief is applicable.
PLANNING FOR THE PAYMENT OF TAX
If inheritance tax is going to arise on your estate then it is possible to take out an insurance policy (called a Section 60 policy) the proceeds of which are exempt from inheritance tax if used to pay inheritance tax.
DISCRETIONARY TRUST TAX
A discretionary trust is useful where the person making the will wants to benefit a wide group of people (for instance to include potential issue, not yet born and future spouses) and would like to provide for some flexibility as to who should benefit or the amount they should be given.
Discretionary trusts are liable to a once off tax of 6% on the death of the person creating the trust, once his/her spouse, and all their children are over the age of 21. There may be refund of 3% if the trust is distributed fully within 5 years. There is a further payment of 1% due each year following the payment of the 6% (except for the first year).