For those of us fortunate enough to be able to leave assets to our children when we die, we may not be happy to do so knowing that up to 33% of their value will be given to the State for the privilege. Having spent years building up a portfolio of properties to provide a sense of financial independence, we might not want to find our hard work penalised when passing this sense of security onto our children, through the necessary sale of some of the properties to fund their inheritance tax liability.
It may seem harsh to tax assets that have typically been generated through taxed income or have been subject to taxation through the years of ownership, but the fact remains that Ireland requires substantial tax income to operate its public services.
There are a few things one can do to make the transfer of wealth easier;
Make a Will
Some people mistakenly believe that there is no need to make a Will as their financial affairs and familial situation are uncomplicated and the existing legislation will deal with the matter as efficiently as if there is a Will in place. However, in most cases, assets cannot be transferred without a grant of probate. This can take 6-9 months, even with a Will in place. Make that Will!
Have Assets in Joint Names with your Spouse
Assuming neither of you have debt issues, this is a very straight-forward protection to put in place. It means that upon the sudden death or incapacity of either spouse, their partner has access to, and control over, bank accounts and other assets and remains able to make financial decisions for the benefit of the family.
Make an Enduring Power of Attorney
This is every bit as important as making a Will. In the event you are suddenly incapacitated, your partner, or some other trusted individual is empowered by the courts to make decisions on your behalf ostensibly for your and your family’s benefit.
Make Full Use of the Small Gifts Exemption
You may make gifts of up to €3,000 each year to any individual without creating a tax liability for that person. You and your partner could gift €6,000 to each of your children, their partners and children every year without any of the gifts creating a tax liability for them.
Set up a Discretionary Trust
Ring-fencing assets in a trust for your children can postpone or stagger a large inheritance tax bill. However, there is a once-off charge of 6% on the value of the assets followed by an annual charge of 1%. The once-off charge will be applied on your death or, if later, when all the beneficiaries of the trust are over the age of 21. No potential inheritance tax liability applies until property is released from the trust to a beneficiary. If the discretionary trust is created under your Will, the tax may be backdated to the date of your death regardless of how long it may take to administer the estate.
Use a Life Policy to Fund for the Inheritance Tax Bill
Taking out a life policy on your lives is one way to deal with the inheritance tax bill. As most couples leave their worldly goods to each other and then to their children, these life policies are typically arranged on a joint life second death basis.
On death, the sum assured is used to pay towards the inheritance tax bill. If there is a surplus, this surplus is itself taxed and the balance dispersed amongst your beneficiaries.
Proper estate planning requires professional expertise. MoneyCoach liaises with your legal and taxation advisors to ensure that the most appropriate solutions are put in place for the benefit of you and your family. Contact us today on 1890 428 343.