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Estate Planning – 7 Things to Consider

Joe Moore - Financial Services > Blog > Estate Planning – 7 Things to Consider

Estate Planning - 7 Things to Consider

This can be a touchy subject for people, but trust me, estate planning is a must.

There is a common theme to my articles, and that is that planning is essential. When it comes to passing on your wealth, you will need to make a plan because often, the efficient mechanisms at your disposal require time to execute. Before we get into the list, let me give you the broad landscape of inheritance tax.

Inheritance Thresholds

Your spouse can inherit your entire estate tax free.

Each of your children can receive up to €335,000 in assets from your estate tax free.

Your siblings, their children and your grandchildren can inherit €32,500 from your estate tax free.

Everyone else has a threshold of €16,250.

Without a valid will, your spouse will receive 2/3’s of the estate and your children will share the remainder equally. If you have survived your spouse, your children will share your estate equally.

This brings me onto the first of our list nicely;

-1 Make a Will.

 If you don’t have a solicitor, get one and make a will. Many solicitor friends have told me of torrid messes that are left behind by people because they made no will, or they made one on their own.

Involve your financial advisor. When arranging anything with your financial advisor, ask them, “how will this affect my family’s inheritance?”

2 €3,000 Per Annum Gift Allowance

One great relief is that both you and your spouse can gift your children €3,000 each, every year, tax free without eating into their €335,000 allowance. You could set up a savings plan for them when they’re born and put €3,000 from both of you every year without giving rise to any tax liability for them. You can do this for nephews, nieces and grandchildren also. Given that you can do this every year, the sooner you start doing this, the more of your estate you can pass on completely tax free

There are savings products out there, that you can take out in trust for your children/grandchildren nieces and nephews. They don’t even have to know they exist until such time as you wish to tell them.  If you would like to know more about this type of arrangement, my contact details are at the end of this article.

 

3-The Family Home

The family home can be inherited tax free under very specific conditions.

You can gift your child the family home tax free if they have been living there for at least 3 years before the death, they do not have any interest in any other property, and they live there for a further 6 years after the death. Be careful though, if you had another property and you were also leaving this to them, it would immediately disqualify them from this relief.

4 You Can Gift Your Children While You’re Still Alive.

Each of your children can inherit a total of €335,000 from you and your spouse tax free. This relief can be used if you chose to gift them when you are alive, or it can be used when they inherit your estate after you die. Be careful when gifting that you don’t open yourself up to a Capital Gains Tax liability. Involve your Financial advisor or accountant if you’re thinking of gifting your children as there are specialised products to help pay CAT

-5 Section 72 Life Policies

You can take out a special type of insurance policy that is designed to pay the Capital Acquisitions Tax (CAT) liability that arises when your children inherit your estate. I try not to use too much maths in these articles, but I think a simple example is appropriate now.

John has 2 children, Joe and Mary, and both live away from home. He has an estate of €2M to pass on to them. He plans to pass on €1M to each of them. So both of his kids can inherit €335,000 from him plus €3,000 gift exemption for that year tax free. The table below shows how the tax bill can be calculated for this scenario

 

John’s Estate

€2M

 

 

Joe

Mary

total

inheritance

€1,000,000

€1,000,000

€2,000,000

tax free allowance

€338,000

€338,000

€676,000

inheritance liable to tax

€662,000

€662,000

€1,324,000

CAT %

33%

33%

33%

Tax due

€218,460

€218,460

€436,920

 

So upon John’s death, revenue will bill his estate €436,920

John can take out a special life insurance policy, known as a section72 policy, that will pay this tax bill when he dies so that his children inherit the full €1M each of inheritance. If you want to know more about this type of insurance, my contact details are at the bottom of this article. I’m always happy to help and there would be no charge for a consult.

6 If You Have Business Assets

Involve your accountant in your inheritance planning. If you are passing on business assets to your child, you can do so once you’re over 55 and get relief from the disposal of the assets, and your child will have some good reliefs from Capital acquisition tax (CAT) if they meet some criteria set by revenue. Your accountant can elaborate.

 

-7 Your Pension Assets

Before you retire, your own private pension savings are 100% inheritable by your spouse. Once you retire, or vest your PRSA, the tax treatment changes. Some company pension schemes pay a lump sum for death in service and they retain the pension fund.

At the point in which you select your preferred retirement options, there are inheritance implications. If you select an ARF, this is an inheritable asset subject to 30% tax. If you select an annuity, this is not inheritable although you can purchase a more expensive annuity which may have some form of guarantee attached to it.

 

 

Thank you for taking the time to read this article. As you can see, there’s a lot to consider, but it’s better to decide how your estate is to be shared than the high court.

If you would like to know more as it applies to your set of circumstances, please feel free to reach out to me at info@jmoorefinancial.com

 There is no charge for an initial consultation.

For a full range of my services, click here

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