Wills, Probate & Tax

                
                    

Why make a Will?
 
We all own something, be it property, car, whatever and we all want to care for our relations and friends after our death. Making a will gives legal status as to what you intend to do with your assets or possessions. Normally, it is to pass them onto your relations and friends but you might also have some special requests and requirements.
 
Making a will can be straightforward, but more often than not, it can be more complicated than you realise. It is important that you consult a solicitor who can guide and advise you through the confidential process of making a will for the benefit of your loved ones.

Who should make a Will? and Why? 

  1. You are married and have children 
  2. You live with your partner but you are not married 
  3. A will is the only way to ensure that whatever you leave is distributed with the minimum delay 
  4. You are a homeowner 
  5. You set up your own business or firm 
  6. You are getting divorced or separated 
  7. You wish to leave some money/assets to your relatives 
  8. You wish to leave some money/assets to someone with disabilities. 
  9. You want to give some money/assets to a charity or a special cause. 
  10. You want to reduce the tax liability on your estate allowing you to leave more to your loved ones and favorite causes.

Inheritance and Succession - FAQ's

Frequently Asked Questions about inheritance and Succession are posted below.

If you have any questions of your own, please contact us and we will get back to you.

1. Do people leave decisions on inheritance and succession too late in Ireland?

Many inappropriate decisions are made only when people are on their death-bed which is not the right time to be consulting a Solicitor e.g. in terms of property succession.  It is desirable to make Wills when in good health and capable of deciding how best to perform that task in the interest of the families and other intended beneficiaries.

2. When should people start thinking about making a Will?

Start thinking now about your outline plan: “Once you have accumulated property, you should put a Will in place”. You should also consider making a will when you get married or have children.  The earlier you start thinking about your plan the more likely you are going to be able to put in place a tax efficient roadmap to get your assets to the next generation.

3. What should people take into account when considering succession and to give what to whom?

Usually parents will have a rough idea in their heads; that for example they want the farm to go to John because he is the eldest son and he has always worked the farm or that they want the apartment in Waterford to go to Mary because she lives down there and doesn’t have a place of her own or whatever the circumstances might be.  This is really the hard bit: it can be the source of considerable tension in families in trying to accommodate all of the children and it is important to remember that taxation is not the overriding consideration: this should only be a secondary consideration to what is being planned and in balancing the competing rights of all of the kids over the wealth of the parents.  Adopted children and foster children as well since 2006 have exactly the same rights as blood children which is only right and proper.

4. Can you leave whatever you like to whoever you like?

This is called “Freedom of Testation”. Up to the 1960s a testator was free to dispose of his property as he saw fit as long as he was mentally competent.   However, in the 1960s when the Succession Bill was making its way through the Oireachtas, Charles Haughey, then a TD and Minister for Justice, argued that the right to disinherit a spouse in the family was unacceptable and that there was no real basis, moral or historical for the view that it was acceptable.  It was argued that the Constitution which recognises the support which a wife gives within the family home could not be reconciled with a situation where the wife could end up with nothing in the event of her husband’s death.  The Succession Act which was enacted in 1965 gives the surviving spouse a fixed share of the deceased spouse’s estate and surviving children can apply to the Courts for part of the deceased’s estate if no provision was made.  This is the same for a lot of the other topics we have discussed, there is often way too much money at stake in relation to succession planning to take a flyer on it; sit down with your Accountant and work out the implications of what you want to do. Go to someone you trust to put schemes in place to transfer assets to the next generation.

5. Can you explain the role of Executors of the Will and their confusion with “beneficiaries”?

A person who dies having made a valid Will is said to have died “testate”. If you die testate, then all your possessions will be distributed in the way you set out in your Will. It is the job of the Executor or Executors you named in your Will to make sure this happens.  An Executor can be a beneficiary under the Will. In other words, the Executor can also inherit under the Will.  The advice is to appoint Executors that you trust. Make sure they know where your Will is stored. and the reality is it can be an onerous job lasting some time so they need to be ok with that.  Make sure they are the right age profile also, no point in a 40 year old appointing Executors who are 65.  How many Executors do you need? Legally, you only need one but it is far better to appoint two, in case one dies, becomes mentally incapable of acting or simply decides not to act.  “Some Wills are not properly witnessed or a beneficiary witnesses the Will in the mistaken belief that their signature was required”.  “If a beneficiary witnesses a Will, they or their spouse will not be able to benefit from that Will (this can be corrected with a codicil which is a document used to make small changes to a Will)”.

6. Do same-sex / unmarried couples have the same rights regarding inheritance as married couples?

If you are in a non-marital relationship and you die without a Will, your partner has no automatic right to any share of the estate no matter how long you have been together. Many people are not aware of this, so it is very important to know your rights in this situation.  Similarly, if you are in a same-sex relationship and you die without a Will, your partner has no automatic right to any share of the estate, no matter how long you have been together.  If you are in a same-sex / unmarried relationship, there is nothing to prevent you from leaving some or all of your property to your partner in your Will. However, the tax implications are not the same as for a married couple. Also, if you have been married, your spouse may be legally entitled to a share of your estate even though you are now separated from him/her.  The Government has begun the process of recognizing same-sex relationships and will be given legal recognition for the first time. This would provide such couples with security for the future, as well as provisions for inheritance and succession. However “it is doubtful the Government will introduce civil marriage for gay couples due to the potential problems with the Constitution.”

7. If you set up a trust, are there any special requirements?

If the Will sets up a trust for young children, then it must also appoint trustees (and preferably guardians).  It should clearly describe the property to be included in the trust and the identity of the ultimate beneficiaries. It should provide all necessary powers to the trustees to enable them to carry out their duties until such time as the property can be given to the beneficiaries.

8. Can you give a rundown of the main Taxes encountered when dealing with inheritance and succession?

Capital Acquisitions Tax (CAT) comprises a number of important taxes , the most important of which are Gift Tax and Inheritance Tax.  Essentially these are the same, the only difference is that Gift Tax arises when a beneficiary receives a gift from a living person and Inheritance Tax arises when a beneficiary receives a gift from someone on death.  There are some subtle differences between the two however the rate of tax in either case is the same.   Tax may arise when a beneficiary exceeds their threshold.  Your threshold is determined by your relationship to the person from whom you are receiving your gift or inheritance.  Up to the 20th of November 2008 the rate of Capital Acquisition s Tax was 20 % however since that date the rate was increased to 22%. The Budget on 7th April 2009 brought the tax rate to 25%, which came into effect on the 8th April. 

The Thresholds, which are essentially similar to a tax free allowance, were reduced in the budget by 20%. For example, up to the 7th April a child could receive €542,544 from a parent without incurring any tax. This threshold dropped to €434,000 from 8th April. By increasing taxes and reducing thresholds, the Revenue have widened the tax net.

Trust Tax arises when assets are put into a discretionary trust. The trustees pay tax of 6% in the first year and 1% per year thereafter. Usually the tax does not arise if the assets are distributed out of the trust before the youngest child reaches 21.

Capital Gains Tax is a tax on any gains made on a disposal of an asset. Put simply, if you acquire something for €10,000 but dispose it for €20,000, then you have made €10,000 and tax is payable on that gain. For disposals up to and including 14th of October 2008 tax was payable at 20%.   Between the 15th of October 2008 and 7th April 2009 tax was payable at 22%. For disposals from 8th April 2009 tax is 25%. On the 2ndof March 2009 the Revenue published a very helpful guide to Capital Gains Tax and this is available from their website under the “news” section. 

Stamp duty, is a duty which is paid by a purchaser or by a beneficiary when the beneficiary receives a gift of the property. The rates of duty are as follow:

 

Residential Property

First €125,000                         nil

Next €875,000                         7%

Excess over €1,000,000           9%

 

Non-Residential Property

Not exceeding €10,000            Exempt

€10,001 - €20,000                   1%

€20,001 - €30,000                   2%

€30,001 - €40,000                   3%

€40,001 - €70,000                   4%

€70,001 - €80,000                   5%

over €80,000                           6%

In the current economic climate the government are reviewing taxes and duties regularly and the recent budget shows the effect of those reviews in practice. Up to date information is always available from the Revenue Website.

9. Can you give some tips on minimizing tax in your inheritance and succession decisions?

The Taxman may take   25% of your estate if you are not careful in your decisions.  In relation to gifts (not inheritances) the first €3,000 of the gift is taken tax free. This is called the small gift exemption. A beneficiary can receive gifts from the same disponer in different years and the first €3,000 of each gift will be exempt from tax. Its Self Assessment: You should always remember that tax returns are based on self assessment therefore it is your responsibility to make the return although your Solicitor or Accountant will usually advise you if a return is necessary. You need to make a return if the gift or inheritance that you receive exceeds 80% of your threshold . Penalties for failure to make a return are quite severe at €2,535 and even worse for fraudulent returns €6,345 and a possible prosecution. Interest on late returns runs at 0.0273% per day.

 

10. Are Foreign Assets liable for taxation?

Yes. For example, an Irish asset passing to a beneficiary in the United States can be taxed in both Ireland (the location of the asset) and the US (the location of the beneficiary). This could give rise to two taxes on one asset, which could be quite harsh. As a result Ireland have double taxation agreements with many countries. Basically, if taxes arise in two countries on one asset, then the tax paid in one country can be given as a credit against the tax due in the other.

11. What is the Dwelling House Exemption?

Not a lot of people are aware of this exemption.  Essentially a beneficiary can receive a house by way of inheritance, tax free, provided that the beneficiary does not already own a house or an interest in a house and that they have occupied the house they are now receiving as their main residence for 3 years prior to the date of death of the person from whom they are receiving it. They must also continue to occupy the house for a further 6 years. If a beneficiary can meet these criteria well then the inheritance of the house is completely exempt from tax.  Slightly different rules apply where a beneficiary is receiving a gift from a living person.. If a beneficiary receives a gift of a house then the beneficiary must have been compelled to go and live with the donor by reason of the donors’ old age or infirmity and the donor must depend on the services of the beneficiary for that period.   This is in addition to the criteria for receiving a house by way of an inheritance.

12. Are there tax exemptions when transferring the family business?

Yes – “Business Relief” means that the value used for any qualifying business assets (premises, plant and machinery, vehicles, equipment etc.) are reduced by 90% so for example a business worth €5m is reduced to €500k for tax purposes.  You need to be careful of what are referred to as Bad Assets, i.e. assets which are owned by the family company but are not qualifying assets, for example an investment property. These probably should be held outside the company and transferred using the dwelling house exemption (as discussed in previous point 11).

The Favourite Nephew or Niece:

If a Nephew or Niece has worked full time for 5 years in the trade, business or profession then they are treated as being a child for tax purposes which moves them from a Group B threshold of €43,400 to a Group A threshold of €434,000. Also the minor child of a deceased child (i.e. a grandchild) is treated as a child also and can take a threshold of €434,000 rather than €43,400.

13. Are donations to charities tax free?

There may be other exemptions available such as the charitable exemption: donations or bequests to charities are usually tax free provided the charity has obtained ‘charitable status’ from the Revenue.

14. Why is succession such a big problem for the farming community in Ireland?

Eight out of ten Irish farmers have still not identified a successor to take over their land after they are gone and fewer than half have even made a Will –despite the severe financial difficulties and strife that can result.       The result will be many more costly and divisive legal battles within families in the coming years:   “I foresee an increased number of visits to the High Court to sort out expensive claims as a result of higher divorce and separation settlements and as a result of the increased transience of marriage contracts … There is a need for a new, imaginative approach by Government and by individual people to family farm succession … The key is, I believe, in communication. Lawyers generally would do well to make a communication and mediation services a major part of their service to farm families and indeed to everyone who has a home whether in urban or rural Ireland” he said.   “I can understand the fear and reluctance of farmers and farm wives to hand over or transfer their land. They fear what will happen in their old age and if provision can be made for their needs when they are no longer able to care for themselves. They fear for all of their children.”

15. What is “Agricultural Relief” when transferring the family farm?

This works in the same way was business relief, agricultural assets are reduced by 90% so a farm worth €4m is reduced to €400k for tax purposes. While thresholds have been reduced in the recent budget, property and land values have been falling in recent times and so, in theory at least, taxes can still be reduced or eliminated when passing property to the chosen successor.  In order to qualify the beneficiary must be a qualifying farmer and “it is no use just pulling on the wellies” when you are on your way into the tax office : in order to be a farmer in the eyes of the Revenue 80% or more of your total gross assets, including the farm, must be agricultural in nature. Both business relief and agricultural relief may be subject to clawbacks if the business or farm are sold within 6 years. You have to keep and run the farm or business for 6 years to claim the exemption.

16. Have you come across very sick or elderly people being put under pressure to change their Will on their deathbed?

A will must be made without any outside pressure or influence. Very sick or elderly people sometimes require a little help from other people. In providing that help most of us would expect nothing in return. However, certain individuals, whether they are friends or family members, may have different expectations. In the past, many have tried to influence the decisions of sick or elderly people so that they will benefit on their death.  2In most cases a vulnerable person will be influenced or put under pressure by someone close to them”  “If it was proved that a Will was made in favour of a particular person by coercion or “under influence, a Court can ‘strike down’ that Will.”

17. What happens if you die without making a Will?

If you die without making a Will – “intestate” – the next of kin needs to apply to the High Court to be appointed as Administrator in the Estate. The Administrator does the same job as an Executor but as there is no Will he/she is obliged at law to administer the estate in accordance with the rules of intestacy.   For example:

  • If you are married with no children – Your spouse gets your estate.
  • If you are married with children – the assets are distributed under the Succession Act – two thirds to the surviving spouse and one third to the children.
  • If you are widowed and have no children – your estate will pass to your parents or, if only parent survives, they take all, but if both are deceased, then your estate will pass to your siblings.

18. Would you recommend legal action for people who feel they have been hard done by in terms of inheritance for example, land succession?

A claim can only be brought when there is a valid Will. If the parent has made no Will, there is nothing to challenge as the persons entitled will each receive a set share of the estate under the intestacy rules.  The book warns those who feel they have been hard done by in the succession of land against taking precipitative legal action.  “Taking a legal action is expensive stuff. If someone decides to take legal advice for the purpose of commencing a legal claim they should always ask for and get a written opinion from their Lawyer before they start the Court case.”  “Everyone likes to know about the strong points in their case but they should always remember to ask about the weak points as well.”  “When people go to Court there are no real winners …. it should be avoided if possible.”

19. Can you make your own Will?

Yes – some bookshops / stationery shops will sell “do it yourself” kits.  However Solicitors and Lawyers generally find that DIY Wills have caused difficulty. They are either badly drafted or worded. Simple words may have different meanings and it’s important to get the construction of sentences correct so that the Will itself accurately conveys the intentions of the testator. Incorrect signing or witnessing can also cause difficulties, either for the validity of the Will itself, or for the beneficiaries.  By doing it yourself you might save a small amount of money in the short term but the long term effects could be catastrophic.

20. Cost of making a will

The complexity of your estate will determine the cost. However the average cost of the most common wills is €100 + VAT.  Before you make appointment it is a good idea to list the questions you would like answered as well as your instructions regarding your money and possessions.  You should also decide how you want your estate divided, as well as your choice of executors and funeral arrangements.
 
 
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