Don’t bequeath a tax and legal disaster: make a will now

This time of year is all about New Year’s resolutions. For my two pence worth, one of the best New Year’s resolutions is to make a will, suggests Keiran Coughlan.

 

Astonishingly, recent research showed that only 34% of people living in Ireland have made a will.

The research, commissioned by the “MyLegacy” coalition of charities, also showed that only 51% of those aged between 45 and 64 years of age have a will, but 82% of those aged over 65 years have a will.

Meanwhile, research by Macra Na Feirme has confirmed a similar lack of planning amongst farmers, with just 62% of those surveyed for their study on land mobility and succession in Ireland having made provisions for passing on their assets after their death.

Given the significant values attributable to land and other farm assets, as well as the increases in gift and inheritance tax rates, and reductions in tax-free thresholds over recent years, the lack of planning can lead to major tax liabilities for those left behind, not to mention additional legal complications due to the requirement to extract probate, as well as leaving the door open for disputes.

A person dying without making a will is said to have died intestate.

In these cases, assets are usually distributed according to the Succession Act 1965.

Where a person is married or in a civil partnership without children, then their assets are distributed to their spouse. If a person dies intestate, who is married or in a civil partnership, with children, their spouse/civil partner gets two-thirds, with the remaining one-third divided equally between children.

In this relatively common scenario, the tax and legal complications arising can be disastrous.

Take a married farmer with a farm worth €1m with one young child, for instance, who dies without making a will. The Succession Act determines that one third of the farm, farm machinery, single farm payment and animals are attributed to that farmer’s child.

Depending on the circumstances, that child may not be in a position to avail of agricultural relief.

This may be particularly relevant in the case of minor children, who may not be in a position to farm the land or lease the land, a requirement imposed by new rules taking effect from January 1, 2015.

In these circumstances, a child may be exposed to a hefty 33% rate of inheritance tax on any amounts over €225,000.

Furthermore, the lifetime threshold of the child is exhausted, and should the remaining spouse wish to transfer their two thirds share to their child at a future date, the child will be subject to another round of gift or inheritance tax.

In the case of unmarried persons without children, who die without a will, who have brothers or sisters, the Succession Act provides that assets are to be divided equally between these siblings, or their successors if they have predeceased.

Equally in this scenario, where the successor may not be in a position to avail of agricultural relief, the resulting inheritance tax liabilities can be horrendous, because the tax free threshold for gifts and inheritances between siblings is low, with a lifetime exemption of only €30,000, and 33% inheritance tax applying on the excess.

An important part of making a will is considering the tax implications for your successors.

In the case of persons who intend transferring assets to siblings, where those siblings intend on further transferring on the assets, multiple rounds of inheritance tax can be avoided, with efficient tax planning through use of trusts or granting of life interests, or by making a will to transfer assets to the ultimate successor.

Of course, when considering making a will, it is always worthwhile considering whether it would make more sense to transfer assets while alive.

As always, professional legal and tax advice should be obtained when considering making a will.


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