Expertise needed when planning for the inevitable
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Few of us want to think about death, particularly our own. There are some sound reasons for doing so, however, not least the financial mess that can be avoided by getting your affairs in order ahead of time.
One particularly good reason for thinking about what happens once you’re gone is that ignoring the inevitable could mean that most of your assets get whittled away by taxes and other charges before your heirs get a chance to make the most of them.
Inheritance tax comes under the blanket term “capital acquisitions tax” (CAT), along with gift tax, which applies to any gift of money or assets made while the donor is still alive.
As the CAT rate in Ireland rose from 30 per cent to 33 per cent in the last budget and is unlikely to come down again anytime soon, some forward thinking is no bad thing.
While people often take great care to plan for their retirement by choosing capital-protected investment vehicles or keeping their money in low-risk cash and bonds, they can omit to plan as carefully for how they will pass that capital on to the next generation.
Although tax planning can be both complex and deathly dull, there are a number of relatively simple steps you can take to reduce future potential gift and inheritance tax liabilities.
The good news
First, the good news. If an individual receives a gift or inheritance from their spouse or civil partner, they are exempt from CAT. Legacies made to others may be subject to tax, but this depends on a number of factors such as the relationship of the recipient to the deceased and the value of the bequest.
There are three tax-free threshold amounts for inheritances applicable. The category A threshold, which covers gifts from either or both parents to a child, currently stands at €225,000.
The category B threshold, which includes siblings and other close relatives, such as nieces and nephews or grandchildren, is €30,150, while the category C threshold (all other individuals) is €15,075.
For anyone considering his or her future, the most essential step is to talk to an expert.
“Professional advice is essential when preparing a succession plan and drafting a will and the donor should always take the beneficiaries circumstances into account,” said Brian Purcell, partner and co-founder at Dublin-based tax consultants Purcell McQuillan.
“The parent should draw up a plan after carefully considering all of the issues and after taking advice. It’s worth remembering that a will can be amended as circumstances change and parents should review their will on a regular basis to ensure both their situation and their children’s have not changed,” he added.