Expertise needed when planning for the inevitable
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According to Mel Mimnagh, a senior manager at Danske Bank, the foremost priority when considering passing on assets to loved ones is to be clear about what you want to achieve and not to let sentiment get in the way.
“It is important to put emotion aside and to consider treating children fairly as distinct from treating the children equally. Rather than leaving your estate in equal shares to each child, you might consider creating different assets pools for different children,” he said.
“Generally, it is prudent to dispose of assets to children sooner rather than later. Asset values, especially property, are very low now and it may make financial sense to gift assets now rather than later through your will.
The challenge here is that you may not wish to relinquish control just yet. If you have a large diverse asset base, it may be worth considering structures that allow you to transfer the ownership and value of the asset now, while allowing you to retain control.
The benefit is that future asset growth accrues in the child’s name while you retain control,” he added.
As Mimnagh sees it, there is only one thing worse than having to pay tax on an inheritance and that is having to sell the inherited asset to pay the tax.
This circumstance is particularly an issue for those with larger illiquid portfolios containing assets such as farms or businesses, where selling the assets may be inconceivable to the heirs.
Individuals can take a number of steps to ensure that their assets are not swallowed up by taxes. Be warned, however, that seeking to avoid paying CAT altogether is unwise and unlikely to succeed.
“The Government assists people to avoid paying tax through the availability of exemptions and reliefs for the family home, business and so on. You have an obligation to yourself and your family to structure your affairs in a manner that optimises your position consistent with applicable tax law,” says Mimnagh.
He adds that minimising the amont of tax to be paid should not be the overriding priority in any case.
“We sometimes encounter situations where people prioritise tax savings over strategic succession planning, such as by minimising tax by leaving a business or farming asset to all of one’s children to maximise allowances. This sharing of control of the assets between siblings may mean you pay lower taxes but can also mean that the business gets torn apart within a short period of time.”