Assuming they represent good investments, it makes sense to retain the property portfolio which he has built up

THE EXPERTS' ADVICE...

Susan O'Connell:SINCE THE INTRODUCTION of divorce and the increase in second relationships and marriages, the complex issues Peter faces are increasingly prevalent in Ireland. However, taking the prudent steps of addressing these issues now should reduce the scope for future dispute.

The first step is to make a will to make appropriate provisions. This only takes effect on his death and will dispose of whatever assets he holds at that date.

If Peter were to die intestate (without having made a will), his second wife would be entitled to two-thirds of his estate and the remaining one-third would be divided between his children. Given the complex family relationships, the age of his youngest child and the possibility of his having further children, this is unlikely to be the best outcome.

In considering who he should make provision for in his will, Peter should have regard to the following issues:

First: Assuming Peter obtained a divorce from his first wife which is recognised in Ireland, she would not be regarded as a spouse and would not have succession rights to any part of his estate. However, divorce legislation allows a former spouse make an application to the Court for provision from the estate of the other former spouse on the basis that proper provision was not made for the applicant spouse during the lifetime of the other. It would be important to check the terms of the court order granting the divorce to see whether there is a possibility of his first wife making a claim against his estate.

Second: Assuming his marriage to his second wife is recognised under Irish law, she would be entitled to one-third of his estate (the legal right share) if she survives him. If he leaves her a smaller bequest, she will have the right to elect between the legacy under the will or the legal right share.

Third: Given the age of his youngest and the need to make adequate provision for his future needs, Peter should set up a discretionary trust to provide for the children of his second marriage.

Fourth: Unlike a spouse, children do not have any automatic right to a share in their parent's estate. However, under Section 117 of the Succession Act, if, on application by a child or on behalf of a child, a Court is satisfied that the parent has failed in his moral duty to make proper provision for the child, the Court may order provision to be made.

In relation to the succession plan for the future of his businesses, Peter might consider the following:

l Is it possible to retain some or all of the trading enterprises within the family circle? Would Peter be happy to transfer certain enterprises to his children and let them make of them what they will?

l Assuming they represent good investments, it makes sense to retain the property portfolio which he has built up to provide him with an income and capital assets during his lifetime to support his wife and younger children.

l The possibility of a sale of all or some of the trading enterprises. This may reduce the possibility for conflict at a future date, particularly in circumstances where his children have either no aptitude or no interest in the business. A sale would release funds to Peter which he could use to make lifetime gifts to his older children to enable them to set up in business or provide them with a nest egg.

l Depending on the decisions, there will be tax consequences. Tax reliefs are available in respect of the sale or gift of trading businesses and Peter should obtain professional advice in order to ensure the sale or transfer of the business or any gifts to children are effected in as tax-efficient a manner as possible.

Susan O'Connell is a partner in the private client group of McCann Fitzgerald Solicitors.

Teresa McColgan:WHEN IT comes to succession planning, achieving a balance between assuring the continuity of the business on the one hand, and providing for one's loved ones in a sensible and equitable manner on the other, can seem daunting. What's more, whatever decisions Peter makes, he will want the result to be achieved in the most tax-efficient manner possible and with the minimum of red-tape. Likewise, he will wish to settle his affairs in a way which reduces the potential for future disputes, litigation or, worse still, family tension.

The good news for Peter is that, now that his immediate health concerns have passed, he has ample time to sit down with his family, key employees and advisors to tease out how best to manage his eventual retirement and to come up with a plan which best reflects the needs and legal entitlements of various family members, not to mention his own wishes as regards the continuity of the business.

The fact that Peter's business interests comprise a well diversified portfolio of investments and activities will allow him great flexibility in terms of allocating wealth between various family members and devising a succession plan for the business. Peter may decide to either sell or reorganise some or all facets of the business.

The former option would allow him to realise and pass on value from the business in his lifetime while the latter would enable him to parcel out portions of the business to his various successors. In both cases, significant relief from capital gains tax (CGT) may apply, provided Peter meets certain conditions in the legislation.

If over 55, Peter may be able to avail of "retirement relief" which could reduce or eliminate CGT on the transfer of shares or assets in the business to his children or a third party. Likewise his children may be able to avail of relief from capital acquisitions tax (CAT) on the passing of business assets - up to €5 million per child may be transferred free from CAT in certain circumstances. Offsetting CAT against CGT on the same transaction might also be possible.

Of course, any sale or transfer need not take place immediately. If Peter feels that none of his children are ready to take on a role in the business just yet, a temporary solution might be to incentivise key employees (via a share scheme or performance-related bonus) to run the business after he retires. In the meantime, Peter might wish to consider whether work-experience outside the firm, professional qualifications or third-level education are options for Sean and Sarah. This would potentially leave them better prepared to run the company in a few years' time and would also leave scope for James to come back to the business at a later stage.

Whatever choices Peter makes regarding the transfer of the business, he must ensure that he has made sufficient provision for his own future and that of his spouse and young son. Peter should consider carefully what his financial needs are likely to be once he retires from the company. Value could be extracted from the company prior to a transfer in a variety of ways; for example, the payment of dividends, salary or termination packages. Investing in a pension fund is also an extremely tax-efficient manner or providing for the future.

As his youngest is only six years old, Peter may wish to provide for him by way of a trust or a family partnership. This would allow Peter to maintain control of any assets in the trust or partnership though any gains realised would accrue to the beneficiary. He should also bear in mind that there is relief from CGT for the transfer of a principal private residence. This could enable a significant amount of wealth to pass tax free.

In the event Peter waited to transfer assets under a will as opposed to during his lifetime, no CGT would arise and no stamp duty would apply on the transfer of assets. He should consider putting in place a tax-efficient will which builds in maximum flexibility to deal with his assets after his death and also an enduring power of attorney to avoid difficulties dealing with his affairs in the event of more serious ill health. In any case he would need to be mindful of the provisions of the Succession Act which can give certain family members the right to be properly provided for in law.

Teresa McColgan is a tax partner, business and wealth services with Pricewaterhouse-Coopers