Death and taxes are certainties. But while the reality of tax hits home on pay day, death is a bit more nebulous. It’s no wonder so few of us have bothered to make a will.
Making a will ensures that, when you die, your money, property and possessions go to people that you choose. Yet oddly, having worked and sacrificed for a lifetime, fewer than a third of us seem bothered by who benefits when we're gone.
Research by insurer Royal London shows just 28 per cent of people in Ireland have a will. Taking time off work or shelling out for a babysitter to chat to a solicitor about death isn’t top of anyone’s list. But this may be one appointment, at least for your family’s sake, that you can’t afford to miss.
A will is not just about who gets what. With the right advice, you can ensure that your legacy brings the maximum benefit to those you love, avoids tax traps while minimising the possibility of dispute.
So what's the first step? If the thought of visiting a solicitor's office makes you queasy, Susan Murphy of makemywill.ie works with clients online and by phone. After taking basic details and a family outline, next is an inventory of assets – "their bank accounts, pensions, shares, credit union accounts, prize bonds in a drawer", she says.
“Do they have a property? Is there a mortgage on it? Is there mortgage protection to make sure it will be an unencumbered [without debt] asset?,” says Murphy. “ I don’t need to know amounts or account numbers. It’s really so that, if anything happened in the morning, who needs to be written to, and where the assets might be.”
Appointing the right executor is key. Guided by the deceased's solicitor, an executor's role is to ensure your wishes are carried out. Someone trustworthy, organised and sufficiently robust to withstand questions from beneficiaries is advised.
People are sometimes confused that a person in this position might not benefit from a will but there is nothing to stop an executor inheriting. Only the witnesses who sign a will are disbarred from inheriting under it.
The next step is to establish the client’s wishes, says Murphy. For a couple, there are two scenarios. “The first part would be if something happened to one of them and the second part would be if anything happened to the both of them. If people have kids, the biggest thing is guardianship.”
“People can get very flummoxed about that,” says Murphy. While you and your sister may have an unspoken agreement, your husband may have other ideas. Making a will can act as a catalyst for having those difficult but important conversations. Murphy sees parents give weight to a number of factors.
“Preferably someone local so that you are not uprooting the kids to a different school, someone your kids are already very close with and someone with fairly similar child-rearing values to you,” she advises.
If you don't have a will when you die, a position known as "intestacy", the Succession Act comes into effect. In the case of those married without a will, the deceased's spouse gets the whole estate where there are no children. If there are children, the spouse gets two-thirds with any children sharing the remaining third.
If you are not married and having no children, your estate will pass to your parents, if alive or to siblings or more remote relations. The Act has many provisions for your nearest, whether they are your dearest or not.
Which is all very well, but what if you are no longer married, or never got around to it?
“Some people might be separated, but they haven’t got a legal separation in place. If you don’t have a will, that’s a major problem,” says Murphy. If you are not legally separated, then you are legally married and your ex gets two-thirds of everything regardless of what your wishes might have been.
“People don’t realise that,” says Murphy. “They think, ‘sure won’t it be obvious that I don’t want him or her to get anything’, but unfortunately it’s not.”
Cohabiting couples need to be particularly wary. Bound together by kids, a home and a Netflix account, you might assume your partner automatically gets everything, but that’s not the case.
“They don’t get a thing,’ says Murphy. If you are in a cohabiting relationship and you die without a will, your partner has no right to any share of the estate no matter how long you have been together, apart from what was held jointly.
While lawmakers in the UK and France have stepped up to protect cohabitants, Ireland’s 152,000 cohabiting couples remain poor relations. Partners in cohabiting couples in Ireland are effectively strangers for the purpose of inheritance tax.
Even where there is a will and they benefit under it, the tax-free threshold for couples who aren’t married is just €16,250. A third of everything above that goes to the tax man (that includes the “college fund” savings account you’ve been squirrelling child benefit into). That compares to a full tax exemption for assets left to a spouse or civil partner.
The advice to cohabitants without a will is to make one. Fast. “You should outline that you are going to give them that €16,250 and then put the rest in trust for the kids,” says Murphy, “or just get married.”
In the case of a cohabiting couple, where the surviving partner inherits the family home, they may be liable for inheritance tax. This may mean selling the family home to settle the tax bill.
Those who qualify for a tax break known as the Dwelling House Exemption may be able to inherit the home tax-free. But there are strict conditions. For example, if you own or have a share in another property, you won’t qualify.
A financially dependent cohabitant may be able to apply to the courts for redress but they must have been a cohabitant for at least five years or, if they have had a child with the partner, two years.
However, if either of you is still married, then neither of you may qualify as a cohabitant until the married person has been living apart from their spouse for at least four of the previous five years. The courts will also take into account the rights of former spouses and dependent children.
The kids are alright
Children can receive tax-free gifts or inheritance from their parents totalling a maximum of €335,000 - having been raised €15,000 at the start of October in the budget. Parents with more than that to give may chose to disburse their wealth over time. They can gift €3,000 a year tax-free to their child without impacting the €335,000 threshold. This is called the small gift exemption. It is not restricted to children: you could give up to that sum to a child’s spouse, to grandchildren or indeed to anyone else, but the €335,000 threshold applies only to children.
For parents of a child with a disability, their care will be a priority. But an adult willed a lump sum by a parent may risk having their social welfare payments stopped. Setting up a discretionary trust can avoid this says solicitor Bernadette Parte of Parte & Associates.
“It allows someone you trust to give that money to the beneficiary as and when they see fit,” says Parte. “They won’t be deemed to have received the money as a lump sum and it won’t remove their social welfare benefit.”
Those who are single can plan to gift their wealth tax efficiently too, says Murphy. If the single person’s parent is living, and you have made no will, then that parent will receive everything.
Yes, they can benefit from the €335,000 threshold but this is a lifetime limit and they may already have benefited through one or more inheritances from the own parents. If, for instance, they have already received inheritances of €250,000 from their own parents and you are leaving a €300,000 estate, they face a big tax bill on everything over the €85,000 that brings them up to their tax free limit. In this case, tax of just shy of €72,000 would be due.
If you have siblings, nieces and nephews, you might want them to get something. And spreading the benefit might also make financial sense. Leaving the estate in five equal shares to the Mum and four siblings will almost half the tax bill to €36,666, or just over €9,000 for each of the siblings, assuming they have not previously inherited anything from another sibling or a grandparent, uncle or aunt. By including some nieces and nephews, all with a tax-free threshold of €32,500, the tax bill can drop from €72,000 to zero.
Where there is a family business in play, professional tax advice is a must. Bernadette Parte cites an example in which it was the unspoken understanding that two sons who worked in the business for little remuneration would ultimately take over. When the parents died in quick succession without a will, two sisters claimed their quarter share as permitted under the rules of intestacy. The family business had to be sold and the siblings have fallen out.
“The parents wouldn’t have wanted that in a million years,” says Parte. “But they hadn’t set out their wishes, so it went to the children in equal shares.”
Business Relief, claimable if you receive a gift or inheritance of qualifying business properties, can reduce taxes substantially. A family business owner categorising a property incorrectly in their will can land offspring with a whopping tax bill, however
Parte cites the real-life example of a family business comprising valuable property where a son works in the business but a daughter does not. “We can separate out that business asset by simply putting it in a separate paragraph and saying, ‘This business asset goes to my son who works in the business’. As a result, there will be a saving in that situation of a million euro.”
After family and friends are looked after, leaving a gift to charity is another option. My Legacy, an umbrella group of 65 Irish charities, encourages people to consider it. Parte, a My Legacy board member, urges donors to be specific. Is it the Irish Society for Birds or the Irish Birding Society – get the name right. "If there is any ambiguity, it may end up in court costing money and taking time to resolve."
Of course not all such gifts are motivated by altruism. “Someone may want to ensure that not a single penny goes to the taxman, so what we can do is work out what, up to the tax-free threshold, they can pass to loved ones or friends, and then maybe they will leave the rest to charity to ensure there will be no tax payable.”
What does it cost?
How much can you expect to pay for a will? Bernadette Parte charges €300 though knows others charging up to €1,000. Susan Murphy charges €135 for a single person or €190 per couple.
Make a will, make it clear and make sure it can be found as you won’t be around to direct people. And do take advice to minimise the risk of challenge. Dealing with a family member’s estate can bring out the worst in people. Legal wrangles delay the administration of your estate, rack up costs, sunder families and diminish what your beneficiaries get.
“Making a will is a really loving thing to do,” says Parte. “It gives direction to your loved ones at a time of uncertainty. It makes life so much easier for the people who are coming behind.”