Will our stepchildren lose out on inheritance?

Q&A: Has our lawyer led us astray when it comes to providing for our new family?

‘Children receiving gifts or inheritances from their parents fall into category A.’ File photograph: Getty Images/iStockphotos

‘Children receiving gifts or inheritances from their parents fall into category A.’ File photograph: Getty Images/iStockphotos

 

My husband and I are both in our 50s and got married last May. We each have two children, all of whom are in their 20s. We would like to know do they all fall into threshold A?

A solicitor told us that, if I were to die, my children would be threshold A and my two stepchildren threshold C. And if my husband were to die first, that his children would be threshold A and my two children would be threshold C?

We would like them all to be treated the same no matter when or who dies first. Could you please advise us what is the legal standing on this?

Ms O’F, email

The legal standing on this is that the solicitor you spoke to has no idea what he or she is talking about.

Every time I take a lawyer to task, I am reminded (generally by other lawyers) of all the sterling service they do. And that’s fair comment. But the issue is that, for ordinary people, lawyers command significant respect. People are generally also paying them significant money for advice that they rightly expect to be professional, comprehensive and clearly explained.

In this case, the advice given – paid or unpaid – is plain wrong.

Children receiving gifts or inheritances from their parents fall into what you were correctly told is category A. This is the most generous tax relief on inheritances and other large gifts and, at the moment, the lifetime threshold is €310,000.

This threshold might rise – the Government has indicated a desire to bring it to €500,000 – but we’ll have to wait and see whether and when that happens.

The threshold is also cumulative. So, if a child receives, say, €150,000 from one parent and subsequently gets €200,000 from the other, they will exceed the threshold.

This is a significant point in cases like yours where a child might have their own parents and then a step-parent.

And that brings us to the nub of the issue – how are stepchildren treated under the categories for inheritance tax? And it is important. While a category A relation can receive a cumulative €310,000, someone in category C is seen as having no familial relationship with the person making the gift or inheritance. The maximum that can be received over a lifetime under category C is just €16,250.

That’s a major difference, and while the Government is committed to raising the category A threshold, there is no commitment to increase the thresholds for categories B and C.

Fortunately for your adult children and stepchildren then, stepchildren are considered to fall into category A. So you can rest assured that, in your family, the children and the stepchildren are treated precisely the same for the purposes of inheritance tax.

This is actually set out at the very beginning of the Capital Acquisitions Tax Consolidation Act 2003 (Catca), in Section 2, which sets out what various terms mean. It states that a child includes a stepchild or an adopted child, so it should not have taken your legal adviser very long to check for the accuracy of any advice he or she was giving.

For your own information, it is also worth noting that, should a stepchild predecease the step-parent, any of that stepchild’s children under the age of 18 also qualify for category A.

If they are not minors, they fall into the far less generous category B, where the lifetime threshold is €32,500.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.

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