Subscriber OnlyYour MoneyQ&A

Should mum change her will now that her son has died?

Q&A: How to achieve your mother’s wish for your brother’s portion of any inheritance to go to her really depends on whether they had children

Inheritance tax law is not very generous to in-laws but grandchildren change the position with a bequest originally intended for a son but now destined for his widow. Photograph: iStock
Inheritance tax law is not very generous to in-laws but grandchildren change the position with a bequest originally intended for a son but now destined for his widow. Photograph: iStock
Dominic Coyle's picture
Dominic Coyle
Sun Sept 22 2024 - 10:00

My mother had left her estate to be shared equally among her children. My brother has died, so she is changing her will so her estate is shared equally between my remaining siblings and my sister-in-law. My sister-in-law presumably will be taxed on the basis of a much lower capital acquisitions tax (CAT) limit.

Is there any way to avoid this. For instance, if my mother left her will as is, would my brother’s portion of the estate still go ultimately to his wife, but avoid the lower CAT limit?

Mr K.M.

* This is a really good point and one I have covered a few times. For reference, the specific piece of law your mother needs to be aware of is Section 98 of the Succession Act. The critical thing here is whether your brother had any children himself before he died – either in his marriage or otherwise.

READ MORE

If he did, the part of your mother’s estate that was intended for him does not die with him. But, oddly, nor does it automatically go to those children. Instead, it goes to form part of his estate – even though this might all have been resolved many years previously on his own death.

So, if his will left everything to his wife, she would get whatever was intended for your brother from your mum.

However, while transfers between spouses are free of capital acquisitions/ inheritance tax, that is not the case here. For while section 98 of the Succession Act says the money goes to his estate, section 42 of the Capital Acquisition Tax Consolidation Act 2003 deems that your brother’s wife is taking the inheritance directly from your mother.

Confused? You should be as the two legal provisions are absolutely at odds with one another. But in better news, something called “surviving spouse relief” applies which means your sister-in-law will benefit from the higher ¤335,000 tax free allowance on anything that had been destined for her husband.

Doctrine of lapse

If he had no will, the same happens but your mother’s inheritance to him would be dealt with under the laws of intestacy, in which case his widow gets two-thirds and the children share a third.

Again this all applies only if he had children.

But if he had no children, we go back to the default position called “doctrine of lapse”. This says that where a person destined to inherit dies before receiving the inheritance, they lose out and what was intended for them goes into the residue – the part of your mother’s estate left after any specific bequests are dealt with, and subsequently apportioned in line with what the terms of her will say about the residue – excluding your dead brother.

So if your brother had children, leave things as they are but if he did not, or if your mum knows that anything left in your brother’s name would not go to his wife but she wants it to, she will need to rework the will.

The other thing she needs to consider is the tax position. Although anything left to her children will be treated under category A of the inheritance tax code with its €335,000 threshold, anything left to a child’s spouse or partner – in this case your brother’s wife – is treated under a far more modest tax-free allowance.

Inheritance tax law considers your brother’s widow a stranger to your mother – as are all in-laws. On that basis, she is entitled to receive no more than €16,250 tax-free under category C, which applies to all but close blood relatives.

And that €16,250 applies not only to anything that she inherits from your mum but also anything she might already have inherited from other people who were not her parents, grandparents, siblings, uncles or aunts.

As I say, that would only happen if your mum were to rework the will. If the amount she was hoping to give to her daughter-in-law is higher than that fairly modest tax-free threshold, one way around it would be to limit what she gets in the will to that amount and to give her a gift of €3,000 a year while she is still alive. She is entitled to do that with no tax consequences for either your mum or the daughter-in-law.

Of course, this “small gift exemption” applies only to gifts made while your mum is alive and if she were to die shortly, the exemption would do little to augment the amount left in the will. There is also the very relative issue that older people tend to have less ready cash for handing out sums such as €3,000.

Before anyone overthinks this, it is worth remembering that even over the €16,250 tax-free threshold, your brother’s widow would still get two-thirds of anything left to her by your mother, as the tax-rate on inheritances above the threshold is 33 per cent – steep but not all-consuming.

One final, final thing: there is something called a “legal right share”. Again this only applies where your brother had children and so your mother’s inheritance to him passes to his estate. Under legal right share, whatever his will says, where there are children, his wife is automatically entitled to a third of the estate (and therefore a third of your mother’s inheritance to him).

It does not follow that the children share the two-thirds: that depends on what his will said. It just covers a scenario where he drew up a will that did not give at least a third of his estate to his wife.

That’s rare. Most people default to leaving all to the spouse bar the odd bequest because it is the most tax-efficient way of doing things.

Bottom line: if he had children, your mum should not change her will; if he did not, and she wants to give her daughter-in-law something, then yes, she will have to update the will.

* This article was edited on Monday, September 23rd, 2024

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

READ NEXT