My late wife had what I think was a novel idea when we made our separate wills.
We made separate wills that started by giving everything to whichever of us survived the other. So I got it all when she died.
When I die, the estate is divided equally between her family and mine. As her siblings already have their own homes, she left her half to nieces and nephews.
I am now worried that it seems that I will leave half my estate to those who are not my nieces and nephews – so they will pay a lot of tax.
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So – for tax purposes – are these treated as my nieces and nephews? And if they are not, how can I minimise the tax payable
Mr MC
Wills generally need a bit more thought than they are given. Too many of the minority of people who actually do make a will tend to do so in haste, viewing it largely as an unwelcome task best sorted quickly and from which they then want to move on to more pleasant occupations.
But getting it wrong can mean that what you had intended to happen when you die is not what actually will happen. And that’s what appears to have happened in this case.
You don’t say whether you and your former wife used a solicitor to draw up your will. It would be usual to do so but certainly not compulsory.
If you did, the issue that has arisen is one that should have been apparent to them when you talked through what you wanted in advance of the will being drafted. If you didn’t, well that’s a good example of why it makes sense to pay what is, for most people, a very modest cost to ensure everything is properly in order.
Either way, it is now too late to rectify.
It is quite normal in Ireland that spouses will, in the first place, leave everything to each other. These are mostly shared possessions or wealth. Also, there is no tax in Ireland on inheritances received from a spouse.
Where a couple has children, most wills see the estate pass to them – normally in roughly equal portions – if no spouse remains alive. This, again, presents no issue as long as the children are the children of both of them or have been adopted by them. The special relationship of the nuclear family is recognised in the most generous tax relief available under Irish inheritance tax law – €400,000 currently.
After that, things can get a little messy.
After children (category A tax exemption), category B offers the next most generous tax relief (€40,000 at present) to other close blood relatives. This is generally described as siblings (brothers and sisters), grandchildren, nieces and nephews.
The first two are obvious but the third less so than one might initially think. Most of us consider our parents’ siblings and their other halves as aunts and uncles, without discrimination, but the law does discriminate when it comes to inheritance.
Only a parent’s siblings are considered our aunts and uncles, not their spouses/partners.
This means that the children of your siblings are your nieces and nephews but, certainly as far as this will is concerned, the children of your wife’s siblings are not your nieces and nephews. And that means they fall into Category C – strangers in blood – when it comes to tax exemptions.
You can still leave each of your wife’s nieces and nephews what you wish in your will but only the first €20,000 will be tax free to them – and even then only if they have not received other inheritances or large financial gifts from other people outside their very close family (categories A and B).
If half your estate (your wife’s half as you put it) was intended to go to her nieces and nephews, it may well be above the €40,000 category B threshold anyway but if you want them to have as close to that figure tax free as possible, there are two options.
[ My family lives abroad. Does that cause problems with my father’s will?Opens in new window ]
If you have the ready finances, you can gift this group €3,000 each for six successive years and €2,000 in year seven – assuming you live that long – under the small gift exemption. That would give them €20,000 tax free on top of the €20,000 they will get in the will hopefully free of tax.
As it is not covered by the rules that tot up inheritances in the same category, this approach might even be more valuable to them.
The other way requires a bit of trust but, if you don’t have the sort of ready cash for such annual gifts, it might be worth considering.
You say she never intended her own siblings to benefit from your will but you could include them – they would also count as category C – on the “understanding” that they would pass the benefit to their own kids.
It’s tricky as once they inherit, there is nothing to compel them to pass it on to their children. It is theirs absolutely. But, assuming relations between all parties are good, it might help. Any transfer from them to their kids would, of course, count as part of their €400,000 limit to those children.
As there are likely to be more kids than siblings, you might need to use both approaches to some degree to achieve your wife’s intention.
A little tricky, as I said. And also, a cautionary tale to others who might assume all nieces and nephews are equal when it comes to inheritance.
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.
