As a parent with a special needs son, can I highlight the difficulties and challenges we face in relation to inheritance? Our son has a disability and is receiving a disability allowance plus has a medical card.
As parents we both are retired and our son resides with us. We do not receive one cent in carers’ allowance even though we care for our son full-time. We can accept that but it’s the inheritance tax we worry about.
Unfortunately, parents like us are never considered and many parents in our situation do not realise the implications of inheritance.
After saving and working all our lives we strive to ensure our son will be financially secure for his life. When we as parents pass, our son will be assessed by Revenue for tax purposes. Revenue makes no exceptions for those with lifelong disabilities.
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He will automatically lose his medical card – that is fact. His disability allowance will be greatly reduced if not removed. This again is fact. Disability is not a luxury, so why are the most vulnerable treated like this? Do you consider this is fair?
Furthermore, no planning or secure independent living has ever been offered by the Government. It’s disgusting and an abuse to treat our most vulnerable like this. So what do you say about inheritance tax now. Is this fair?
– SOR
Your letter highlights, not for the first time, just how haphazard State provision for some of the most vulnerable in our society is. Your worry, and your anger, will be obvious to anyone who reads your words.
For parents of anyone with special needs, fighting for things that most of the rest of us take for granted is a relentless and exhausting daily reality. And trying to plan so they will continue to be provided for as we and they would wish when we are no longer here is always a big concern.
It is a very sensitive area, even to the extent that the illustrations chosen for articles on the subject can cause confusion and distress, as I know from previous pieces I have written. Disability can take many forms and stereotypes are unhelpful. Neither I nor anyone else has any right to personal information on your son but, in its absence, I ask for your tolerance on any picture that will appear with this article.
By definition, the life of anyone in receipt of disability allowance is already limited. You can only qualify for the payment if the disability substantially restricts your capacity to work and earn a living.
The very fact that things such as access to a medical card or the regular weekly disability allowance – just €254 a week, or €13,208 a year, currently – are so important to people in this position illustrates how vulnerable they are.
That amount is over €2,000 a year less than the contributory state pension, which is considered a subsistence payment.
Yes, people in your son’s position can also qualify for the household benefits package and fuel allowance but it is a fragile financial existence – not least because the allowance is subject to a means test.
And that is the big worry for parents of people with special needs when it comes to inheritance.
[ How can I make sure an inheritance does not cost me my disability allowance?Opens in new window ]
On the one hand, as any parent would, you want to make sure that a son whose life is already circumscribed can be financially secure when you are no longer around to care for them. On the other, the very financial provision you make for them can imperil the regular State financial supports on which they rely.
Bluntly, a substantial inheritance can deprive your son of his medical card and disability allowance as he might no longer meet the means test measure attached to both. That forces people in your son’s position to rely entirely on their inheritance for daily living costs, eating into the very financial security you seek to put in place for the long term.
For those who may not be aware, how does the means test operate?
Anyone on disability allowance can, if they are able, work up to 30 hours a week. Work more than that and you lose the allowance.
Within those 30 hours, they will pay no tax on the first €165 in net earnings from any employment after PRSI, pension contributions and union dues are taken out.
Half of any net earnings between €165 and €375 a week are ignored when assessing income under the means test but once your weekly net earnings exceed €375, anything above that figure counts fully under the means test.
And then there is the means test on capital. This is the one that is more relevant for most people who have children with special needs as it directly relates to any inheritance.
The first €50,000 on any savings are exempt from the means test but you are deemed to have €1 in weekly income from the next €10,000 of savings up to €60,000, €2 on savings between €60,000 and €70,000 and €4 on anything above that.
The fact that these “income from savings” figures bear no relationship to what you could actually secure in income by investing the sum in the sort of low-risk investments that might generally be advised for someone in your son’s position is conveniently ignored by the means test and by the Government.
What it means in practical terms is that anyone with savings – from an inheritance or otherwise – of more than €126,000 will no longer receive any payment under the allowance. They could also lose their access to a medical card, though this operates on a different – and modestly less restrictive – means test.
if €126,000 sounds like a lot to some people, bear in mind that it is just a fraction of what the Government determines parents should be able to give their children free of tax or other penalty under inheritance.
It will also not go very far in providing the care your son will presumably need – and for which he will likely have to pay – once you are no longer around to care for him.
Before others remind me, I should add that the home of a person in receipt of disability allowance is also exempt, which obviously does help for those in your son’s position who live in the family home. But still.
So, is there any way around this dilemma?
There could be.
A discretionary trust can allow someone to manage the inheritance on your son’s behalf without any impact on his State supports – the disability allowance, medical card et al.
Under a discretionary trust, the named beneficiary of the beneficiary of the trust – your son in this case – has no automatic right to any specific payment. The key is in the name “discretionary”. How the money or other assets are allocated and when is entirely at the discretion of the named trustee(s).
Your son would only be held accountable under the means test to any sums he actually receives from the trust, so payments can be drip fed to ensure they do not put him at risk of losing his welfare supports.
The key thing here is who you choose as trustee or trustees. This is a formal legal arrangement under which trustees have wide powers so you want to be sure that the person or people you name as trustees are (a) people whom you are comfortable understand the needs of your son, the purpose of the arrangement and are competent to perform their duties and (b) are happy to act in the role.
There are tax implications with discretionary trusts. Generally, Revenue will apply a one-off 6 per cent tax on the value of the trust assets when it is established and a further 1 per cent annual charge of asset value thereafter.
However, trusts can be exempt from these charges in certain situations, including where Revenue is satisfied that it has been created for the benefit of someone who is incapable of managing their own financial affairs due to age or a physical or mental incapacity.
I am conscious that something I wrote previously about inheritance tax was the catalyst for your letter. However, if you do use the discretionary trust mechanism, the issue here is not really inheritance tax but the most tax efficient management of your son’s future financial security.
It will still require careful management and does limit his access to his inheritance but it appears to best solution available.
What I would say is that you really should make sure you get specific tax and legal advice on this issue from professionals in the two fields before any final decision. Assuming you choose to proceed, and that this trust will be set up under the will of the last surviving parent and not before, the accurate wordings of your wills will be critical.
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.
