7 Questions to ask yourself whether you've made a Will or not
One of the most common things I get asked to do is to assist someone looking to make a Will for the first time or reconsidering a Will they made a long time ago. The Irish State has rules if you die without making your Will, and this will most likely not be how you would want your estate to be distributed. A client of mine recently discovered that the woman he separated from ten years ago was going to get a big chunk of his Will. He was not pleased!! Here are seven questions that I would ask you to consider for your own situation.
1. Have I been fair? You may have left a sizeable asset like the family home to one of your children and a lower amount in cash to the other. Perhaps you thought that it was all you could do. However, you have several options. For example, you can instruct that your son Darren, who’s inheriting your home to pay cash to his brother Mike and sister Debbie, possibly by taking out a small mortgage. As the money will be passing to your other children as a result of your instruction, it will be deemed an inheritance from you and benefit from the top threshold, currently €335,000 in a lifetime, and so none of your children will pay much if any inheritance tax. You can be fair and tax efficient at the same time.
2. How can I make use of the small gift exemption? You can give anyone in the State €3,000 in a calendar year without any tax consequences arising. Over time, this can really add up. You and your partner can give a child, a nephew or a grand-daughter €3,000 each, or €6,000 in total, and over 20 years that adds up to a tax free gift of €120,000. You can also put this money into a savings plan so that your child, niece or grandson can receive this money when they’re older.
3. How much tax will the beneficiaries pay? You may not know the answer to this question, and I would encourage you to seek professional advice in this matter. There are many exemptions and reliefs from inheritance tax and there’s a common misconception that as your solicitor is assisting you in executing your Will, that they will have all the tax answers too. Few solicitors specialise in Taxation and if you have any question, I would be more than happy to talk with you.
4. How much do you trust the kids? if you pass on before your children reach the age of 18, they’ll receive their full inheritance at eighteen years of age. Will they be responsible or will they head straight for Las Vegas? They might go to Vegas with €200,000 in the bank but chances are they’ll only be coming home with a story! A huge sum like this is big responsibility for a mature adult to spend wisely, is it realistic to think an eighteen year old will be able to handle the money sensibly?
5. If you don’t believe you can trust them what can you do? You could decide to leave the money to a sibling or trusted friend? However, the tax impact is terrible. If you leave money to a sibling, then anything above €32,500 will be taxable at 33%. If you leave it to a friend, it gets even worse, tax kicks in on the excess of €16,250. What you might want to consider is leaving your estate into a trust, specifically a discretionary trust.
This is where you ask a trusted friend or family member, to act as trustee of your estate. It will be up to this trusted friend or family member to look after your children financially. The trustee can pay for the kids housing, education or anything else they might need as they grow and mature. When the time comes, when your children are thirty or thirty five, they can allocate to them what’s left in the estate.
6. Is there anything else that can be done? There are many reliefs and exemptions out there as I’ve said. It comes down to what you want and discovering what the tax consequences are. From there, you can make some adjustments and there’s a good chance that a professional can assist you in making sure you get what you want, while leaving Revenue not one red cent in your Will.
7. Is my Will going to cause a huge family argument? It might! A badly crafted Will can cause huge problems. If there’s a family business, you must take steps to ensure that your death doesn’t cause problems for your fellow business owners. The same can happen with the family farm. A family home can easily be kept in the family, but the wrong Will can force an immediate sale to pay inheritance tax bills. If any of the beneficiaries you have in mind have received gifts or inheritances from you or your wife/husband, this might change the conversation. Whenever there’s a doubt, then there is no doubt.
If you’re unsure about your Will, you can call me on 086-888-8570 and we can talk through the issues so that you make the best decisions for you and your loved ones.