Getting your affairs in order

Getting your affairs in order – what to think about.

Estate planning is not just for high net worth individuals but for anyone who has assets they wish to pass on to the next generation at some point. The importance of making a will cannot be overstated and the benefits can be many. This article gives a high-level view of the considerations involved.

What is an estate?

An estate comprises of all of your assets.

What is Estate Planning?

Estate planning is essentially a plan that details:

• Whom you want to receive your assets
• How much you want them to receive
• When you want them to receive it
• The mechanism by which they will receive it

What are the benefits of Estate Planning

The primary benefits of having an estate plan are:

• It can avoid conflict between family members in the event of death
• Give clarity to those who may need long term care
• Ensure that guardianship has been pre-arranged where necessary
• You can mitigate a substantial amount of the tax liability for your beneficiaries.

Capital Acquisition Tax(CAT)

CAT is a tax on gifts and inheritances. You may receive gifts and inheritances up to a set value over your lifetime before having to pay CAT. Once due, it is charged at the current rate of 33%

Tax-free threshold for Capital Acquisitions Tax (CAT)

There are three tax free thresholds which apply for CAT purposes:

• Group A where the recipient is a child, stepchild or adopted child.  In some cases this threshold can also apply to a parent or foster child.
• Group B where the recipient is a parent, brother, sister niece, nephew or linear ancestor/descendant of the benefactor.
• Group C in all other cases

Ways to reduce Capital Acquisition Tax

• Small Gift Exemption – You may gift up to the value of €3,000 to any person in any calendar year without the recipient having to pay Capital Acquisitions Tax (CAT) on the proceeds
• Section 72 – is a life assurance policy, set up under trust for your beneficiaries. It is designed to pay them sufficient money, on death, to meet the Inheritance tax that will then arise.
• Section 73 savings plan – It is possible for a parent to save for a minimum of eight years to use the proceeds of this savings plan to pay some or all of the gift tax that might arise when they transfer an asset(s) to a child.
• Dwelling House Relief –A home can be gifted or inherited tax free where certain qualifying conditions are met
• Business Relief – reduces the taxable value of the Business, by 90% subject to certain conditions being met
• Agricultural Relief – reduces the taxable value of the property, including land, by 90% subject to certain conditions being met
• Heritage Property Relief – Inheritances or gifts are exempt from Capital Acquisitions Tax (CAT) if the item is of national historical, scientific or artistic interest, kept permanently in the state and is available to view by members of the public

Other factors to consider when estate planning

• Enduring Power of Attorney – A power of attorney is a legal document where you give another person the power to make decisions and sign legal documents on your behalf.
• Family Partnership – allows parents to transfer assets to their children today and pay tax at today’s current market values while still retaining control of the assets.
• Discretionary Trust- A discretionary trust is one where there is no immediate benefit to the beneficiary. The trustee manages and distributes the assets in the trust as they see fit.
• Long term care/Fair Deal Scheme – There is a ‘five-year look back’ rule which means that any assets which were transferred in the previous five years are considered when applying for the fair deal. This can have a significant impact on estate planning.

Each of the elements of an estate plan are an article in themselves with varying tax and legal considerations.  Seek out a Certified Financial Planner CFP® or contact us if you would like to find out more information or discuss implementing an effective estate plan.

All information and views contained within this article is for informational purposes only and the views expressed do not constitute financial advice.  U Consulting makes no representations as to the accuracy, completeness or suitability of any information and will not be liable for any errors, omissions or any losses arising from its use.  Please consult a professional financial advisor before making any financial decision.

Transform your financial life

Author – Brian Flanagan