We all know how the saying goes, “Nothing is certain but death and taxes”. Most of us can accept this and move on with our lives, but something most people can’t get their head around is working your entire life, paying your fair share and then having to hand over one third of your Estate in tax. Inheritance tax (or death tax as it has been reframed by some people in the political sphere) is one of the most disliked forms of double taxation that is present in our system today.

 

When we go through a family’s Financial Plan with them the final part we cover is Estate Planning, once the majority of the plans has already been implemented. This includes projecting a family’s net worth and how it will grow or deplete over time. We will also give them an idea of the inheritance tax their next of kin will face.

 

We have noticed our clients fall into two distinct baskets when we go through the Estate Planning process.

 

  1. The “the kids will have been given enough”

These clients have spent a lot of time investing in their children over the years and are now generally ready to retire and spend their hard-earned savings on themselves. One client recently told us he wants to die a pauper, he’s spending everything or giving it away now.

 

  1. The “the government has taken enough”

These clients have worked hard their whole life and paid more than their fair share and are now very tax averse. Some would even prefer to give the money away rather than see it being used to pay another tax bill.

 

Whichever category you fit into having an Estate Plan will be of great value to your family. The simple process of taking inventory to all of your income and assets will help you get a clear picture of where you stand. The Metis LifePlan will allow you to project these assets over the next few decades of your life.

 

This will help you identify:

 

  • How much you can afford to spend each year
  • If you can afford to start transferring assets to the next generation now
  • Will there be sufficient cash in the Estate to pay an inheritance tax bill in the future.

The most common problem we see people facing is a liquidity issue. They have plenty of assets but as inheritance tax threshold have dropped in the last 10 years children do not have enough cash to pay the tax bill (even on receiving only the family home in some cases). In last month’s budget CAT thresholds increased to €320,000 for gifts from parents to children however this is more than €200,000 less than the 2009 threshold of €542,000.

 

There are couple of simple options you can implement to manage inheritance tax as efficiently as possible:

 

  1. The annual small Gift Exemption

This allows you to gift up to €3,000 per annum to any person of your choosing. For example, two parent can gift €6,000 between them to each of their children. These gifts are tax-free and do not eat in to your children’s threshold. We feel this is a real no brainer for any person once we have identified they will not need the cash to fund their lifestyle in the future.

 

  1. Section 72 Life Cover

Section 72 is often put forward as a very complex financial planning tool by advisors (we do like to make things more complicated than they are) but put simply this is a life assurance policy you can take out that will pay your children’s inheritance tax bill in the future. This option is particularly suitable for any family that has substantial non-liquid assets (e.g. property) as your kids may be forced to sell assets on short notice to pay their inheritance tax bill.

 

If you are concerned about a potential inheritance tax liability for your children we recommend you to the following:

 

  • Contact a financial planner and ask them to build you a financial plan
  • Identify what income and assets you have and project them over the next few decades.
  • Spend your money on your family first, make sure you are doing the things you love doing
  • When you have taken care of yourself then see what kind of Estate you will have left to pass to the next generation

Only at this point should you start to consider an in-depth Estate Plan.

 

Cian Callaghan
Head of Financial Planning

 


 

 

Disclaimer

Metis Ireland Financial Planning Ltd t/a Metis Ireland is regulated by the Central Bank of Ireland.

All content provided in these blog posts is intended for information purposes only and should not be interpreted as financial advice. You should always engage the services of a fully qualified independent financial adviser before entering any financial contract. Metis Ireland Financial Planning Ltd t/a Metis Ireland will not be held responsible for any actions taken as a result of reading these blog posts.

Disclaimer


Metis Ireland Financial Planning Ltd t/a Metis Ireland is regulated by the Central Bank of Ireland.


All content provided in these blog posts is intended for information purposes only and should not be interpreted as financial advice. You should always engage the services of a fully qualified independent financial adviser before entering any financial contract. Metis Ireland Financial Planning Ltd t/a Metis Ireland will not be held responsible for any actions taken as a result of reading these blog posts.