Looking for advice on best way/options to manage investments after death of partner

[neo123]

Personal details

Your age: 40
Your spouse's age: 43
Number and age of children: Three (3,5,8)


Income and expenditure
Annual gross income from employment or profession: €100k
Annual gross income of spouse/partner: c€60k (income protection + illness benefit)


Type of employment - e.g. Employee or self-employed.: Employee, public sector


In general are you: Saving modest amounts

Summary of Assets and Liabilities
Family home value: €1.0m
Mortgage on family home: None
Net equity: €1.0m

Cash: €200k
Defined Contribution pension fund: c€200k each
Company shares : None
Buy to Let Property value: N/A
Buy to let Mortgage: N/A


Family home mortgage information - No Mortgage


Other borrowings – car loans/personal loans etc - No loans

Do you pay off your full credit card balance each month? Yes, paid off every month
If not, what is the balance on your credit card?

What specific question do you have or what issues are of concern to you?
Long time lurker here, and have found the advice invaluable over the years. I find myself in unfortunate circumstances, and I’m trying to plan ahead/prepare as best I can, and I would appreciate people’s thoughts.

I am not opposed to paying for professional advice or services, and might well do so in due course, but at this point just looking for some high level direction.

Relevant context is that I am an experienced finance professional, although not specifically in investments/tax etc. ie quite financially literate.

My husband has been diagnosed with terminal cancer, with which he has been dealing for the past few months. Timelines are unclear but he has perhaps as little as 6 months, but more likely 1-2 years. We have three young children under the age of 10.

My husband is on long term sick leave now, and is in receipt of income protection which will continue until the end. Between my own income and the income protection we are financially ok for now. My main query is actually in relation to what comes next…..

In the event of my husband’s death, I will receive a death benefit of 12 times salary so c€1.2m (4 * salary in cash, with the remaining 8 * salary in an ARF). In addition to this I will receive a refund of their DC pension pot of c€200k.

Summary of Position

Family Home = €1.0m

Cash = €200k (current) + €400k (4 * salary) + €200k (DC pot) = €800k total

ARF = €800k total

What are my questions?

At some point relatively soon, I’ll likely have these funds. Keen to get set up ahead of time (or at least know what I need to do). As the family income will reduce significantly, which will be offset by some level of income from the ARF (minimum 4% drawdown as I understand it), widows pension and investment income. The questions below are designed to clarify/tease out some aspects I’m unclear on, but any thoughts would be welcome.

1) Do I receive the proceeds of my husband’s DC pension pot tax free?
2) The ARF will presumably be via an insurance company giving access to range of investment options, but I’ll need to do something with the €800k cash as well.

• What is most efficient way to structure this from a tax perspective? I’m subject to tax on income at 52%, and CGT at 33% presumably so wondering how to do things sensibly
• Are there considerations as to items I should invest in via the ARF as opposed to with cash (or vice versa)
• What is the most cost efficient but secure method of investing the cash component. I’m quite financially literate, and not a particular believer in the benefits of active management. The layers of costs within insurance products/bonds puts me off but equally it offers easy diversification with perhaps simpler tax situation?
• What is the situation with the proceeds of the ARF if I was to die?
• Does this go tax free to my estate/children or is there some element of tax to pay?
• Does it make a difference that this is an ARF from the proceeds of my husband’s death, as opposed to the proceeds of my own retirement savings?

Some details have been fictionalized so not to be too identifiable, but the substantive details reflect the overall situation accurately.

 

[kickstart]

I'm sorry to hear you have to face into such a challenging situation.

On your first question, the pension will transfer to you as spouse tax free. After that (in ARF form) withdrawals are subject to normal income tax.

This Citizens Info page sets it out clearly.

 

[Brendan Burgess]

You are right to be looking for some ideas here as there may well be some tax planning and pension planning angles.

But you also need to sit down with a Chartered Financial Planner to tease out your specific circumstances. Stephen Barrett who posts here would be well placed to advise. https://www.bluewaterfp.ie/our-story/

There may be some restructuring which can be done before your spouse dies. I don't know.

One long-term issue to look at is that grandchildren who inherit from their grandparents can benefit from the Group A threshold of €335k if they are under 18 when they receive the inheritance or gift and their father has died. Don't worry about this now, but file it to look at later.

Brendan

 

[Brendan Burgess]

Group A​

The Group A threshold applies where you, the beneficiary, on the date of the gift or inheritance are:

• a minor child, under 18 years of age, of a deceased child of:
  • the disponer

So the disponer would be your husband's father or mother.

If they are still alive and giving a gift (or making their will) , it would be much more tax-effective to gift it to your children than to you.

 

[Bronte]

Neo this is a tough situation to be in, especially given how young you all are. Definitely think seeing someone like Steven Barret is the way to go. To get your head clear and focus things correctly tax wise. Get that done and then I’d just let it go and deal with the hand of cards you’ve been dealt with. For however long or short that is.

Make sure all life policies etc are in order and paid. My late BIL stopped paying as a cost saving, which was a bad decision in hindsight.

Do not make any rash decisions. Especially after the inevitable, grief takes a long time to work thru. Rash decisions like selling the house later. Or cashing something in. Best of luck.