Updating Will query

K

kevgaa

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Hi,

Novice at this but I compiled a fairly standard will many moons ago, basically between my wife and I whomever passed first the estate was transferred between spouses and then when we both passed split equally between our 2 kids.

All fine at the time of writing as estate wasn't large enough for inheritance tax thresholds to be a worry. However that is not the case anymore and if we leave the will as it is the kids will be left with significant tax bills.

I tried looking this up but couldn't get clarity, kids can inherit 335000 from a parent tax free. I assume that each parent?

Assuming its front each parent and the main asset will be our house jointly owned does it make more sense to alter our will that when my wife or I pass instead of passing to each other we basically leave our share of the house to our kids making better use of the tax free inheritance limits?

Seems obvious so I suspect I am missing something fundamental??

thanks
 
As Protocol has stated, each child has a single €335k threshold which covers gifts or inheritances from both parents.

i.e. the child can’t receive 2 x €335k tax-free.
 
Say your house is worth €1 million. If your will remains as is when the second parent dies, the house is sold. The kids inherit €500K each. They take the €500K-€335K-€3K = 162K and they pay tax on the €162K of 33% which is €53.5K, leaving them with €446.5K each.

If you leave them half when the first parent dies, and then the second half when both parents die, unless the house fluctuates madly in value, they will still end up paying the same tax bill of €53.5K when the second parent dies.

Two things you can do
If you have cash assets you can each give each child €3K per annum and it does no count as part of the €335K threshold. (You can see I subtracted it from my calculations above). This way each child gets €6K per year, €3K from each parent. With 2 children you will be reducing your assets by €12K per year, and depending on your ages you could shift a substantial amount of assets by the time you die.

The second thing is to be specific in your will that the house be sold and after expenses estate be split equally. This way the child will have cash assets to pay the inheritance tax bill. Otherwise they might not sell, one might move in, declare they want to buy the other out but not be able to raise a loan, anything really. But if you say sell it, then they have to follow what is stated in the will and are less likely to end up in a horrible row.
 
Thanks folks, I knew I missed something obvisious.

In essence they are at the mercy of whatever limit is set by the government at the time of our passing, currently 335k. I’ll look into the 3k annual award for each child so that’s 6k a year tax free into an account in their names.
 
Clamball said:
The second thing is to be specific in your will that the house be sold and after expenses estate be split equally. This way the child will have cash assets to pay the inheritance tax bill. Otherwise they might not sell, one might move in, declare they want to buy the other out but not be able to raise a loan, anything really. But if you say sell it, then they have to follow what is stated in the will and are less likely to end up in a horrible row.
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This approach might avert some problematic scenarios but is just as likely to cause others. For example, there's nothing to stop a disgruntled joint beneficiary from frustrating or undermining the sale of a family home or other holding by letting potential bidders know that they are not welcome to bid. Another possibility would the nightmare scenario of the forced sale of a bequeathed property in the midst of a previously unanticipated property price slump.

Even without that, in general, it's not a good idea to seek to dictate future events from beyond the grave as personal and wider circumstances can often change drastically in the meantime.
 
kevgaa said:
In essence they are at the mercy of whatever limit is set by the government at the time of our passing, currently 335k. I’ll look into the 3k annual award for each child so that’s 6k a year tax free into an account in their names.
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Bear in mind too that this concession is also at the mercy of any future government, and even any TD.

For example in the current political environment, I would think that if eg a PB4P backbencher were to propose a Finance Bill amendment to enable annual annuity-type monetary gifts to become CAT-assessable, I doubt if the Finance Minister of the day would even bother to oppose it.
 
T McGibney said:
Bear in mind too that this concession is also at the mercy of any future government, and even any TD.

For example in the current political environment, I would think that if eg a PB4P backbencher were to propose a Finance Bill amendment to enable annual annuity-type monetary gifts to become CAT-assessable, I doubt if the Finance Minister of the day would even bother to oppose it.
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It would absolutely be opposed.

kevgaa said:
I tried looking this up but couldn't get clarity, kids can inherit 335000 from a parent tax free. I assume that each parent?
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There are what are known as "Section 72" policies where you can basically buy insurance which will basically pay your kids' CAT bills when the time comes. There are previous AAM threads on this and I've never been fully convinced of the merits.

In the meantime you should absolutely utilise the €3k small gift exemption if you can which is a no brainer. Recall that both you and your spouse can gift €3k per year to both a child and a child's spouse in any given year.
 
Dr Strangelove said:
It would absolutely be opposed.
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I have my doubts, particularly if the Shinners and either RTE or the Irish Times started bleating about *tax avoidance".

In 2009, it took only a very minor hubbub to swing the ultimately ruinous clampdown on mortgage interest deductions for landlords.
 
I believe you can gift anyone the 3k euro per year. So a couple could gift the unmarried partner of a child similarly.
 
Try not to worry too much. If you have assets worth at least 670k now, then your children will be very well taken care of, even if they have to pay some tax over this amount. Chances are they will be in their 50s or 60s or even older when they inherit and should be in a good place in life. And if not, an inheritance of at least 335 will be life changing for them at that stage. Yes they might have to sell thr former family home to pay the tax. Or you might have used the family home to pay for your elder care. Set them up as best you can with education, support for career and even childcare if you can. That will be more useful to them than worrying about future taxation events that may or may not come to pass. And spend some of this wealth yourself ! Make a plan to downsize, release some cash to travel while you are physically able and maybe at the same time give them a gift during their expensive times of life eg for a house deposit.
 
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