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Estate Planning

"There is nothing in life more certain than death and taxes."

Benjamin Franklin

A key to any financial plan is the preparation of a comprehensive estate plan to minimise the cost of transferring the family’s wealth to the next generation.

Estate Planning Defined


Estate Planning can be defined as; the orderly and tax efficient transfer of assets/wealth between individuals, and most commonly to the next generation.

Estate planning covers both gifts and inheritances. Trusts are equally relevant in both circumstances, as one of the main tools to facilitate estate planning arrangements.

The core elements of estate planning are legal effectiveness, tax efficiency and practicality.

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Complexities


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For many individuals, estate planning can be very straightforward.

In other cases, complexities can arise, including divorce, second marriages, non-marital relationships and children, difficult relationships with children, concerns about in-laws, children in marital difficulties, children with significant debt, children with special needs, complex asset structures, assets in foreign jurisdictions and the impact of cohabitants legislation.

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Capital Acquisitions Tax (CAT)


In Ireland, Capital acquisitions tax is payable by a beneficiary on the receipt of a gift or inheritance in excess of their available tax-free threshold.

  • The tax-free threshold depends on the relationship between the donor and the beneficiary
  • There is no capital acquisitions tax between spouses
  • The tax-free threshold of children is €335,000 (tax year 2020)
  • Close relatives such as brothers, sisters and grandchildren have a tax-free threshold of €32,500 in all other cases the allowance is €16,250
  • Any agreeable gifts or inheritances received since 5 December 1991 are taken into account in computing the available tax-free threshold
  • Capital acquisitions tax applies to both gifts and inheritances.

Reliefs and Exemptions


Dwellinghouse exemption

Since 25 December 2016 – you are exempt from inheritance Tax (CAT) on a house you inherit if all the following apply:

  • the house was the only or main home of the person who died
  • you lived in the house as your main home for the three years before the person’s death
  • you do not own, have an interest or a share in any other house, including one you acquired as part of the same inheritance
  • the house is your main home for six years after you receive the inheritance. (This does not apply if you are over 65.)

Business relief

Business relief is a substantial relief in respect of the gift or inheritance of business property. 

The legislation is complex, but the relief is designed to prevent the forced sale or break up of trading entities to pay significant capital acquisitions tax liabilities on death or lifetime transfer. 

Where available, business relief reduces the tax payable from a rate of 33% to an effective rate of 3.3%.

Agricultural relief

Agricultural relief is a relief on gifts or inheritances of agricultural property which was introduced to prevent the break-up of farms when passing to the next generation.

The relief reduces the effective rate of inheritance tax from 33% to 3.3%. The conditions for the relief have been significantly tightened up in the Finance Act 2014.

Make a Will


The first step in estate planning for most people is to make a Will.

In Ireland, the presumption of testamentary freedom is qualified by the legal right share of a spouse (one third/one half of estate) and the “moral duty” towards children.

Under Section 117 of the Succession Act, a child can potentially take an action against the estate of the deceased parent on the basis that they have not been properly provided for by their parent in accordance with parent’s means.

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The Financial-Planning Process


The list of potential issues and solutions is long, and many solutions are quite complex. You should conduct a methodical financial-planning process that includes these steps:

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Each step is carefully constructed to uncover and then address the specific challenges that you face.

Need a comprehensive estate plan?

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