Making a will is extremely important for all of us, no matter what our age. Why?

A will is the only way of safeguarding the future of those whom you care for. When you die, your affairs must be wound up. There are likely to be outstanding bills to be paid as well as property which needs to be distributed. A will can ensure that proper arrangements are made for your dependents and that your property is distributed in the way you wish after you die, subject to certain rights of spouses and children.

Without a will, the fate of your assets will be determined by the law of intestacy, i.e. your property and assets will be divided in accordance with the Succession Act which might not be what you might want. It could even result in the estate or part of it being left to the State.

A solicitor will be able to help you draft a will or you can write it yourself. However, due to the complex rules for making a will it is advisable to seek the advice of a solicitor. All too often a will can fail due to one of the rules not being correctly carried out and then later the deceased’s wishes may not be respected.

The following information has been adapted from the Law Society of Ireland’s guidelines on ‘Making a Will.’ A full copy of the brochure can be downloaded from the Law Society’s Website: http://www.lawsociety.ie

The Citizen's Information Bureau also has very helpful information on their website: http://www.citizensinformation.ie or you can phone their hepline: LoCall 1890 777 121 (Monday to Friday, 9am to 9pm).

What Happens if I Die Without Making a Will?

If you die without making a Will, the law provides that your spouse is entitled to your entire estate if there are no children. If you leave a spouse and children your spouse gets two-thirds and one-third goes to your children. If you do not have a spouse, your entire estate goes to your children.  In either event, if there are children under the age of 18 years then trustees must be appointed. If a child of yours dies before you, leaving children, then those children take their parent’s share. If you do not have a spouse or children, your parents are entitled to your entire estate. If both parents are deceased, then your estate is divided between your brothers and sisters (if any brother or sister dies before you and leaves children, then those children (nieces and nephews) take their parents share).

Where do I Start?

Record the basic information:

YOUR ASSETS, THEIR VALUE AND WHERE THEY ARE LOCATED

It is important that after your death your Executors will have details of all your assets and know where to find bank books, shares/savings certificates, deeds, life insurance policies and all relevant financial information.

NEAREST RELATIVES

Set out particulars of your immediate family, i.e. the names of your spouse, children or other dependants (including their dates of birth) or otherwise your closest living relatives and their   addresses.

EXECUTORS

Choose the person/s best suited to carrying into effect the terms of your Will.  An advantage of making a Will is that you get to choose the person/s best suited.  A minimum of two Executors are recommended and if you are a senior citizen, at least one of those should be younger than you.

PROPOSED DIVISION OF YOUR ESTATE

The usual format is:

Cash legacies (e.g. friends, charities, religious).

Bequests of specific property (e.g. jewellery, furniture, etc.). 

Any other special provisions (see “special circumstances”).

Residuary bequest (which may comprise most of your estate).

Consider the possibility that some relatives/friends may be disappointed and

think about any explanation you would like your Executors to give.

RESTRICTIONS (WHERE A WILL IS MADE)

The law imposes certain restrictions on how you may deal with your estate.  Your spouse has a legal right to half of your estate where there are no children. If there are children, your spouse is entitled to one-third of your estate. Your children are not automatically entitled to any part of your estate but they may apply to court if you fail in your moral duty to make proper provision for them in accordance with your means, taking into account their position in life.

Your spouse also has a right to require that the family home and household contents

be included in his/her share (and the share of children under the age of 18).

SPECIAL CIRCUMSTANCES / ASSETS

Special considerations arise if:

• Any of the beneficiaries are under 18 years of age 

(see “What if I have young children?”).

• Any of the beneficiaries suffer from a disability (see “Discretionary Trust”).
• A farm or business is involved or your dwelling house is the main asset (see“No cash assets” and “Discretionary Trust”).

FUNERAL WISHES

You should inform your family in your lifetime as to what your funeral wishes are, as your Will may not be read until after the funeral. If you wish to have a headstone on the grave, you should state this in the Will.

WHAT IF I HAVE YOUNG CHILDREN?

If you have children under 18 years of age, your Will should give directions for the care of those children and how they are to be provided for. Unmarried couples additionally should ensure that each of their Wills clearly states who is to have custody and guardianship of their children if one of them dies. Most importantly, both married and unmarried couples should ensure that their Wills clearly state who is to have custody and guardianship if both spouses/partners die.

GUARDIANS

A Guardian is the person you select to take over your role as parent in rearing your children under 18 years of age.

TRUSTEES

You can appoint a trustee to look after the assets in your estate; an Executor can also be a Trustee. Your Will should give your Trustees enough powers to allow them to be flexible in deciding what maintenance and other payments should be made for the benefit of beneficiaries who are under the age of 18 years or who have a mental disability.

PROVISION FOR CHILDREN

You may wish your estate to be divided equally between your children when they reach a specified age. You can arrange for them to receive an income from the estate, possibly from 18 years of age; alternatively, you may set up a ‘discretionary trust’ for your children until the youngest reaches age 18 (see “What is a Discretionary Trust? ”). Alternatively, if the children are likely to stay with a relative, consider enabling your Executor/ Trustee to advance money to the new household budget, including allowing for monies for increased mortgage payments on a larger home to accommodate both families.

WHAT IF I’M SEPARATED, DIVORCED OR AN UNMARRIED PARTNER?

Being separated from your spouse does not mean that your spouse automatically loses the legal right to a share of your estate; however, the rights may be cancelled under the terms of a separation agreement or judicial separation, or can be cancelled by court order when there is a  divorce.

In the case of divorce, a former spouse who claims that proper provision has not been made for him/her may apply to court for a share of the deceased’s estate within 6 months from the date of grant of probate or grant of administration.

Personal representatives are required to make reasonable attempts to notify the former spouse. A share will not be given to a former spouse who has remarried.  The same rules apply to a separated spouse.

In the case of unmarried partners, the “partner” will have no succession rights and will therefore be limited to whatever rights he/she may establish in contract (e.g. where he/she has financially contributed to the purchase of a property) or where he/she is entitled under your Will.

WHAT IF I HAVE NO CASH ASSETS?

If your only asset is a house, business or farm and you do not have sufficient cash, you can leave the house to a particular beneficiary on condition that the beneficiary arranges for legacies to be paid to other beneficiaries. In the case of an elderly relative, you could consider leaving the house, business or farm to them for their lifetime and state in your Will what you want done with the property after their death.

WHAT IS THE SIGNIFICANCE OF JOINT PROPERTY?

Property held jointly (rather than in separate shares) passes on to the survivor where there is clear evidence that this is intended.  However, there are legal rules which may prevent this.

With bank accounts, it is not unusual to open a joint account for convenience (e.g. where the original account holder is elderly or immobile to enable a relative to pay bills) or for a specific purpose (e.g. to pay for the funeral).  It is therefore important when opening such accounts to specify in writing whether it is intended that the survivor is to keep the money or whether you wish the balance in the account to form part of your estate and pass under the terms of your Will. You should take specific steps to ensure that your intention is perfectly clear as to what is to happen to the account on your death.

WHAT IS A DISCRETIONARY TRUST?

This provides your Trustees with full power to apply capital and income at their discretion for the benefit of your beneficiaries. This may mean that some beneficiaries will receive more than others - that is up to the Trustees to decide.  A discretionary trust can be useful where beneficiaries are young, suffer from a disability, are elderly, for a dependant relative and for tax planning purposes for larger estates.

CAPITAL ACQUISITIONS TAX

Capital Acquisitions Tax (CAT) is a tax on gifts and inheritances. Inheritance tax may have to be paid if property is inherited on the death of any person (e.g. under a Will or on intestacy). Gifts and inheritances between spouses are exempt

TAX FREE THRESHOLD

A gift or inheritance from a spouse is not liable to inheritance tax. This will only apply to a legal spouse, and to divorced persons in certain circumstances. A “partner” is treated as a stranger for tax purposes. If you leave property by Will to someone other than a spouse then the first portion, known as the tax free threshold, is taken free of tax. The amount of the tax free threshold depends on your relationship to the beneficiary and will also depend on whether any other benefits have been received.

If you leave property to a child, or a minor child of a deceased child, or in certain circumstances to a parent or foster child, then up to €496,824 may be taken tax free.

If the property is left to a parent, brother or sister, niece or nephew, or grandchild, then up to €49,682 may be exempt from tax, and if property is left to anyone else (for example a friend or “partner”) then there is an exemption of up to €24,841 without paying inheritance tax. 

However, if a person has received other gifts or inheritances since 5 December 1991 they are added together (aggregated) according to certain rules relating to the date on which the gifts were received and from whom they were received.  The effect of this may be to reduce or remove the tax free threshold available. If aggregation does apply, then the tax bite may prove disproportionate and professional advice should be sought.

These tax free thresholds apply in 2007. The amount of each tax free threshold is increased every year in line with inflation.

WHAT HAPPENS AFTER THE TAX FREE THRESHOLD IS USED UP?

Inheritance tax is paid on the balance of the inheritance at the rate of 20%.

VALUATION DATE

The date for payment of inheritance tax (the valuation date) depends on the circumstances of each case.  Tax must be paid within 4 months of the valuation date (the date the tax is due) and interest on overdue tax is payable at a rate of 0.0273% per day.

EXEMPT PROPERTY

In some circumstances certain types of property (e.g. government stocks) left to

persons who are not resident or domiciled in Ireland, or heritage property, may be

exempt from CAT (See section on dwelling relief).

CHARITABLE BEQUESTS

Bequests made to charities, including religious bodies, may be exempt from tax.”

HOW CAN THE IMPACT OF INHERITANCE TAX BE REDUCED?

It is important to plan the passing of your assets so as to minimise the tax that your beneficiaries have to pay.

Step 1 Look at the reliefs available.

Step 2 Look at dividing up your property to use all available tax free thresholds.

Step 3 Look at providing a fund to pay CAT (insurance).

WHAT RELIEFS ARE AVAILABLE?

AGRICULTURAL PROPERTY

At present, to qualify for agricultural relief, 80% of the beneficiary’s property (after a gift/inheritance) must consist of agricultural assets. The value of the agricultural property he/she receives is discounted by 90% when making the CAT return.

BUSINESS  PROPERTY

If business property, which would generally include assets such as a business or shares in a family company, is inherited, then the beneficiary may be entitled to claim business relief so that the value of the business property inherited is reduced by 90% when calculating the inheritance tax (if any).

FAVOURITE NEPHEWS/NIECES

If the beneficiary is a nephew or niece who worked full-time in the business with you for five years, and you leave the business to him/her, then he/she will be entitled to the same tax-free threshold as a son or daughter in relation to that property.

DWELLING EXEMPTION

If you leave a house or apartment to a beneficiary who has continuously occupied it as his/her main residence for a period of three years immediately before the date of your death, and he/she continues to occupy it for a period of six years after the date of death, then such a beneficiary will be exempt from tax on the value of the house provided all the conditions for exemption are complied with.

MINOR CHILD OF DECEASED CHILD

If you leave property to a grandchild who is the child of a child who has predeceased you, and the grandchild is under the age of 18, then that grandchild will be entitled to the same tax free threshold as a child.

SURVIVING SPOUSE RELIEF

If property is left to the spouse of a deceased member of your family, that spouse will  be entitled to the tax free threshold amount that the deceased family member would have been entitled to in relation to that inheritance.

NB: Each relief has conditions that must be met.  Professional advice should be obtained when considering whether a particular relief is applicable.

OPTION OF GIVING A GIFT (other than by will)

If a gift is given then a small gift exemption can be claimed.  The current Small Gift Exemption is €3,000 from any one person in any one calendar year.  A gift is ideal for property that is likely to increase in value. NB: Gifting property may trigger a liability to Capital Gains Tax or Stamp Duty and professional advice should be sought.

DIVIDING UP PROPERTY

If you divide your property among the family of the person you wish to benefit, the tax free thresholds available are multiplied accordingly. For example, if, instead of leaving property to your daughter, you should consider leaving the property to your daughter, son-in-law and three grandchildren.  Each person may have available to them an individual tax-free threshold amount, without triggering a tax liability.

PLANNING FOR THE PAYMENT OF TAX

If inheritance tax is going to arise on your estate then you might consider taking out an insurance policy (called a section 72 or 73 policy) the proceeds of which are exempt from inheritance tax if used to pay inheritance tax.

DISCRETIONARY TRUST

A discretionary trust can be useful where the person making the Will wants to benefit a wide group of people (for instance to include grandchildren, persons not yet born and future spouses) and would like to provide for some flexibility as to who should benefit or the amount they should be given. At present, discretionary trusts are liable to a once off tax of 6% on the death of the person creating the trust, once his/her spouse, and all their children are over the age of 21.  There will be a refund of 3% if the trust is distributed fully within 5 years. There is a further payment of 1% due on 1st January in each succeeding year each year following the year in which the payment of 6% is made (i.e. the first year).

Recommended Reading:

'Make Your Will, The Irish Guide to Putting your Affairs in Order' John G.Murphy & Jason Dunne (Liberties Press, €9.99)

'Inheritance and Succession, the Complete Irish Guide" John G. Murphy & Jason Dunne

(Liberties Press, price: €13.99, paperback).