Q I am drawing up my will and I would like to leave all of my assets to my five adult children. I intend to give all five an equal amount. However, one of the children has always been a disaster with money. He has never held down a long-term job and I know he will blow any sum of money straight away. Is there any way to leave this son his inheritance in a type of trust that releases the money gradually across his lifetime? I wouldn’t like that trust to be managed by the other children, as that would cause conflict.
Brian, Co Dublin
A You might consider setting up a discretionary trust for this child. This is one where there is no immediate benefit to the beneficiary. The trustees manage and distribute the assets in the trust, subject to the powers conferred by the deed or will.
If, for instance, there is €500,000 in your estate, you could leave €100,000 for this child, but part of the funds, say €80,000, could be put into a trust with powers given to the trustees to make a distribution to this child at the discretion of the trustees.
With the trust, you could provide a direction on how the monies are spent, whether it be on rent, a deposit for a house, electricity bills or health insurance and so on. This way, the money is protected and there will longevity to it.
In order for a trust to be discretionary, you must outline in your will where any monies left in the trust would pass after the date of your child’s death. For example, maybe any remaining funds would pass to your child’s children or partner or any surviving siblings.
You mention potential conflict between your children if they were to be involved in managing the trust. I wonder if you might consider giving some monies – €20,000, for instance – to this child straight away so that he is given some independence, even if that money could be blown? Additionally, as you indicate, there should be careful consideration as to who would act as trustees. Do you have a younger sibling or a niece or nephew who is close to this child and who may be willing to act as a trustee? You could also consider appointing a professional, but bear in mind any costs that would be associated with that. A minimum of two trustees would be necessary.
There are also tax considerations to take into account. Generally, in the case of a discretionary trust, there is a once-off discretionary trust tax, at a rate of 6pc, on the amount that initially goes into the trust and tax of 1pc per annum thereafter on the value of all the assets in the trust. There are exceptions to this, including trusts set up for the benefit of people who are incapable of managing their affairs due to physical, mental or legal incapacity, age or improvidence. Revenue provides guidelines about the meaning of improvidence, which would include an individual who is spendthrift to the point where he cannot manage his own money.
You child might fall into this category, so when making your will, you might set out in as much detail as possible your child’s relationship with money and how he might find it difficult to hold an inheritance.
‘Our 95-year-old mother wants to give us our inheritance before she dies. Would we have to pay tax on it ?’
Q My mother is 95 and is a widow after my father died last year. He left everything in his will to her. My mother has just told me and my three siblings that she’d like to give us all of our inheritance now, as a gift, rather than have us wait until after she dies to receive the money. She’s interested in dividing up cash of €200,000 between the four of us. Will we each have to pay tax on that and does my mother need to employ a professional to make a record of this gift?
Áine, Westmeath
A Your mother can absolutely give a gift to you and your siblings now as opposed to waiting to leave it to you after her death.
The only relevant tax in the case of a gift of monies is gift tax (capital acquisitions tax). But you do not pay tax on a gift if its taxable value is below a particular threshold, and the threshold depends on your relationship to the disponer (giver). The Group A threshold applies where the beneficiary is a child or parent of the disponer.
As children, you can each receive €335,000 tax-free from your parents, as long as you have not received any other gift or inheritance from them since December 5, 1991. In addition, you can each receive €3,000 each calendar year – from any person – without having to take tax into account under the small gift exemption.
You do not need to file a gift tax return (IT38) as the proposed amount (€50,000 each) is less than 80pc of your group threshold for gifts and inheritances received since 1991.
If your mum passes away within two years of giving you each a gift, Revenue will treat it as an inheritance. It would be helpful for your mum to record the gifts with a professional: this would help to avoid any confusion down the line. Your mum may have other assets, possibly the family home, which means she may need to update her will as well.
