Can you afford to leave an inheritance?

The recent programme for government published this week included a commitment to increase the tax-free threshold for children inheriting from their parents to €500,000. It is currently set at €280,000, after which a tax rate of 33 per cent applies. This combined with a recent article by Louise McBride got us thinking about your inheritance.

Many parents will now face the reality that they will have little, if anything, left to pass onto their children. The cost of living has been rapidly increasing in recent years, this coupled with the enormous healthcare costs and longer life expectancy has made enjoying your retirement a tad bit more expensive. Your increasing longevity will no doubt swallow any inheritance cash you had been planning to leave to your children. So, how do we navigate these uncertain times? It’s quite simple actually.

Be Selfish

You’ve probably worked your entire life saving money towards your pension to be able to maintain a reasonable standard of living in retirement. Look after your own needs first and then take the view that your children will get what is left over. Despite certain perceptions, retirement is the time to enjoy life to the full. Go on those holidays you never went on, travel the world, build a castle and buy that Lamborghini you’ve always wanted. As our life expectancy increases the odds are by the time you are 80 or 90, your children may already have fully grown children of their own, or at least be somewhat financially independent. Either way, the inheritance you leave your children should not be at the expense of your own retirement.

Make a Will and be Concisetoysfight

Inheritances can often spark bitter family feuds. There have been several occasions where some children do not feel they have gotten a fair share. We recommend that you try not to leave children co-owner of assets or businesses. Ideally, when you transfer the possession of something, make sure the child will be the sole owner. This is often impracticable, but if you find yourself in a situation where you feel you have no choice, lay out rules for conflict resolutions in your Will. At least then there is no ambiguity.

There are quite an amount of individuals who pass away and do not have a written Will, dying intestate. Do your children a favour and write a Will. Write it now if you can, because while we don’t particularly like thinking about death, it often happens unexpectedly.

If you don’t know much about Wills or how to make one, we recommend you consult a solicitor. We know of several fantastic solicitors which we can refer you to, if you are stuck. Just send us an email. For general information, go to http://www.citizensinformation.ie/en/death/before_a_death/making_a_will.html

Be Tax Efficient and Budget

The planned tax relief will give a break to many middle income families, but there are still individuals who will trigger high inheritance tax bills upon their estates. So good estate planning is crucial. Avoid leaving assets which trigger a high tax rate on your inheritance. Some assets such as family farms and businesses are not subject to high gift or inheritance tax. Get up to speed on the exemptions which you can get. Also remember that if you start to pass on significant assets to your children when you are alive, it may lead you to end up with a large Capital Gains Tax.

Prepare for the Unforeseen

First of all, get health insurance. The older you get the more important this will become. If you have health insurance or are looking to get it; I highly recommend that you get independent advice on the cheapest option and best option available for you. Luckily Alpha Health provide all this advice for free, which ensures that your money stays where it belongs: in your pocket. Overall, health insurance will save you scandalous hospital bills and protect you in the event of the unforeseen.

THE HARDESTWhat happens if your children cannot look after you for various reason and you are incapable of doing everything yourself? This happens. Nursing home bills can be costly, but it might be a necessary evil. (Not saying there is anything wrong with them)

Under Fair Deal (State scheme to provide financial support), some of your assets may be sold to repay nursing home bills when you die. Taking advantage of the tax relief on nursing home expenses is one way you could limit the impact of nursing home bills on your children’s inheritance. You can claim back two-fifths of the cost of nursing home bills in tax relief. You must be a higher-rate taxpayer to be eligible for the top 40pc rate of tax relief. If you are not a higher-rate taxpayer, you will only get 20pc tax relief on your nursing home expenses.

All things considered, be smart and enjoy your retirement. I will end with this quote… Orlando Aloysius Battista once said that; “the best inheritance a parent can give his children is a few minutes of his time each day.”

 

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