Everlake Estate Planning Guide (Tax Year 2025)
Estate Planning Overview
Estate planning is the process of anticipating and arranging for the management and disposal of a person’s estate after their death. The process is carried out during the person’s lifetime with the intention of maximising the value of the estate by minimising gift and inheritance tax and other expenses The earlier that the process of estate planning begins, the better.
Estate planning should include planning for incapacity with an Enduring Power of Attorney (EPA) as well as a process of reducing or eliminating uncertainties over the administration of a probate
The ultimate goal of estate planning should be determined by the specific goals of the client, known as testamentary freedom, and may be as simple or complex as their needs dictate. Guardians are often designated for minor children and vulnerable beneficiaries.
We work closely with specialist professional advisers to ensure that you receive the most competent legal and tax advice.
Estate Planning Essentials – Wills & Trusts
Executors and Trustees
Executors are responsible for gathering the assets, discharging any debts of the estate and administering the assets in accordance with your will.
The trustees are responsible for the management and administration of any discretionary trust established under your wills.
It is usual to appoint a minimum of two people to act as both executors and trustees.
In the cases of a couple, you might note that if you each leave your entire estate to the survivor, you could decide to appoint only the survivor as executor if you wish, and then appoint alternative executors and trustees to at only on the death of the survivor.
Trustees
Your trustees will have absolute discretion as to the manner in which distributions are made from the Trust Fund.
Structuring your will in this way allows for the orderly payment of inheritance tax and also enables the trustees and your children to plan distributions from the Trust Fund so that your children receive their share in your estate in the most tax-efficient method possible and at a time when they have sufficient maturity to manage the assets in accordance with your wishes
A schedule to your will sets out the powers that your trustees will have to enable them to administer the trust. These should be drafted broadly to give your trustees full flexibility to deal with the assets that might be comprised in your estate at the relevant time.
Guardians for Minors
Guardians are responsible for the upbringing of your minor children if you were (both) to pre-decease them.
Provision for Children
Generally, any provision which you make for your children, whether it is on the death of the first or second of you, should pass to a Discretionary Trust for your children’s benefit.
If you decide to leave only a portion of your estate to the survivor of you on the first death, then the survivor can be included as a potential beneficiary of the trust. This would mean that the survivor could receive distributions from the trust fund, if necessary. You could also include charitable organisations as potential beneficiaries of the trust, as this can facilitate tax planning.
Discretionary Trust on First Death
Those who are married or in a civil partnership, should decide whether they would like to leave their entire estate to the survivor of them on the first death, or if they would like to leave a portion of their estate, such as one-third or one-half, to the survivor with the balance passing to a discretionary trust for the benefit of their children, and the survivor if they wish.
Letters of Wishes
A Letter of Wishes is a reflection of your personal wishes. It is legally non-binding, but provides guidance to the trustees and it is usual for trustees to follow a Letter of Wishes unless there is a good reason to depart from same.
Generally, these letters outline that your children should be treated as fairly as possible in the distribution of your estate.
If any of your children have any special needs or requirements, the letters outline that the trust fund should be applied to meet those needs as a priority. The letters also ask your trustees to ensure that your children have sufficient maturity before any significant amounts of capital are appointed out to them. This gives you the opportunity to set out the minimum age at which you wish your children to first receive appointments of capital from the trust.
Letters of Wishes can also outline some of the possible tax planning opportunities that may be available for your children prior to any appointment of capital to them and ask your trustees to consider these or any other reliefs prior to any appointments of capital to your children.
These letters also outline who you have appointed as guardians of your minor children and ask your guardians to involve your family, where possible, in the raising of your children if this is in accordance with your wishes.
Foreign Assets and the Law of Succession
Your will should include a declaration that you are Irish domiciled (if appropriate) and that you wish for Irish law to govern succession of your foreign assets. This wording should ensure that succession of your overseas property is governed by Irish law.
You should obtain specific advice with regard to succession of these properties in the relevant jurisdictions. In the absence of specific tax advice, you could leave these properties to the survivor of you on the first death and then equally between your children on the second death.
For example, UK Citizens holding US assets should consider ensuring a declaration is included in their will stating that UK Law should apply. The reason for this is that UK Citizens receive an unlimited spousal exemption from US Estate Taxes whereas Irish residents only receive a $60,000 exemption.
We cannot guarantee that this approach will not give rise to any adverse tax consequences in the relevant jurisdictions without obtaining advice specific to your situation. However, this approach should at least avoid any complications which could arise if the properties were left on trust for your children, as the legal systems of some European countries, such as France, do not recognise trusts.
Approved Retirement Fund (ARF) Provisions
Your Will should provide that any ARF will pass to a fund to be established for the benefit of the surviving spouse. This wording should ensure the best tax treatment for the survivor in respect of the funds in the ARF.
Regular ARF payments will stop once the account holder passes away. Regardless of whether your ARF is included in your Will or not, probate will still need to run its course before the surviving spouse or beneficiary can access the funds. It is therefore prudent to ensure that there is 12-18 months worth of cash or an emergency fund available for any financial dependents to access while awaiting probate.
Taxation
The table below summarises the Capital Acquisition Tax (CAT) rates applicable to inheritances and gifts in the tax year 2025.
Under the current tax code, no captial acquisitions tax (CAT) arises on inheritances or gifts between spouses.
Inheritance tax will arise for your children, however, when they receive an inheritance or gift of more than their tax-free threshold amount This currently stands at €400,000 for gifts/inheritances received by children from parents and €40,000 for gifts/inheritances received by grandchildren from grandparents.
This threshold applies to all lifetime gifts and inheritances received since 5 December 1991. Capital acquisitions tax is levied at 33% on inheritances which exceed the tax-free threshold amount.
Certain business and agricultural assets can benefit from relief. The effect of the relief is to reduce the valuation on these assets by 90% and to reduce the effective Inheritance Tax Rate to 3.3%. It is important to take appropriate advice to ensure these reliefs can be availed of.
Foreign domiciled individuals are only subject to Irish CAT on Irish sited assets.
There is a potential tax cost for having the flexibility of a discretionary trust, known as discretionary trust tax.
In the case of a discretionary trust set up by a disponer during their lifetime, there is an initial 6% charge which arises on the death of the disponer or, if later, when all of the principal objects have reached 21.
An annual charge of 1% arises thereafter. The 6% charge and the 1% charge cannot arise within the same year.
The 6% charge would be reduced to 3% if all of the assets in the Trust Fund are appointed out within five years of your death. The discretionary trust tax is generally not applied in the case of a vulnerable beneficiery.
Your Letters of Wishes should ask your trustees to obtain relevant taxation advice at this time in order to ascertain whether there are any ways to minimise the charge to discretionary trust tax.
Lifetime Planning
Enduring Power of Attorney
An Enduring Power of Attorney (EPA) is a document that enables you to appoint someone as your attorney who would manage your financial affairs for you and take personal care decisions on your behalf in the event that you should for any reason become incapable of doing so in the future.
You are required to give notice to two people of the creation of an EPA, one of whom must be a family member (who is not also acting as attorney).
It is usual to draft the EPA on the basis that a married couple would appoint each other as attorney in the first instance. However, this may not reflect your wishes.
It is also recommended that you also appoint a substitute attorney, who would act in the event of your attorney predeceasing you or being unable to act
Living Wills/Advance Healthcare Directives
An Advance Healthcare Directive (AHD), also known as a Living Will, is a document which allows you to make an advance expression of your will and preferences with regard to medical treatment.
The Assisted Decision-Making (Capacity) (Amendment) Act 2022 gives legal effect to AHDs. Specifically, you can refuse medical treatment in an AHD, even if it may result in your death.
Family Partnerships
A Family Partnership involves family members becoming partners in the business of investing the assets of the partnership and entering into an agreement of regulating the terms of the partnership.
A Family Partnership is typically drafted on the basis that the parents will each retain a percentage interest in the partnership and your children, or other relatives, will share the remaining equity in the partnership.
The key element within family partnerships of this type is control of the business of the partnership. This is typically achieved by way of weighted voting rights so that, while the decisions of the partnership are taken by a majority of votes cast by the partners, the parent(s) generally reserve for themselves the ultimate control of decision making by way of weighting the voting rights in their favour. Effectively, this means that you could out-vote your children in any matter and retain control of the partnership.
There are some fixed costs associated with establishing a family partnership and some ongoing costs in the form of accounting and tax compliance. Accordingly, we recommend that a partnership is formed with a reasonably substantial capital sum either by way of loans or gifts, ideally €1,000,000 or more.
Settlement for a Minor
Where a child is currently a minor, they do not have legal capacity to become a partner of the partnership in their own right. Therefore, it will be necessary for the parents to be appointed as their trustees and to hold their partnership share upon a bare trust for their benefit until they reach the age of 18.
Inter-Family Loans
Interest rates on debt are likely to be higher than savings rates available to you. If your children are repaying credit cards, car loans, mortgages, or other debts, you could consider lending them some money and replacing the role of the bank.
A typical car loan of €10,000 at 7.5% per annum means a monthly payment of €200 per month over 5 years You could lend your child the €10,000 and offer them a reduced interest rate meaning they can either pay less per month or pay the loan off early. Both parties gain from this, and you are sharing your family resources.
Of course, there is some risk with this strategy, a number of things could happen which mean you will not be repaid. For a larger loan you could insure against this, or use legal contracts, but for a smaller loan, the risk is generally worth taking.
Anyone with more than €100,000 (€200,000 for a joint account) sitting in the bank is already taking a a risk as The Deposit Guarantee scheme will not protect anything above this sum.
We believe that there are strong benefits to families who share resources wherever possible. When done right, everyone can save money and it helps to foster good financial attitudes in your family.
Taxation of Loans
When considering an inter family loan, the main thing to determine is whether you wish for the loan to be interest bearing or interest free and to consider the tax implications of each of these options.
Pursuant to s.40 of the Capital Acquisitions Tax Consolidation Act 2003, an interest free loan would give rise to a small, deemed gift to your children in respect of this free use of money on 31st December each year.
The value of the deemed gift which would arise for your children under this option will be equal to the best deposit rate obtainable for the funds. However, provided that you are not otherwise utilising the small gift exemption in a year, the deemed gift arising should be covered by the annual small gift exemption. This is €3,000 per annum or €6,000 with both parents combined (if both acting as lenders), so that no capital acquisitions tax liability should arise for your children.
As an alternative, you could provide that interest at a fixed rate (such as 1%) is to be charged under the loan but that such interest is to be rolled up and is not repayable until the repayment date i.e. either when the loan is repaid or when the loan is written off by you. This latter option would, however, ultimately give rise to an income tax liability for you in respect of the interest payable.
Lifetime Gifts & Risk of Marital Breakdown
A worry for some families when their children are younger is “what if we make a sizeable transfer now and in the future there is a relationship breakdown with their partner/spouse”
In the event that a child marries and that relationship breakdowns and ends in divorce, a court considers all the assets of the couple, irrespective of how they are acquired (e.g. their share of a family partnership). Therefore, some or all of this share (or the value of it) could be transferred to their former spouse.
One way to address this is to establish the Family Partnership by way of a loan rather than a gift. This means that the capital in the hands of the child is genuinely theirs and the loan outstanding remains repayable on demand to the parents.
So, in this instance, the original “family money” is not at risk unless the loan is subsequently forgiven and turned into a gift.
By retaining the assets, there is a reasonable certainty that the value will be lost due to inheritance tax anyway. On balance, it’s often worth gifting the assets, saving the tax, and accepting the risk of a loss due to a possible future relationship breakdown.
On balance since the risk of tax is a reasonable certainty whereas the risk of relationship breakdown is not, arguably it is better to plan to make the gift/loan. The issue is how much is the right amount.
The only way to try to protect assets is via a Discretionary Trust but that potentially has a discretionary trust tax for the privilege of 6% on the way in, plus a 1% tax charge per annum
Section 72 Whole of Life Assurance Policies
A Whole of Life Section 72 policy is a regular premium protection policy. The purpose is to provide a lump sum ‘life cover benefit’ if the life assured dies or has a terminal illness as defined in the policy conditions.
Under current legislation, the benefit payable on death will not be liable to income tax or capital gains tax, provided the policy remains in your own beneficial ownership throughout the lifetime of the policy.
Although these are popular, we believe that lifetime planning is a more effective way of addressing estate planning than a Whole of Life Section 72 policy
In occastional circimstances these policies may be suitable for those with estates comprised of large property portfolios and/or for clients with high guaranteed incomes (such as final salary pensions).
These can represent reasonable value compared to a very low risk option like cash if taken out when in good health and reasonably young age. However, in reality most individuals would be better investing their funds into an equity portfolio over their lifetime.
Conclusion
It’s never too early to begin considerations for your estate plan The earlier you begin this process, the more tax efficient your plan can become, and the more control you will have over the transfer of your assets and the preservation of your family’s wealth
We can work with your existing advisors or refer you to tax and legal professionals who we will collaborate with to create an overall estate plan that starts now and works for you into the future and after your death.
The Next Step…
The Everlake team of financial advisers is dedicated to achieving excellent outcomes for our clients. We operate at the frontier of innovation and embody a willingness to challenge the status-quo at every turn.
Our high ethical standards apply to every aspect of our relationship with you, and through our culture of continuous learning. Each member of our team is highly qualified and capable of delivering world class financial planning solutions to you.
Arrange a meeting with one of our advisors to discuss your retirement planning by emailing enquiries@everlake.ie or book a call directly through Calendly here.
We look forward to working with you.
The Everlake Team.
Disclaimer
Important
This document has been prepared for information and educational purposes only and should not be relied upon by any individual without seeking specific guidance on the suitability of any course of action for their unique circumstances.
Taxation
The level and bases of taxation are based on current legislation (tax year 2022) and may change in the future. If you are in any doubt about the suitability of these conclusions, we recommend that you consult with a suitably qualified tax adviser to confirm these assumptions. The Central Bank of Ireland does not regulate tax advice.
References to Taxation have been obtained from sources which we believe to be reliable and are based on our understanding of Irish Tax legislation at the time of writing. We cannot guarantee its accuracy or completeness.
The rates and bases of taxation may change in the future. We recommend that you obtain specific tax advice for your own personal situation. We will refer you to a suitably qualified tax consultant on request.
Investments
As with any investment strategy, there is potential for profit as well as the possibility of loss. Past experience is not necessarily a guide to future performance. The value of investments may fall or rise against investors’ interests.
Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken.
Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. We do not guarantee any minimum level of investment performance or the success of any portfolio or investment strategy. All investments involve risk and investment recommendations will not always be profitable.
Warning: the value of your investment may do down as well as up. This service may be affected by change in currency exchange rates. Past performance is not a reliable guide to future performance.
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