Estate planning is best described as planning for the transfer of assets to the next generation(s) in the most tax efficient way, while talking account of the legal obligations to dependents. It is worth considering the use of trusts - for both life time gifts and for an inheritance passing under a will.
If you want to gift to your children but they are too young or irresponsible to receive your wealth, a discretionary trust has many advantages including:
(i) To ring-fence and protect certain assets
(ii) To hold asset for young children (assets either passing on death or during lifetime)
(iii) To preserve assets for future generations – rather than passing all assets to the next generation only
(iv) To provide for a child with a disability
(v) To provide for children who cannot manage their own affairs (for reasons other than a disability)
(vi) To provide for a non-marital partner
Here is a case study of Anna (not her real name) who used a discretionary trust to her and her children’s advantage
Anna is aged 55 and has three children aged 19, 22 and 26. Anna has three investment properties – total value €600,000 and has cash of €300,000. She wishes to preserve this wealth for her children and grandchildren, however, she believes property prices will continue to rise and for this reason it would be preferable to dispose of the assets now while their values are relatively. However, she does not wish to make an outright gift to his children as he has the following concerns:
(i) The 19 year old is too young and Anna has a concern that he may sell the house and mis-use the proceeds
(ii) The 22 year old is very sensible but Anna does not wish to give her an unfair advantage over her siblings by gifting the house and cash to her now
(iii) The 26 year is married with two children but the marriage is not going well and Anna is concerned that if the marriage breaks up that the house and any gift of cash would form part of a break-up settlement.
Anna decides to transfer the assets to a discretionary trust, for the following reasons.
The disposal by Anna will be a disposal for capital gains tax purposes. Anna had previously invested €250,000 in shares which are now only worth €50,000 so she will transfer these shares to the trust to generate a capital loss of €200,000 to offset against the gain.
Imelda Prendergast is Director OSK Small Business Support and OSK Contracting. It is worth considering the use of trusts - for both life time gifts and for an inheritance passing under a will – contact OSK estate planning today for more on 01 439 4200.
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