Your will: one of the most important documents you will ever write

Making a will: key considerations and tax implications

Making a will is one of the most important things a person can do. However, many people in Ireland choose not to make one. This article outlines the necessary steps, key considerations and tax implications involved in drafting a will.

What is a will?

A will is a legal document that outlines your instructions and wishes regarding the distribution of your assets upon your passing. It also allows you to nominate a guardian for minor children and appoint an executor to manage your estate.

Legal requirements for a valid will

To ensure your will is valid, the following criteria must be met:

1. It must be in writing.
2. You must be of sound mind when making the will.
3. You must sign your will.
4. Your signature must be witnessed by at least two people, who must also sign your will.
   

What happens to your assets if you don’t have a will?

If you have not made a will, your estate will be distributed according to the rules of intestacy. Unlike a well-considered will, these laws are inflexible and do not account for the specific needs of your family or beneficiaries.

The main rules for the distribution of assets under intestacy are as follows:

• If you are survived by your spouse and children, your spouse is entitled to two-thirds of your estate, with the remaining one-third divided equally among your children.
• If you are survived by your spouse and have no children, your spouse will be entitled to your entire estate.
• If you are survived only by your children, they will be entitled to your entire estate, divided equally among them.
• If you are not survived by a spouse or children, your estate will pass to your next of kin.

Main considerations when making your will

The Succession Act

Generally, you can leave your assets to whomever you wish, but it is important to consider the rules within the Succession Act, such as:

Rights of the surviving spouse: your spouse is entitled to a portion of your estate, known as the Legal Right Share:

• One-half of your estate if you do not have children.
• One-third of your estate if you have children.

Your spouse may choose to take what was left to them under your will or exercise their Legal Right Share.

Rights of children: a child does not have an absolute right to a share of their parent’s estate. However, a child can apply to the court if they have not been adequately provided for under the will or throughout their lifetime.

Jointly held property

When property is held jointly, your interest in the property does not pass under your will. Instead, it passes to the surviving joint tenant(s).

Trusts provisions 

If you have minor children or children who cannot manage their finances due to disability or other reasons, it may be appropriate to leave their share of your estate in a trust for their benefit. Trusts can also be useful if any beneficiaries are going through a separation or divorce.

Location of property

Consider where your assets are located. If they are in a foreign country, it may be best to have a foreign will to handle the transfer of these assets. Ensure that multiple wills do not revoke each other.

Tax reliefs 

Several reliefs can significantly reduce a beneficiary’s tax bill, such as business relief and agricultural relief (potentially reducing the CAT rate from 33% to 3.3%), and the dwelling house exemption, which can exempt the family home from CAT. Carefully consider who will receive which assets to maximise tax reliefs.

Foreign taxes

If your estate or beneficiaries are subject to foreign inheritance tax, ensure that such tax is creditable against your beneficiaries’ Irish CAT liability, or vice versa. In Ireland, there is no CAT on inheritances left to a surviving spouse, but this may not be the case for foreign assets, which could be taxed in the country where the asset is located. Proper structuring can help avoid or manage these issues to prevent tax leakage.

Irish tax implications of a will

Your beneficiaries may have to pay Capital Acquisition Tax (CAT) on assets they receive. The amount of CAT depends on the relationship between you and the beneficiary. For example, children can inherit a cumulative €400,000 from their parents without paying any CAT. Amounts exceeding this threshold are taxed at the prevailing CAT rate, currently 33%. Note that the €400,000 threshold is a combined limit for both parents.

Five actions to take today

1. Make a will: a well-considered will allows you to pass your assets to your beneficiaries in a structured and tax-efficient manner. In contrast, if you don’t have a will, your assets will be distributed under the rules of the Succession Act, which may not align with your wishes.
2. Review your will regularly: if you have a will, it is crucial to review it regularly or when family circumstances change. For example, your will can be revoked upon marriage unless it was made in contemplation of the marriage.
3. Discuss your intentions with your beneficiaries: discussing your intentions with your beneficiaries when making your will can be helpful, especially if they have a particular interest in certain assets, such as a family business or farm. Open conversations can prevent disputes or claims in court after your death and avoid costly tax implications from attempts to ‘rewrite’ your will.
4. Consider your beneficiaries’ needs and circumstances: your beneficiaries’ circumstances may change over time. Therefore, it is important to plan how best your assets will benefit them in the future. This may involve setting up a trust for distributions when needed or passing assets directly under your will.
5. Consider the tax implications of passing assets to your beneficiaries: it is important to consider the tax implications of leaving assets to your beneficiaries and to maximise valuable tax reliefs where possible. Additionally, if foreign tax is payable, ensure that a credit is available for the foreign tax against any Irish CAT, or vice versa.

We are here to help you

A well-considered and structured will can ensure that your assets pass to your beneficiaries in a tax-efficient manner and potentially reduce the likelihood of claims against your estate. It is crucial to consider the tax and legal implications of your will. Contact us today for more information about your will and how you might structure it.