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Are foster children still left out in the cold when it comes to inheritance?

Q&A: Dominic Coyle

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Dominic Coyle
Tue Apr 20 2021 - 05:59

I have recently discovered that foster children who have not been adopted by their foster parents are treated as strangers in law for the purposes of inheritance.

Many children in foster care are fostered by couples who have no children of their own. In many cases the children concerned have been with their foster parents from early infancy and have lived with them as a family for lengthy periods.

As “strangers” in law, in the event of the parents’ death the foster children may be threatened with loss of the family home through inability to pay the CAT due if it is left to them. Foster parents and children will have developed strong familial bonds over the years and it is frustrating for the foster parents to know that they cannot continue the care that they gave by leaving them a reasonable inheritance.

To me, this is morally wrong, and contrary to good public policy. Is there anything that we can do?

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Mr P.K., email

Close to 6,000 people are currently in foster care in Ireland according to the child and family agency, Tusla, cared for by just over 4,000 carers. That means there could easily be 20,000 people or more who would find themselves affected by rules on inheritance – and that doesn't include those in informal fostering arrangements.

It is certainly the case that foster children were treated very much as the poor relation for many years

The good news for most of those people is that, in relation to inheritance tax, the position is not as you have been led to believe, at least not any more. But a lot does depend on the precise nature of the foster care – most particularly the occasionally haphazard and informal nature of Irish fostering.

And if the foster parent does not make a will, it remains the case that foster children can be left with nothing. Everyone should make a will but it is even more critical for foster parents who wish to include foster children in any estate.

It is certainly the case that foster children were treated very much as the poor relation for many years. Where they inherited from a foster parent, they were indeed treated as “strangers” in law and thus able to avail of only the lowest Category C threshold, currently €16,250. That compares to the Category A threshold that applied for natural children – €335,000 in current terms.

It’s not hard to see how foster children – often, as the reader comments, much loved family members over many years – would feel hard done by and their foster parents distressed.

There was a very active campaign in the 1990s to address what was largely perceived as an unjust position. There was also a lot of foot-dragging by government.

In 1996, in a parliamentary answer, then finance minister Ruairí Quinn noted that broadening the Class A threshold “could have serious Revenue implications”.

Given the relatively small numbers likely affected in any given year, this was clearly nonsense and simply an administrative device to long-finger any decision.

More reasonably, given the Irish history of fostering by relatives, he worried that the “precise legal definition of long-term foster care may also prove difficult to answer”.

In the end, the government did move to recognise the unfair position in its 2001 Finance Act. From that time, under Foster Care Relief, certain foster children are treated identically to natural children when it comes to tax. But others aren’t.

So who benefits from the current rules...and who remains outside the fold?

Different rules

This is where things can get a bit niggly. For instance, the rules can differ depending on whether you are formally or informally fostered and also between inheritances and other gifts a foster child might receive during the lifetime of the foster parents.

If a child has been formally fostered under either of the Child Care (Placement of Children in Foster Care) Regulations 1995 or the Child Care (Placement of Children with Relatives) Regulations 1995, then they appear automatically to enjoy the same rights as natural children when it comes to an inheritance from a foster parent, according to Revenue.

However, in relation to gifts valued at more than €3,000 from a foster parent to a foster child, additional criteria must be met.

First, while they were under the age of 18, the foster child must have lived with this foster parent for at least five years and, second, the foster parent must have met the cost of such care.

Two things are worth mentioning here. For many foster children, the five-year (or longer) period will occur in one spell. However, even if that is not the case, the criteria is met if, added up, the periods the child spent living with the foster parent before they became an adult comes to at least five years. Clearly, the gift or gifts can be given either while the child still lives with the foster parent or later in life.

In relation to the requirement that the foster parent meets the cost of care for the child, this is not undermined by the foster care allowance that is given to foster parents to meet the cost of caring for a child (or some of it). The allowance is, I gather, €325 a week for children up to the age of 12 and €352 thereafter up to 18. It can be extended to the age of 21 if the foster child continues in full-time education.

Child benefit is also payable if the child is with you for more than six months and, again, this has no bearing on the tax status of any gifts given to the child as long as the other criteria are met.

In the case of children that have been fostered informally – which was traditionally the more prevalent form of fostering in Ireland – they need to meet both the residency and the financial burden criteria above for both inheritances and gifts.

This can be more of an issue where a child’s natural parents or other relatives help the foster parents meet the cost of caring for the child.

While foster children are now generally treated equally for tax purposes when inheriting under a will, they appear still to lose out where no will is made

Revenue also says that, for foster children to secure relief – i.e. to be treated under the higher Category A threshold alongside natural children – two witnesses are required to testify that they meet the criteria. This seems a bit heavy-handed, especially for formal fostering where Tusla is well aware of the status of the fostering.

Anyway, the bottom line is that, since 2001, many foster children will be treated equally with a foster parent’s natural children when it comes to inheritance and tax.

Those that continue to lose out include children that are fostered informally for less than five years for whatever reason. These continue to be treated under Category C for inheritance tax purposes where their foster parents include them in a will.

And it is worth repeating that, while foster children are now generally treated equally for tax purposes when inheriting under a will, they appear still to lose out where no will is made. In such cases, the Succession Act comes into play and, while it does make specific provision to provide for adopted children, there appears to be no similar provision to allow foster children inherit from a foster parent in the absence of a will, even where they have been long-term and much-loved members of the the family.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into

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