Retired mum wants to protect children’s inheritance as she enters new relationship

My mother is retired and in a relationship, but not married. Both she and her partner own their own houses. She would like to ensure that her house is passed to her kids, without any potential interference or ownership rights, should she and her partner decide to marry down the line.

One option she is considering is transferring ownership to the kids now. Am I right in thinking that should she do so, that the value of the house upon transfer would go towards the total inheritance allowance per child (split per share in the house)? If so, is there any penalty or associated fees, for example, stamp duty, on taking this option, or are there alternative options to consider?

Would she be better to wait until after the budget as there has been rumour of a potential increase in the tax-free inheritance allowance?

Ms M.J.

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Inheritance is one of those very peculiarly personal issues in society generally, and possibly even more particularly in Ireland. And the evolution of Irish society to a place where second relationships and blended families are now a common feature makes proper planning for inheritance all the more important.

Your mother’s position is not that unusual. She has had the good fortune to find a partner at a time in life when they are both well established with independent assets and family. But she is keen that while she pursues her new relationship, the intended inheritance of her children is not jeopardised.

In her current position, the first thing she needs to do is revisit her will and ensure that it is framed in a way that ensures her wishes in this area are respected. That would generally mean an explicit wording that her family home be left to her children. If it is like many Irish wills, it will be a more broad wording that everything goes to her spouse if she predeceases him (assuming she was previously married) and, if not, that it be divided among the children.

That is on the basis that her position stays as it is – ie, that she remains in a relationship with her partner but they are not married. On that basis, they are cohabitants and your mother’s new partner has no automatic rights to any of her estate if she dies, regardless of how long they live together.

Note that I say “no automatic right”. The only thing to be aware of here is that there is provision for an unmarried partner to apply for support under the redress scheme for cohabiting couples. I would not expect this to apply in a situation where both partners have been financially independent but it is worth being aware of all the same.

The scheme essentially protects a financial dependent member of a couple who have been cohabiting for a long period if that relationship ends – either with death or beforehand. A qualifying cohabitant is one of a couple who are not married to each other and not in a registered civil partnership but living together in an “intimate and committed relationship” for at least five years.

There is a shorter two-year term but that applies only to where the couple has a child together so this does not apply to you.

Redress by way of court order is a very formal process. Your mother’s partner would need to apply within two years of the end of their relationship where both parties are still alive or within six months of probate being granted on your mother’s estate where she has died.

As I say, I would be very surprised if it applies here but it is worth being aware of as you and your mother make what is a significant decision.

The court would consider a range of factors – the financial circumstances of both parties, the contributions each made to the relationship (financial and otherwise), the length and nature of the relationship, and the rights of others, including yourselves.

Marriage

So that’s the position for as long as they are unmarried but what happens if they take that step? If she were to marry this new partner, things change on several fronts. First up, any current will she has made will no longer be valid and she will have to draw up a new will, again framed to ensure her wishes will be observed.

More importantly, marriage would give her now spouse what is called a legal right share. This is an automatic right granted to bereaved spouses to a half of their spouse’s estate where there are no children or, in cases like yours, a third of the estate where there are children – adult or otherwise.

Of course, it could be that there is plenty in your mother’s estate to satisfy this and still honour provisions in her will leaving her home to you and your siblings but, if there is not, the legal right share would take preference over the provisions of the will.

It is, of course, possible for her spouse – if they do eventually marry – to renounce their legal right share and it is something that I think we will find increasingly common going forward in the case of second relationships. However, this is a very specific legal notion and one on which both parties should consult a solicitor and ensure that any such commitment is drawn up in a formal legal manner.

You can renounce your legal right share either in an agreement before marriage or at any point thereafter.

The alternative is your mother’s current proposal – to hand over the home now to her children. If she is going to do this in her lifetime, it would probably be better for her to do so before she decided to marry, if she does proceed down that path. Once married, she and her spouse would be able to have only one principal private residence and she would be subject to capital gains tax on any increase in value of any second home on its transfer – albeit only on the portion of her ownership during which it was not her main family home.

The more critical consideration from my view is that transferring her home to her family could leave her in a tricky situation if, for any reason, her current relationship does not eventually work out. I have seen many older people form second relationships for all the right reasons but we all bring a lot of baggage with us and the older we get, the more of it there is.

Loneliness can be a terrible thing and many older people enter new relationships for the best of reasons only to find out at some point that they are not as compatible as they initially thought.

Your mother and you, her family, need to think this through before doing anything as drastic as transferring the family home. Once it is transferred, it will be up to you to decide what to do with it, including whether you want to sell it and divide the proceeds. But if you mother needs the accommodation, you may find yourselves in a position where you yourselves are building up unanticipated capital gains tax liabilities – I am presuming this will be a second property for all the children.

Taxation

On the more prosaic issues, yes, you are correct. If you mother transfers this property in her lifetime to you, the value of the portion you each receive will be set against the lifetime limit of assets that you can receive tax free from a parent. This currently stands at €335,000 and it applies to both gifts and inheritances.

You don’t say how many children there are but the family home could, it itself, bring each of you close to or over that limit. You would also need to take account of any gift over the value of €3,000 in any year that you have received from either parent and anything you may have received from your father if he has died.

Should you wait until Budget 2024 which is due to be announced in October? I wouldn’t really sweat that. It is, of course, possible that the Minister for Finance will increase the category A inheritance tax threshold governing gifts and inheritances between parents and their children but there has been similar talk every year in recent times and it has been consistently ignored by ministers in favour of other measures.

This year, with the cost-of-living issues families are facing, I expect the priority will be on lifting all boats with improved tax credits, or possibly even indexing of credits rather than benefiting a minority who are already seen as benefiting disproportionately compared with other less well-off families. But what do I know? I’m no economist and I certainly have no inside track on the thinking of the current Government or the Minister.

Personally, if it were me, I would not let the possibility of budgetary change dictate what is a big decision; there are other more important considerations as mentioned above. And even if the threshold is raised, the amount is unlikely to be life changing. When the category A threshold last moved four years ago, it went €15,000 higher; a similar move next time around would lift the threshold to €350,000, potentially saving you €5,000 in tax depending on the value of this home.

Turning to other fees or penalties, there will be stamp duty on the transfer of the property and this will be levied at 1 per cent on its market value at the time it is transferred, assuming your mother’s home is worth less than €1 million. If it is over that amount, 1 per cent is charged on the first €1 million and 2 per cent on anything over that amount.

That aside, you are only looking at any legal fees that each side would sensibly incur before taking what is a significant step.

Finally, and not directly related to your query, I would also suggest that if she has not already done so, your mother should draw up an enduring power of attorney so that if she falls ill later in life and is no longer able to make decisions for herself, she has set down who she would wish to make those decisions on her behalf and to what extent.

It might be her partner or it might be one of you, her children – or possibly both working in tandem. But, for the avoidance of confusion, distress and concern at a later point, now is a good time to put those sort of affairs in order.

It is something that everyone should consider, not necessarily waiting until they are already elderly, infirm, or in a blended family situation and there is new legislation governing the process that is more focused on the person no longer able to make all their decisions independently.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice