Have you talked to your parents about inheritance?
It’s not the easiest conversation to have. Death isn’t top of anyone’s topic list, and no one wants to come across as the money-grabbing child.
Recent figures, from stockbroker Goodbody, reveal billions in wealth held by retired households here will transfer in the next two decades. Children aren’t necessarily the automatic beneficiaries, they should note. Where there is a will, children have no absolute right to any share of their deceased parent’s estate.
Having the talk with parents about their estate can spare a family some surprises. It can also prevent unintended consequences and disputes, and probably save some tax.
The great wealth transfer?
Ireland’s retirees may not recognise themselves from recent headlines about the “great wealth transfer”.
Retired households here have some €295 billion in accumulated wealth, according to a report published earlier this month by Goodbody. Some retirees may be scratching their heads as to where exactly their share is – it’s very likely they are living in it.
The vast majority of Ireland’s retiree wealth is tied up in housing – some €201 billion, according to the report. Rapid increases in house prices have added significant sums to this figure.
But retirees also have another €51 billion on deposit, €20 billion in financial investments such as shares, bonds, etc, and €23 billion in business wealth, according to the Goodbody analysis.
“Collectively, those in both the ‘boomer’ generation, aged between 61 and 79, and the ‘builders’, aged over 80, have accumulated vast amounts of assets such as property, pensions and shares,” says Goodbody.
A “great transfer of wealth” will occur in the next 20 years, it adds.
Children have no absolute right to any share of their deceased parent’s estate. They can make an application to the court, however, if they feel their parent has failed to make “proper provision” for them in their will.
Where there isn’t a will, the Succession Act kicks in. In the case of those married without a will, the deceased’s spouse gets the whole estate where there are no children. If there are children, the spouse gets two-thirds, with any children sharing the remaining third.
Talking about an estate is not just about who gets what or how much. It means those coming after can be clear about parents’ intentions, whatever they might be.
Taxing times
Talking about inheritance might not be easy, but dealing with a parent’s estate when you are grieving will be hard, too. You may be lucky to be a beneficiary, but this can come with some unexpected consequences.
“An important point in relation to gift and inheritance tax is that the beneficiary is the one that is liable to pay the tax,” says Catriona Coady, head of tax at Goodbody.
Under inheritance rules, children can receive tax-free gifts from their parents totalling a maximum of €400,000. This is a lifetime limit.
“Sometimes there can be the misconception that the main residence of your parents can be inherited tax-free, but that’s not the case,” says Coady.
Take, for example, two siblings inheriting a home worth €1 million. As child beneficiaries of the deceased, they are entitled to inherit €400,000 tax-free. Anything inherited above that amount is taxed at 33 per cent.
The siblings would each be liable to pay €33,000 in tax. And it may have to be paid sooner than they think
If the siblings plan to sell the home, it can take some time. Particularly if the homeowner has not made a will, or made it unclear.
Without a will, one of the children may decide to take out a grant of administration, [the name for the intestate grant of probate], but others may not agree. A house will remain unsold until beneficiaries can sort out disputes. Meanwhile there’s a tax bill.
“You may end up having to pay the tax in a relatively short period of time, depending on when the valuation date falls,” says Coady.
The date the grant of probate issues dictates the date you have to pay tax. If the grant of probate issues on August 31st, 2025, for example, you have to pay capital acquisitions tax on or before October 31st this year. If the grant of probate issues on September 1st, beneficiaries have until October 31st, 2026, to pay the gift or inheritance tax.
A clear will can keep beneficiaries on the straight and narrow.
Cash
Where a parent has a cash pile, they must examine their own needs first, of course, before considering beneficiaries.
They should examine their annual living expenses, assets and liabilities and assess their cash requirements for things such as travel or long-term care if they think they will need it, says Coady. They may want to look at investing, too.
If a parent wants to transfer any remaining funds to children or grandchildren, families should discuss it.
Children can receive tax-free gifts or inheritance from their parents totalling a maximum of €400,000. Parents with more than that to give may choose to disburse their wealth over time, or broaden the pool of beneficiaries to grandchildren.
They can gift €3,000 a year tax-free to their child, using the small gift exemption, without affecting the €400,000 lifetime threshold. They could give up to that sum to a child’s spouse, to grandchildren or anyone else, too.
Family loans
Loans are a popular way to support family members. If an interest-free loan is given, it is a gift on which tax must be calculated and paid if due.
The value of the gift is calculated based on the highest rate of return the person making the loan could get if the funds were invested on deposit. The gift element is the amount of interest sacrificed by the parent.
If a child received a very generous €300,000 interest-free loan, for example, and the deposit interest rate was 0.75 per cent, the annual value of the gift of the free use of money would be €2,250.
As this doesn’t exceed the €3,000 small gift exemption, there’s no gift tax charge and it doesn’t eat into the child’s €400,000 tax-free lifetime threshold.
“Where both parents are alive, they can lend money to a child in a loan which can be written off over a number of years, using a combination of the available tax-free threshold and the annual small gift exemption of €3,000,” says Coady.
If the loan is forgiven – that is, the parent indicates either in their lifetime or in a will that it doesn’t need to be paid back – there will be gift or inheritance tax implications.
Family partnership
Estate planning is about looking at opportunities to protect assets as they move from one generation to the next, says Coady.
“That’s not just about tax, it’s about protecting the assets that have been built up and making sure they provide for future generations.”
A family partnership is a structure that can work for larger sums, or where there is concern about children having access to funds. Cash and assets can be contributed to the partnership and children can benefit them, without control being passed.
No tax arises if the €400,000 threshold has not been previously utilised or exceeded.
“Future growth in value of those assets accrues free of gift or inheritance tax in the children’s or grandchildren’s names,” says Coady.
Take, for example, €800,000 cash invested for two children via a family partnership in 2025. This grows to €1 million by 2031, assuming a rate of 4.5 per cent. There is no capital acquisition tax (CAT) payable by the children on the €200,000 growth.
The family home
Property is a big part of personal wealth in Ireland. How to avoid forced property sales to meet gift and inheritance tax is a question that comes up a lot, says Goodbody.
The dwelling house exemption means a property can be exempt from CAT under some conditions.
In the case of a gift, the tax exemption applies to a beneficiary with a physical or mental incapacity, who has continuously lived in the house as their main residence for three years before the gift.
In the case of inheritance, the exemption applies where the person providing the inheritance and the beneficiary have lived together in the same house for three years immediately before the date of inheritance.
An important caveat is that the beneficiary must not, at the date of the gift or inheritance, own any other house or hold an interest in one in Ireland or abroad. They must also continue to occupy it as their main residence for six years.
Where a child in the family is vulnerable, a “right of residence” can be a way to protect them in their lifetime, says solicitor Niamh Moran of Carmody Moran Solicitors.
“It’s worthwhile for a parent to inform the family so that they are very clear what your intention is. Arrangements like that tend to work well where there is broad consensus,” says Moran.
Family dynamics
Family structures have evolved. Parents and children who are cohabiting, separated or divorced are now part of the mix of many families, as are stepchildren.
Where a member of the family is informally but not legally separated, they remain legally married. This can leave the door open for claims and grievances down the line.
“You do need to be aware of claims that can be made on the end of a relationship, be that through its breakdown or through death,” says Coady.
“Also, where a child owns a property with a qualifying cohabitant, the cohabitant may be having to pay a tax bill in respect of a property that they inherit from another,” she says.
Making a will
If parents do nothing else, they should make a will, says Moran.
“It gives a roadmap to children of what the parents would like to happen. Without it, there can be a lot of confusion, and there can be rows,” says Moran. “These can arise just because nobody knows what to do.”
A will is particularly important if there is a vulnerable person in the family, such as someone with a disability or someone with addiction issues
A family needs to think carefully about executors, too. A parent doesn’t have to appoint a child and, in bigger families, they shouldn’t appoint all of the children.
“Two heads are probably better than one and you are better off having someone who is methodical, good with figures and calm,” says Moran.
Bank account numbers, policies, savings bonds, passwords – families should talk about making a list of things and keeping it where an appointed person can find it, says Moran.
“Families put off doing these things and it becomes a much bigger deal,” says Moran. “The earlier you have these conversations, the easier it is.”
