I am a naturalised US citizen, born and raised in Ireland, and living in the US.
I will be bequeathing 50 per cent of my estate to my sister (with the goal of her passing it on to her children). If she predeceases me, it will go directly to her children per stirpes. My estate would be probated in the US (Texas specifically).
What are the tax implications for my sister inheriting funds from a relative in the US? Would it be better to divide the bequest between her and her three children (1/4 each) to reduce the tax liability? Or would it be best to bequeath it directly to them in first place?
I had neglected to even consider tax consequences until reading your column recently.
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Mr DM
The position on inheritance and taxation is very different in the US and in Ireland.
While most states in the US, including Texas, have no inheritance tax, Ireland does. It applies if the person either giving the inheritance or receiving it is tax resident or ordinarily resident for tax here.
It also applies if the property subject to the inheritance is situated in Ireland – even if neither the dead person or the beneficiary is resident here.
In general with cross-border inheritances, there are taxation agreements between Ireland and those other countries that ensure you do not pay tax twice on the same inheritance.
If the inheritance tax levied in another country is lower than the liability here, an Irish beneficiary would pay only the difference between that and the Irish liability where these double taxation agreements apply.
Where the inheritance tax bill abroad is higher than it would be here, no tax is levied here but neither do you get any refund for the amount paid in the other country that is higher than your bill would have been in Ireland.
With Texas, this is moot as you have no inheritance tax there. Apparently only five US states do have inheritance tax levied on beneficiaries.
The US also has a separate estate tax which is levied on estates of dead people which exceed a financial threshold. Again, Texas does not have an estate tax.
There is a US federal estate tax which, if you were to die this year, would kick in if the estate you leave behind is worth more than $13.99 million (€11.9 million). That is adjusted every year: the 2025 figure is roughly $400,000 up on 2024.
That’s the very cursory general picture on cross-border inheritance. So, what about the position of your sister and her children if and when they inherit from you?
In Ireland, the amount you can inherit depends on your relationship with the dead person. The highest threshold – €400,000, or about $470,000 – is reserved almost solely for children inheriting from their parents.
The thresholds fall sharply from there. With Category B – which covers inheritances received from siblings, grandparents and aunts and uncles by blood – the relevant threshold for your sister and her children – is just €40,000. That figure is halved again for more remote relatives, in-laws and friends.
And those thresholds are “lifelong” – or at least they date back to any inheritance received from people in each category since December 5th, 1991. Gifts in excess of €3,000 are covered by the same regime and thresholds.
So, assuming your sister and her children have never received a large gift or an inheritance from a sibling, a grandparent or some other aunt or uncle, they can take €40,000 tax free from you if you die this year. On anything more than that amount, they will pay tax at 33 per cent.
I say this year because, as with US federal estate tax, the threshold can rise and fall in Ireland from year-to-year although it is no longer linked to inflation or any other measure.
Would it make more sense to give it all to your sister with the intention that it be evenly distributed to her children on her own death or allocate it directly to your sister and her children individually?
Helpfully, that depends.
Upfront, it is fairly straightforward. I’ve no idea of how much money is involved here. Let’s assume the amount involved translates as €600,000.
If that is left entirely to your sister, she will take €40,000 tax free assuming she has not taken an inheritance or large gift from anyone in Category B, as mentioned above. That would leave €560,000 subject to tax at 33 per cent – a tax bill of €184,800.
After tax, she would have a net inheritance of €415,200 (€560,000 – €184,800 + €40,000).
If the money was instead split evenly and given directly in equal parts to your sister and her children, they would each get €150,000. On the same presumption as above, they take €40,000 tax free and pay €36,300 in tax on the balance of €110,000.
After tax, each would have €113,700. Between the four of them, that comes to €454,800 – or close to €40,000 more than if the money was all given initially to your sister.
Much depends on the amounts we are talking about here. If this portion of your estate comes to less than €40,000 per person, it would certainly make more sense to give it directly to your sister’s children as it would not exceed each person’s tax-free threshold. If, using our example the €160,000 went instead initially to your sister, she would pay tax on three-quarters of it before anything can eventually be passed on to her children.
And of course, if it did all go to your sister, several new factors come into play. While it is your goal that the money goes ultimately to your sister’s children, if you leave it to her it will be entirely at her discretion whether that happens and, if it does, whether it is divided equally or whether every child is included in any division.
Also, depending on what else she is leaving to her children, that money may be taxed again if it brings each niece or nephew’s inheritance from their mother above the €400,000 – or whatever the threshold in place will be at that time.
Assuming the plan is for the children to benefit ultimately, one way to avoid or reduce any future tax bill would be for her to avail of the small gift exemption which would allow her to pass on €3,000 each year to each child from your inheritance that she is managing on their behalf. That would clearly reduce any amount that might be subject to tax later on.
That is also an option for your right now if what you intend to leave amounts to more than €40,000 per person. The small gift exemption applies to the beneficiary not the donor so there is nothing to stop you gifting the equivalent €3,000 each year to each of your sister’s children from the US, reducing any eventual tax bill on a future inheritance.
You’ll need to manage exchange rates if you do that as anything above €3,000 in any year comes off their inheritance tax-free threshold.
As a general rule, the best way to reduce tax on inheritance in Ireland is to spread it widely. The more recipients, the lower any ultimate tax bill. But of course, in this case, that is limited by the size of the family whom you wish to benefit.
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, with a contact phone number. This column is a reader service and is not intended to replace professional advice
