Now is a good time to gift to your children.....but are they too young to receive your wealth?

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Estate planning is best described as planning for the transfer of assets to the next generation(s) in the most tax efficient way, while talking account of the legal obligations to dependents.  It is worth considering the use of trusts - for both life time gifts and for an inheritance passing under a will. 

If you want to gift to your children but they are too young or irresponsible to receive your wealth, a discretionary trust has many advantages including:

(i)           To ring-fence and protect certain assets

(ii)          To hold asset for young children (assets either passing on death or during lifetime)

(iii)         To preserve assets for future generations – rather than passing all assets to the next generation only

(iv)         To provide for a child with a disability

(v)          To provide for children who cannot manage their own affairs (for reasons other than a disability)

(vi)         To provide for a non-marital partner

Here is a case study of Anna (not her real name) who used a discretionary trust to her and her children’s advantage

Anna is aged 55 and has three children aged 19, 22 and 26.  Anna has three investment properties – total value €600,000 and has cash of €300,000. She wishes to preserve this wealth for her children and grandchildren, however, she believes property prices will continue to rise and for this reason it would be preferable to dispose of the assets now while their values are relatively. However, she does not wish to make an outright gift to his children as he has the following concerns:

(i)            The 19 year old is too young and Anna has a concern that he may sell the house and mis-use the proceeds

(ii)          The 22 year old  is very sensible but Anna does not wish to give her an unfair advantage over her siblings by gifting the house and cash to her now

(iii)         The 26 year is married with two children but the marriage is not going well and Anna is concerned that if the marriage breaks up that the house and any gift of cash would form part of a break-up settlement.

Anna decides to transfer the assets to a discretionary trust, for the following reasons.

• There is no capital acquisitions tax to pay on the transfer to the trust so the NIL rate band and the group threshold are preserved
• The assets are protected from being misused or misspent
• The assets are ring-fenced and protected for the intended beneficiaries and will survive the next generation
• The assets no longer form part of Anna’s estate
• The trustees could make income payments to the beneficiaries to use the beneficiaries personal allowances and credits
• There are no discretionary trust taxes to pay until the later of Anna’s death or her youngest son reaching 21
• Any beneficiary may be allowed to live in one of the houses and the house may be transferred free of capital acquisitions tax subject to the beneficiary meeting the conditions for dwelling house relief
• Distributions can be made to the beneficiaries at the discretion of the trustees and in line with Anna’s wishes

The disposal by Anna will be a disposal for capital gains tax purposes.  Anna had previously invested €250,000 in shares which are now only worth €50,000 so she will transfer these shares to the trust to generate a capital loss of €200,000 to offset against the gain.

Imelda Prendergast is Director OSK Small Business Support and OSK Contracting. It is worth considering the use of trusts - for both life time gifts and for an inheritance passing under a will – contact OSK estate planning today for more on 01 439 4200.

 

 

 

 

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