Jill Kerby

 

WHERE THERE’S A WILL THERE’S A RELATIVE:  GOOD PLANNING WILL HELP KEEP EVERYONE HAPPY

 

Leaving part of one’s estate to loved ones is a very Irish trait and is rooted in both our love for the land – even if it is only a little patch of city garden and bungalow -– and our close family ties.

The Celtic Tiger years prompted many early an inheritance.  Parents and grandparents gifted down payments to the next generation or went guarantor on high-end mortgages that were otherwise unaffordable, and unfortunately proved to be so a few years later. 

For many older people these early inheritance gifts turned out to be a seriously expensive mistake: not only was the homebuyer left with negative equity but the giver’s personal balance sheet became seriously eroded as their own property value dropped sharply.

Despite the mistakes of the boom years, the issue of inheritance remains one that still needs to be addressed.

And the first step is to write a legal Will.  Without a Will, the deceased is deemed to have died “intestate”, and their estate is distributed according to the terms of the Succession Act 1965: 

-       Where there is a surviving spouse but no children, the spouse inherits everything and the transfer is entirely tax free.

-       Where there is a surviving spouse and children, the spouse inherits (tax-free) two thirds of the estate and the children, the remaining one third in equal portions. The children’s inheritance is subject to the tax threshold of the day, currently €225,000 per child. The balance is subject to the current capital acquisition tax (CAT) of 33%.

-       Where there is no surviving spouse or children the deceased person’s estate is distributed first to surviving parents, then siblings, then nieces and nephews. The tax-free threshold between siblings and nieces and nephews is just €30,500.

-       Where there is no lineal descendent, the estate becomes the property of the Irish state.

Writing a Will means that you have full control over who you leave your money, assets and goods and in whatever order and amount you wish.

That said, it should be noted that you cannot disinherit a lawful spouse and while you can do so to your children, such Wills have been successfully challenged by children in the courts. 

Meanwhile, adopted children are treated exactly the same as all birth children (regardless of whether their parents have been legally married) and, subject to certain time/residence conditions, foster children are also treated the same.

TAX EXEMPTION

If you leave someone who is not a lineal relative an inheritance, the tax free amount they can receive will be just €15,075. The balance is taxed at 33%.

However, a person who has shared your family home for three continuous years, say, a child, sibling or other relation, a same sex partner (who is not already a civil partner) or just a friend, can inherit the property tax-free if they are not the owner or part owner of a property already and they do not sell the property for at least six years after receiving the inheritance.

Certain business and agricultural land transfers are also subject to some CAT relief.

The complications that can arise from these CAT rules is another reason why it’s important to get legal advice when making anything other than a straightforward Will. This is especially the case for separated and divorced couples, though inheritance is usually addressed during the separation or divorce proceeding and may also be part of a judge’s ruling.

Avoiding inheritance tax is difficult but possible if the person decides to dispose of part of their money and assets during their lifetime. 

The easiest way to do this is to take advantage of the tax-free €3,000 annual gift provision which allows anyone to gift that amount to another person each year, regardless of their relationship.

In other words, a parent can gift each child and grandchild – or anyone else – up to €3,000 every year, tax free. 

For example, if you have three children, three daughter’s or son’s in law (or equivalent partners) and six grandchildren, as was the case for my own in-laws, a total sum of €36,000 a year could have been gifted, with no tax liability for anyone and no effect on the beneficiary’s lifetime tax-free threshold.

The money can then be used to help pay for education fees, health costs, mortgage debt (or a mortgage downpayment) or other purposes.  Multiply this tax-free endowment by 10 years and €360,000 can be gifted to family members during the parents’ lifetime. Upon their death, their remaining estate can be distributed within the current tax-free thresholds. (See above)

A substantial, tax-free gift dispersal like this is possible only for the wealthy, so a word of caution:  no matter how generous you are, you need to ensure that you keep sufficient savings or assets intact for your own immediate and long term needs before giving them away in the form of early inheritances.

Special life insurance  – known as a Section 72 policy – can be purchased to offset large inheritance tax bills on your estate – but these are expensive and require good, independent financial advice.

We’ll look at the costs of – and the need to pre-fund – long term health and nursing care in a future article.

 

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Going on Holidays? Make Sure You Are Properly Insured

 

 

It’s holiday time and you are joining the family – your children and theirs – at a lovely Spanish resort. Everyone is looking forward to the sun, sea and surf, the late night suppers and the colourful markets.

 

No one expects anything to go wrong but flight delays, lost luggage and accidents do happen and only the foolhardy go on holiday without a good travel insurance policy. Nevertheless, a survey undertaken by AA Ireland a few years ago showed that one in nine Irish travellers don’t bother with insurance – many of them to their financial regret.

 

Travel policies come in different guises:  tour packages include insurance that you can refuse to purchase if you prefer to buy your own single or multi-trip policy.  The latter policies are very good value for regular travelers, but usually limit cover to people aged under 65 and sometimes, under 75. 

 

If you are over 75 you should contact an insurance broker like AA Ireland as there are only a limited number of companies that will provide you with cover.

 

Aside from the usual cover for cancellations, lost luggage, thefts and accidents you need to ensure that you understand the limitations of your policy and there is likely to be an excess payment (or a number of different excesses.)

 

Older people may not be undertaking dangerous activities (though many do ski and scuba dive) but if you do, make sure your policy covers these. If you are travelling to a country where there is some unrest (like parts of Africa and the Middle East), or even Thailand where martial law applies) you may not be fully covered. Checkk with the insurer.

 

 

A standard feature of most travel policies is that they do not cover any claims related to pre-existing medical conditions.

 

That doesn’t mean that you can’t secure cover for such a conditions, but you must declare them and ensure that they are covered in the policy.  This will increase the price.

 

Even members of the family travelling with you may have to declare that they know about your pre-existing conditions and accept that they will not be able to claim compensation if your condition results in their holiday or travel plans being compromised.

 

The sort of pre-existing conditions you need to declare on a typical travel insurance policy include all respiratory, circulatory, heart or back conditions, and any diseases or conditions for which you have been previously diagnosed and treated, including cancer or mental illness, even if you are now disease clear or cured.

 

Not declaring pre-existing medical conditions is the biggest cause of claims being rejected and potentially huge costs perhaps being incurred, especially if you fall ill and need treatment outside of the EU, where at least you can present your EU health insurance card to ensure emergency treatments.  A single night’s hospital stay in the United States can costs several thousand dollars and being air-ambulanced home can cost up to €20,000.

 

You should also be aware that most standard travel policies only cover individual holidays that last no more than 30 days; if you are staying away longer, you must ensure that your single or multi-trip contract allows for extended stays.  

 

Health Insurance

 

There is a popular misconception about private health insurance policies that the overseas emergency benefits they include mean that you won’t need travel cover as well.

 

Depending on which policy you have, your health insurer will offer emergency cover up to certain maximum benefit, but only for illnesses or accident that happens only while you are on that holiday. If you need on-going treatment for an existing condition – even something as innocuous as a new cast for that broken wrist that happened before you left because it got accidentally soaked in the hotel pool – that treatment at the local hospital will not be covered by your health insurance.  Make sure to bring your EU health card (and your credit card.)

 

The EU card is strictly for free access to emergency treatment in public health facilities and not in private clinics or surgeries.

 

Your private health policy may also pay to medically evacuate you to the nearest medically appropriate country or to Ireland, whichever is closer but treatment and medical evacuation or travel must be pre-cleared by the Irish health insurer to ensure that payment is refunded.

 

What won’t be covered, or refunded, is missed flights, unused hotel or travel bills, etc.  For that you will need a genuine travel policy (which are often sold by health insurers though not usually for people aged over 75.)

 

The cost of travel insurance can usually be discounted if you have a good health insurance policy but the travel insurance company will usually require that you go to that insurer for medical/repatriation costs.

 

I checked the cost of a world-wide, comprehensive annual travel insurance policy for a couple aged 61 and 63 with no pre-existing conditions, but an existing health insurance policy, and once for a couple with the same profile, but 10 years older. 

 

Even without any pre-existing medical conditions the prices were €63 and €108 per annum respectively.  Neither of policies I checked would cover people aged over 75.

 

Ideally, and at least a few weeks before you intend to travel, you should dig out any existing travel or health insurance contracts you have and check the terms and conditions.

 

If you are over 75, contact a good broker to shop around on your behalf for the best value and appropriate plan.

 

 

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