I am in the fortunate position that I might expect to inherit more than the €335,000 threshold from my parents and thus likely to have to consider a tax bill. My wife, however, is less likely to reach this based on what she might receive at any point from her immediate family.
With this in mind, is there any way to combine our allowances? For example, if I ask my parents to consider explicitly naming my wife in their wills, would that provide a means for some inheritance from my parents to go to us through my wife and therefore reduce our overall tax liabilities?
Similarly, we have two children, both currently under 18 but who may be over 18 by the time any inheritance arises. Are there benefits to explicitly referring to them in my parents’ wills?
Lastly, since we can’t absolutely predict what each person might have received through other gifts and inheritances before the will takes effect, has the executor any flexibility to adjust allocations between family members to optimise allocations based on the situation in place at the time of executing the will?
Mr T.T.
I can certainly see the attraction of such an arrangement but inheritance tax thresholds are a very personal thing in the eyes of the Revenue Commissioners and they would not be happy at all with the sort of muddying of the waters that you are considering.
That’s not to say that you cannot encourage some sort of estate planning as it is called. But it’s not as black and white as you seem to imagine.
The easy bit is your threshold. As it stands, gifts over the value of €3,000 or inheritances that you receive from your parents will not be taxable as long as they stay below the €335,000 limit. But that’s today’s limit. It can and has risen and fallen over the years. As recently as 2009, it stood at €542,544 but then it fell as low as €225,000 between the end of 2012 and 2015. The relevant threshold for you will be the one in place at the time each parent dies.
Meantime, it is certainly possible for them to use the small gift exemption to channel smaller sums your way. Between them your parents can give you up to €6,000 a year with neither side having any tax concerns on the transaction.
But, getting back to inheritance, you make the point that your wife is unlikely to max out her €335,000 in any inheritance she might receive from her parents. There is nothing wrong, as long as your parents are amenable, with her being named in their will although they should take advice on this.
However, it is not as simple as your parents “making up the difference” between what she might get from her parents and her €335,000 tax-free ceiling in relation to them. That threshold is the category A threshold and, with very limited exceptions that don’t apply here, relates only to inheritances and gifts from a parent to their own child.
When it comes to your parents leaving something to your wife, that is taken under category C, an altogether more constrained threshold of just €16,250 that applies to strangers. That’s right. In inheritance terms, your wife is considered a “stranger in blood” to your parents. It’s logical in those terms because, clearly, she is not a blood relative and the Irish system is designed to favour blood relatives.
Also, that €16,250 is a lifetime limit. It doesn’t just apply to anything she might receive from your parents but covers any inheritance or sizeable gift she receives from anyone other than a close blood relative. For instance, if she received a small inheritance from a cousin, or an aunt or uncle by marriage rather than a blood relative, that would all be set against this €16,250 limit. So too would anything left to her by a friend.
So it is unclear how much of this modest limit would be available to her to use against anything inherited from your parents.
As for the children, much the same applies. As they are your parents’ grandchildren, they are treated more favourably than your wife but less favourably than you, in category B. That carries a threshold of €32,500. Again, this is a lifetime limit and applies to all large gifts and inheritances that come from close blood relatives other than parents – so grandparents, siblings, and aunts and uncles by blood, not marriage. Great-grandparents would also be covered here where appropriate.
More importantly, what is left to your children by your parents cannot simply be appropriated by you. Doing so would constitute a gift from the children to you (generally treated as a category B transaction) and could leave you facing a tax bill if the amount tops €32,500 (on top of any such gifts/inheritances you might have received from category B relatives yourself down the years).
Finally, the executor to either of your parents’ will has no “flexibility” to adjust how assets are distributed beyond what is set down in the will – and certainly not with the express intent of dodging the taxman.
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
