The ins and outs of making a will and perils of leaving it until it's too late
Knowing the ins and outs of inheritance tax and plot fees may seem morbid, but it's your loved ones you're thinking about.
A bereavement is one of the worst things a family will endure. Whether it's an unexpected death or a gentle passing away after a long illness, the aftermath can be arduous.
For many it may be the first time they have to consider things like a death certificate or managing a will. The costs of death should not be underestimated, whether it's immediate bills associated with the funeral (average cost ¤2,500-¤5,000), or the purchase of a grave, which in some parts of Dublin can mirror land prices for the living.
In Deansgrange, a plot is an eye-watering ¤16,000, while a simple cremation can be had for a few hundred euro. When it comes to processing documentation however, it's not just cost, but procedure which can prove a burden to family members.
Solicitor Susan Cosgrove of Cosgrove Gaynard says a will is vital. "Without a will a spouse will not automatically inherit everything; the situation can become a legal tangle. There are rules under the Succession Act (see table) for who gets what. For example, the children could force the sale of a property to obtain their one third share in cash if there are no other assets in the estate.
A will clearly allows you to plan ahead financially to avoid any such issues but also to provide for other important issues such as specific funeral arrangements or the appointment of guardians for minor children."
Probate is the generic term given to transferring over a person's assets on their death. The legal personal representative must apply to the probate office to take out what is called a "Grant". A Grant of Probate is issued if the deceased left a valid will. Grant of Letters of Administration is if they die without a valid will (intestate), says Susan. If there is a will, an executor will be named as legal personal representative and they must ascertain the assets and liabilities of the deceased for the probate office. After the Grant is issued, properties can be sold or transferred and the estate distributed to beneficiaries."
Inheritance Tax (Capital Acquisitions Tax) can be a burden. Although Minister for Finance Michael Noonan increased the tax-free thresholds in the last budget (see table), he really only partially restored what had been available years ago. The tax itself, at 33pc, was not reduced.
It means that Dubliners, and those with small families, lose out. For example, if a single (adult) child is left a family home worth ¤525,000 - the average house price in South Dublin - they would pay tax of ¤215,000 of it, which at current rates amounts to a whopping ¤70,950. If the same house is left to two children, neither pay a cent on the bequest.
No, it's not fair, but that's the reality. If the property was left to say, a niece, nephew or grandchild, the tax would jump to ¤162,525 meaning, almost inevitably, the sale of the very asset they were bequeathed.
Barry Flanagan, of taxback.com says it is absolutely essential that people pro-actively plan for the transfer of wealth between generations.
"There are many reliefs available which, when used correctly and for the purpose they were intended, facilitate the transfer of assets between generations without attracting punitive tax bills," he says.
These include Business or Agricultural Reliefs (up to 90pc of the CAT bill can be reduced), Dwelling House Relief for those who are being left a property by someone they have lived with for at least three years, and 'Favourite' Niece/Nephew relief for one who has worked for you for five years and to whom you are leaving a business.
Certain life insurance policies cannot be paid out until Probate is granted, especially if the estate is disputed. Joe Charles of Royal London Life Assurance says: "Where a life assurance policy is written as Life of Another, i.e. one person pays for another person's policy, then this payment can be made without waiting for Probate.
"Similarly, on what are known as joint first-death policies i.e., where there is a surviving spouse or civil partner, in business assurance cases or those going into a trust, it's generally no problem either.
"In all other situations though, unless the policy is assigned to a bank, for example as Mortgage Protection cover, they will have to go to probate."
The reason is that the insurer must be fully certain that the proceeds are being paid out to the correct person. Where that person (say a husband or wife) is specifically named on the policy, it's fine, and proof of death may be all that's required. But where it is not immediately clear, there can be problems.
"It can be a very lengthy process," adds Charles. "The length of time it takes to obtain a Grant does surprise many people, even where a will is in place. Whether the executor or a solicitor applies for the Grant, the will needs to be located, evidence of all assets will need to be found and valuations may need to be done before the application can be made.
"The process is seen by some people as quite legalistic, and can be difficult for people to try to navigate themselves. Research would indicate that the time taken to conclude the process can vary between three months and a number of years. The Probate office claims not to have enough resources to meet demand," says Charles.
Life insurance premiums have dropped considerably as we live longer, healthier lives. Insurance provides funds for families, especially with children, to be financially secure. You should be able to get a quote for under ¤20 p.m. per ¤100,000 cover for a healthy 35-year-old. Elsewhere, CUsafe offers funeral insurance to credit union members of €5,000-€10,000, for those aged up to 75. A 65-year-old would expect to pay ¤17-¤32 for it.