MANY people have thought about leaving their house, business or other assets to their family during their lifetime or after death.
But not that many have a clear plan and too few have drafted a will, according to Aidan Scollard, advisory partner to family and entrepreneurial businesses with RSM Farrell Grant Sparks.
"While we're all inclined to put these issues off, they will eventually have to be dealt with, so it may be better to discuss them now while we are all still around to manage the situation and the sensitivities within our family," he said.
Those with significant assets to pass on are increasingly mindful of the changes to capital acquisitions tax (CAT).
The parent to child, CAT tax-free threshold has reduced from €434,000 in 2009 to €225,000 under the current government.
This is a huge reduction and it has had the effect of making people, particularly family business owners, look at making gifts to their children.
A child gifted €430,000 today is liable for around €67,000 tax, whereas in 2009 there was no liability on this sum.
Those with significant assets tend to be business and property owners. The main issue for those over 50 to consider now is whether they should gift some, or all, of their estate while the value of their assets are relatively low - supressed by the recession.
"While we appreciate that everyone's circumstances are different, and there are particular sensitivities within every family, there is an opportunity to get valuable estates or businesses into the hands of the next generation while values are currently lowered due to economic circumstances," Mr Scollard said.
As the economy rebounds, family businesses should become worth significantly more and if there is no change in the tax thresholds, then the cost of transfer in years to come could be a multiple of what it is now.
Many families put off these discussions as they believe it may be unsettling, but with the correct support and advice, it is generally possible to work through the issues in an understanding way that will not affect family relationships going forward.
The handover to the next generation is on the rise within the farming community.
This trend is driven by a number of factors, such as parents not wanting to see their children emigrating, coupled with the fact that they believe it is a good time for succession given the number of reliefs available to ensure that the farm is transferred in a tax-efficient manner.
As there is an annual gift tax exemption of €3,000 from each disponer to a donee, two parents could gift a child €6,000 each year without the child incurring a gift tax liability.
To cover the cost of the tax and encourage people to plan for this, relief is available on certain life assurance plans, Mr Scollard said.
The relief provides that where a life assurance policy is put in place to provide for the payment of CAT, Revenue will not seek to tax the policy proceeds.
The benefit of using a qualifying life assurance policy to fund for the payment of CAT is that as long as certain conditions are met, the proceeds of the policy when used to pay the CAT, will not increase the beneficiary's tax liability.
On the other hand, if the money was deposited in a bank account with the intention of covering the inheritance tax, it will be seen by the Revenue as an additional inheritance and will ultimately increase the tax bill, the Farrell Grant Sparks expert said.
So if there is going to be a significant tax liability for children when they inherit assets, consider setting up a special section 72 life assurance policy which provides a lump sum to fund the CAT liability arising when they inherit the estate, he said.
Certain reliefs and exemptions apply to certain types of assets. The main exemptions and reliefs are:
• Spouse or civil partner exemption - gifts or inheritances from one spouse or civil partner to another are totally exempt from CAT.
• Agricultural relief - the value of farmland, buildings and stock can be reduced by 90pc where the beneficiary is a qualifying farmer and he or she holds on to the property for a minimum of six years.
• Business relief - this can provide a relief similar to the above, a reduction of 90pc in the value of certain business or private companies where both the business and the beneficiary meet the qualifying conditions.
Mr Scollard said: "Needless to say, these are major decisions so it is important to seek professional advice when considering any of these planning options."