Home economics: Sinead Ryan answers your property questions
I am a widow who was left my husband's estate in its entirety when he passed away in 2010. It is our family home which is worth around €720,000, and about €115,000 in the post office and some shares which I think are worth around €25,000. I survive on my pension which was from his company and the old age pension, which is sufficient. My concern is, at 82, that we only had one child, our daughter who has four children. I don't want her to be left a big tax bill when I die. Would it be very large and is it possible to leave everything instead to my grandchildren via trust which I have heard is the best way; I know she would want this also.
A. The merit of trusts is much misunderstood. Many people believe they're a protector from tax but this is not the case; it merely delays the inevitable and in your situation I'm not sure it will have the impact you desire.
Capital Acquisitions Tax (CAT) or Inheritance tax is liable at 33pc on the amount of an estate (including lifetime gifting) bequeathed above the tax free threshold which, for a child, is currently €310,000.
By that reckoning, if your daughter were to inherit everything, and assuming you or your husband have never previously gifted her anything substantial (over €3,000 pa), then her tax liability will be around €181,500.
There is no getting around this, and Revenue takes a dim view of anybody who attempts to do so.
Leaving bequests to grandchildren is of course, perfectly possible; each of them can inherit up to €32,500 each before tax, so for your four, if you wish to leave them each the maximum, would reduce your daughter's tax bill to €138,600.
Revenue clarifies the position on trusts, as follows: "If you were to leave your estate in a discretionary trust for the benefit of your grandchildren, then there would be no immediate liability to CAT on the property held in such a trust, as no one becomes beneficially entitled to anything at this stage. The grandchildren would potentially become liable to CAT as assets of the trust are transferred to them at a later date.
CAT is payable on these benefits in the usual way as described above. A discretionary trust may also attract trust tax of 6pc once the youngest beneficiary has reached the age of 21. In addition to this initial charge, a 1pc charge is payable each year that the trust remains in place."
Q. Three years ago, after a great deal of hassle and upset, our bank agreed to a forbearance measure on our mortgage. When we took it out 15 years ago it was for €300,000 over 30 years and we also took out a mortgage protection policy which was mandatory. We had been in arrears of €14,250, but are now on an interest only basis for four years, and we return to full repayments next year under a term extension. The concern is that I am now informed that the mortgage protection policy is no longer adequate and we have to take out a new one. This seems excessive as I understood it pays off the whole mortgage if me or my wife dies. Am I missing something?
A. Your bank is right, unfortunately. It is being very picky, but it's for your own good, if that's any help. I asked Royal London Assurance which specializes in mortgage protection to explain: "In switching to interest only and then returning to full repayments, a shortfall is created of around €11,500 which means that should either of you pass away, the policy wouldn't be sufficient in paying off the mortgage in full.
"Also, because the lender is re-establishing the repayment by allowing a term extension, it means the term is now not long enough to adequately cover you.
"A new policy will address both issues, unless of course you want to 'catch up' repayments and term, but this is expensive. Life insurance rates have come down in 15 years so I imagine, with a decent broker, you'll find there's not much difference in cost, if any, in the new policy."
The Ryan Review
The Insolvency Service statistics always make for interesting reading as the stigma on debt arrangements continues to abate.
In the first quarter of this year, 998 new cases were admitted, involving qualifying debt of €1.165bn. Of that, €588m, or over 50pc was in relation to buy-to-let properties - by far the biggest chunk.
In context, just 18.8pc of arrangements involved owner-occupied principal private dwellings and the rest was made up of unsecured debts such as credit unions and other loans.
It is far more likely that a BTL property will be lost to the debtor in whatever debt settlement comes to pass, unlike the 90pc of cases involving the family home, which are kept when the borrower engages and agrees to remain under the cosh for a few years (usually six), and for which their other debts are written off.
The properties that are taken into charge will eventually be sold into a drought-filled market or re-rented by a new landlord to a new tenant, so although debt settlements are never fun, it does create a win of sorts for all, except the lender who flogged the cheap cash for the property in the first place.
I think we can live with that though.