Where There's a Will ...

Nora Ward
Nora is an associate solicitor and tax consultant (AITI) with A&L Goodbody's Private Client Department, specialising in wills, probate, tax planning, estate administration, trust law and family law. Nora lectures on tax and trust law for the Law Society's Diploma in Property Tax.

October 2002

Your will is more than just the means by which you determine how your family and friends are to be provided for after you are gone.

Your will is also a tax plan in itself. A review of your will presents an opportunity for you to assess your overall financial position and consider your tax planning generally. As the pace of change around us accelerates, it becomes more and more important to review your will on a regular basis.

Why Make a Will? At the risk of stating the obvious, it is vital to ensure that you have a valid will in place. If you do not have a will, the rules of intestacy set down by law will determine how your estate is distributed. For example, if you die intestate leaving a spouse and children, two thirds of your estate will pass to your spouse with one third to be shared among your children. This may be entirely inappropriate as well as being inefficient from a tax perspective.

Reviewing Your Will Once you have a will in place, it is important to review the provisions of your will on a regular basis. Your will is never final, but should be reviewed regularly to reflect your changing circumstances and to take account of amendments to tax and other legislation. A broad range of issues arise for consideration in the context of a will review.

Obviously, it is important to review your choice of executors and the trustees of any trust established by your will. If you have a young family, you will need to appoint guardians for any minor children you may have. You should also revisit the specific bequests and legacies provided for by your will. I have set out below some examples of when the need to review your will may arise.

Example 1 - Family Matters Changes in your family circumstances often dictate when your will should be reviewed. For example, a will is automatically revoked upon marriage. The birth of a child will usually also prompt a review of your existing will. As your children grow up, the structure of your will changes and the need to review the provisions of your will and consider your estate planning more frequently becomes imperative. For example, the arrival of grandchildren often prompts a will review, or a provision for additional legacies by codicil.

Example 2 - Your Business If you own and manage your own business, you will need to give careful consideration to the question of how the business should be dealt with on your death. The provisions you include in your will to cover this will change as your business develops. The terms of any related shareholders or partnership agreements will need to be considered. It may be that a successor to the business will emerge over time, or it may be that a trust should be established under your will appointing trustees to run and manage the business after your death.

Your will should seek to minimise the Inheritance Tax liability which your beneficiaries will have to bear. This means structuring your will to avail of business property relief. If the relief applies, there can be a significant tax saving, reducing the effective rate of Inheritance Tax on business assets to 2%. It is important to ensure your will is updated to maximise the tax relief and to reflect your wishes as the business develops.

Tax Planning Your will should be seen as an effective tax planning tool. You should make use of the available tax free thresholds and any reliefs or exemptions which may apply to your circumstances (e.g. Agricultural Relief or Business Relief).

There are also occasions where more sophisticated tax planning may be appropriate. For example, recent changes in Tax Legislation introduced Residential Property Relief, which provides an exemption from Inheritance Tax where a beneficiary receives an interest in the house in which they are living, in certain circumstances. Even if all of the conditions for the relief have not been met at the date of death, your will could include a Discretionary Trust, allowing the beneficiary the flexibility to arrange their affairs so that the conditions for the exemption can be satisfied, before they receive their inheritance. There is potential here for a beneficiary to receive a house of unlimited value, tax free, in the right circumstances. This is just an example of how appropriate tax planning can result in significant savings for your beneficiaries.

Your Will and Your Pension No doubt, you will be aware of changes to Pensions Legislation which has taken place over the last number of years. It is now possible to pass on an ARF (Approved Retirement Fund) or AMRF (Approved Minimum Retirement Fund) on your death. The tax implications of passing on the pension fund vary depending upon who receives the inheritance. For example, it is most tax efficient for a spouse or child to inherit the proceeds of the pension fund. Any other beneficiary would suffer both inheritance tax and income tax on the benefit they receive. In the circumstances therefore, it is important for the provisions of your will to deal specifically with the bequest of your ARF or AMRF so as to ensure that your pension is dealt with in a tax efficient way.

Foreign Aspects of Irish Wills It has become more and more common for Irish people to hold assets (particularly stocks and shares) in a number of different jurisdictions. In a review of your will and estate planning, you need to consider any foreign taxes which may arise on your non-Irish property. If you have purchased a holiday home or other property interest abroad, it may be that you will need to consider making a will in that foreign jurisdiction and amend your Irish will to take account of this.

In Conclusion The foregoing is only a flavour of the issues which should be considered in a comprehensive review of your will and estate planning. A proper review should amount to an audit of your financial affairs and can prompt a change in the structure of how assets are held. You should review your will regularly to ensure that your family is properly provided for and that your estate is passed on in a tax efficient manner. Take appropriate advice regarding your will to consider the tax planning opportunities which may be open to you. After all, where there's a will … your advisor may very well find a way!