There are also tax considerations to take into account. Generally, in the case of a discretionary trust, there is a once-off discretionary trust tax, at a rate of 6pc, on the amount that initially goes into the trust and tax of 1pc per annum thereafter on the value of all the assets in the trust. There are exceptions to this, including trusts set up for the benefit of people who are incapable of managing their affairs due to physical, mental or legal incapacity, age or improvidence. Revenue provides guidelines about the meaning of improvidence, which would include an individual who is spendthrift to the point where he cannot manage his own money.
You child might fall into this category, so when making your will, you might set out in as much detail as possible your child’s relationship with money and how he might find it difficult to hold an inheritance.
‘Our 95-year-old mother wants to give us our inheritance before she dies. Would we have to pay tax on it ?’
Q My mother is 95 and is a widow after my father died last year. He left everything in his will to her. My mother has just told me and my three siblings that she’d like to give us all of our inheritance now, as a gift, rather than have us wait until after she dies to receive the money. She’s interested in dividing up cash of €200,000 between the four of us. Will we each have to pay tax on that and does my mother need to employ a professional to make a record of this gift?
A Your mother can absolutely give a gift to you and your siblings now as opposed to waiting to leave it to you after her death.
The only relevant tax in the case of a gift of monies is gift tax (capital acquisitions tax). But you do not pay tax on a gift if its taxable value is below a particular threshold, and the threshold depends on your relationship to the disponer (giver). The Group A threshold applies where the beneficiary is a child or parent of the disponer.
As children, you can each receive €335,000 tax-free from your parents, as long as you have not received any other gift or inheritance from them since December 5, 1991. In addition, you can each receive €3,000 each calendar year – from any person – without having to take tax into account under the small gift exemption.
You do not need to file a gift tax return (IT38) as the proposed amount (€50,000 each) is less than 80pc of your group threshold for gifts and inheritances received since 1991.
If your mum passes away within two years of giving you each a gift, Revenue will treat it as an inheritance. It would be helpful for your mum to record the gifts with a professional: this would help to avoid any confusion down the line. Your mum may have other assets, possibly the family home, which means she may need to update her will as well.