Trust fund for kids

Hi,

I would like to set up a trust fund for my two children (ages 4 and 1) now and build up money for them as a way of reducing inheritance tax. Myself and husband are in our late 30's, his income is around 80k and my small business is taking in about 180k per annum (turnover, not my salary). We have an apt to make a will in a few weeks and would appreciate any advice on
1. the best way to set up a trust fund - is it straight forward?
2. the best way to reduce the level of inheritance tax the government will eventually get from our 'estate' (which hopefully will be a long way off!!)

As I understand it, both myself and dh can gift our kids 3k each per year, so 6k per year per child. Can we still contribute to the fund after they turn 18?

Also, what is the main benefit of a trust fund over the state savings scheme if the account is in the childs name? If we kept adding 6k a year to their state savings which would generate interest, would this not be better?

I understand that children can receive upto €250 k as gifts tax free from parents, and anything after that is taxed at 33%. So if our house was sold for 500k (for simplicity) when the estate is dissolved, they would get 250k each from this sale tax free. They then would also have what ever money was in their trust fund. And tax would only be paid on any shares or cash we had in the bank?

This is a bit morbid to write as I don't intend to kick the bucket for another 50 years, but a recent complicated will in our family has highlighted the importance of having a will and arranging all this before the tax man can get more of my hard earned cash!

Many thanks in advance

You should not set up a trust fund. They are complicated, expensive to run and have limited value under Irish tax law.

The rules can and will change dramatically by the time you are ready to give your kids money. So don't worry about it now. If you like, give them €3k a year.

Brendan

Thanks Brendan. That clarifies it a lot, I will continue with the state savings 10 y bond.
Many thanks!

The main risk I would see with this is that your children could decide to spend the money spuriously and you would have no way of stopping them. I'm not sure if there is a minimum age they can withdraw without your consent but once they've reached this you have lost control over what will be a very substantial amount. It's unlikely to be a problem but a significant risk nonetheless. An 18 year old with 50k+ at their disposal could give in to temptation.


.

Very true. But I guess that's the risk we take! Our 4 yo is currently saving in his piggy bank so all we can do is financially guide them when they hit college age.

re inheritance tax, you can take out a life policy solely for that purpose; the proceeds of such a life policy is not included in the calculation of inheritance tax. Of course you have no way of knowing what any future tax is likely to be.

My two children inherited money from a relative as young adults; neither of them did anything sensible with it (in my view).

Thanks Thirsty, I'll look into the life policy.
I guess there's always the option of not telling them about it until I kick the bucket, and then I won't care

It's called a Section 72 policy and you have to be 45 or older to take it out. When you take it out, you have to fill in a form stating that the proceeds of the policy are to be used to clear a tax liability. If there is a surplus, that is liable to inheritance tax.


Steven
www.bluewaterfp.ie

If you are going down this route I would strongly advise you talk initially to a tax specialist with expertise in trusts, and if you decide to proceed ensure the section of the will that sets up the trust is approved by the tax specialist. I'm currently the executor of a will that set up a trust and believe me it's an absolute nightmare administering it. And it's not tax free. There is an initial 6% tax, and then an annual 1% tax See http://www.revenue.ie/en/tax/cat/discretionary-trust-tax.html The beneficiaries must also pay CAT on their share of the trust when they receive it. And remember tax laws can change from when you draw up the trust and when it is activated.