Can we decide how to split intestate estate

My parents are deceased, my father most recently died intestate. His estate consists of an inactive farm and the family home. Neither myself or either of my two siblings live in the family home or were involved in the farm.

I understand that under the Succession Act myself and my 2 siblings inherit an equal share of our fathers estate. However we are struggling to decide on how to split the estate equally. There is a reluctance to sell the house and land, but nobody wants to sell their third to another sibling/other siblings don't really have funds to buy each other out.

Can we decide amongst ourselves to carve up the estate into 3 portions for each beneficiary e.g. house to one sibling, land split between two siblings?

And if so, what are the pitfalls? Each portion might not have an equal value, does this matter if each sibling agrees?

Any use?

Deed of variation

A deed of variation (also known as a deed of family arrangement) is a legal document that allows beneficiaries to rearrange or vary the entitlements due to them. For example, the beneficiaries may decide that all or part of their entitlement should be redistributed to their children (the next generation), siblings, friends or charity. It is important to get legal and financial advice before deciding to use a deed of variation as there may be tax implications for you and the person receiving the benefit.

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Thermo1 said:

There is a reluctance to sell the house and land

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This is more of a human problem than a legal problem.

Thermo1 said:

carve up the estate into 3 portions for each beneficiary e.g. house to one sibling, land split between two siblings?

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This looks like very value destructive. Two land parcels are worth less than one. Likewise a farmhouse without adjacent farmland.

Add to this presumably access issues you would have to resolve at a future point.

Thermo1 said:

Can we decide amongst ourselves to carve up the estate into 3 portions for each beneficiary e.g. house to one sibling, land split between two siblings?

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Assuming you are all adults, fully mentally competent, etc, yes, you can. But it needs to be unanimous agreement; a two-one vote won't do it.

Thermo1 said:

And if so, what are the pitfalls? Each portion might not have an equal value, does this matter if each sibling agrees?

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Tax. If you carve up the estate, say, 45% - 30% - 25%, then Mr 45% is getting a gift of a 3.33% share in the estate from Mr 30%, and a second gift of 8.33% from Mr 25%. CAT will apply to these gifts in the usual way, (Unless Mr 45% pays his brothers for the value of these in cash.)

Plus, the non-trivial risk of later emotional and, possibly, legal complications if e.g. Mr 25% later realises he got a bad deal, and reckons he was pressured into it/wasn't given full information/didn't realise what he was giving up, etc. The usual way to guard against this becoming a problem is to ensure that the three siblings are separately legally advised in relation to the transaction, which is expensive. Plus, it's a good protection against legal complications but not against emotional complications.

Why the reluctance to sell? Will this land and house get left unused like it is now for many years to keep an emotional attachment? Most farmers would have wished for farmland to be kept in the family but not left derelict to do so. If none of you were involved in the farm, what were your parents wishes should you want to carry them out ?

Is there any appetite to maintain ownership and lease the land to generated shared income ? Some income might be able to be made from renting the house out, though that is more work but can be solved by appointing a competent agent.

Does anyone else in the family eg nieces or nephews show aptitude or interest in farming or in using the land in some way eg forestry that might make it worthwhile to delay a sale until such a time as they could afford to buy it?

TomEdison said:

If you carve up the estate, say, 45% - 30% - 25%, then Mr 45% is getting a gift of a 3.33% share in the estate from Mr 30%, and a second gift of 8.33% from Mr 25%. CAT will apply to these gifts in the usual way, (Unless Mr 45% pays his brothers for the value of these in cash.)

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That's not correct if a deed of family arrangement is properly completed.

T McGibney said:

That's not correct if a deed of family arrangement is properly completed.

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I'm aware that a Deed of Family Arrangements, executed within two years of the death of the deceased, is not regarded as a disposal for CGT purposes, but is there a look-through provision in the CAT legislation as well? Or published revenue guidance on the question?

TomEdison said:

I'm aware that a Deed of Family Arrangements, executed within two years of the death of the deceased, is not regarded as a disposal for CGT purposes, but is there a look-through provision in the CAT legislation as well? Or published revenue guidance on the question?

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You'll have to look it up yourself I'm afraid but I have dealt with a number of these in the recent and relatively recent past and there is no CAT implication whatsoever arising from the agreed variation facilitated by the deed.

You shouldn't be suggesting otherwise without full knowledge as Deeds of Family Arrangement are often a last resort to avert what would otherwise be a terrible mess.

T McGibney said:

You'll have to look it up yourself I'm afraid

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Well, encouraged by this I have looked it up myself. And — please don't take this the wrong way — I can't find any confirmation of your view.

I'm very open to finding out that I'm wrong, but I've always understood that there's a distinction between:

- A beneficiary renouncing an entitlement, in which case the entitlement falls back into the estate and passes to whoever is next entitled under the will or, if there is no will, under the rules that apply on intestacy; the renouncing beneficiary has no say in where it goes. In this case the next beneficiary is regarded as having inherited from the deceased.

- Beneficiaries agreeing among themselves to vary the allocation of assets that would result from the terms of the will/the rules of intestacy. In this case those who benefit from the variation are treated as receiving a gift from those who have agreed to give up entitlements.

The key difference is that in one case someone simply renounces an entitlement and lets the terms of the will/the rules on intestacy operate; in the other a benefit is directed to someone who wouldn't get it if the terms of the will/the rules on intestacy were left to operate.

A beneficiary can renounce an entitlement by, or in, a deed, but it doesn't have to be done that way; it can be done with less formal documentation. But a variation to give people entitlements they wouldn't get under the will/the intestacy rules is always effected by deed, and that's what "deed of family arrangement" usually refers to.

I haven't found anything at all on revenue.ie that addresses the question of the CAT consequences of a deed of family arrangement — nothing to confirm Tom's view; nothing to refute it. There's plenty on the CGT consequences of a DFA; nothing at all on the CAT consequences.

(Which, I have to admit, is a bit odd. There's a distinct possibility that there is something on the site, but I have failed to find it.)

But I also can't find any secondary source — commentaries, etc — that confirms Tom's view. I have found some that contradict it.

In particular, here's the Minister for Finance, in 2018, telling Dáil Éireann that . . .

. . . a re-distribution of assets received by family members under a deed of family arrangement gives rise to two potential charges to capital acquisitions tax; i.e.

1. a potential inheritance tax charge for the original beneficiary on his or her inheritance from the deceased person, and

2. a potential gift tax charge for the beneficiary receiving the asset under the deed of family arrangement from the original beneficiary.

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And he adds that he has no plans to make any changes to that treatment.

OK, that was seven years ago. Things could have moved on from then. And Tom practices in this area, and so has experience that I don't. So I take very seriously his assurance that this is not how things work now. But, still, I really would like to know why it's not.

I don't care what you found or didn't find.

A Deed of Family Arrangement would make no sense for anyone (apart from Revenue) if the valid and orderly implementation of one left participating family members with a wreckage trail of secondary CAT liabilities and exhausted thresholds.

If you wish to purse this, please do so with any solicitor or tax consultant specialising in complex CAT cases and they'll confirm for you how they work. But in the meantime please desist from spreading unfounded FUD misinformation.

T McGibney said:

I don't care what you found or didn't find.

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You told me to go and find it, Tom.

T McGibney said:

A Deed of Family Arrangement would make no sense for anyone (apart from Revenue) if the valid and orderly implementation of one left participating family members with a wreckage trail of secondary CAT liabilities and exhausted thresholds.

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Which is precisely why anyone considering a deed of family arrangement needs to satisfy himself that it won't have adverse tax consequences.

T McGibney said:

If you wish to purse this, please do so with any solicitor or tax consultant specialising in complex CAT cases and they'll confirm for you how they work. But in the meantime please desist from spreading unfounded FUD misinformation.

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As of right now, my views appear to be better founded than yours, since I at least have a Minister of Finance, advised by the Revenue Commissioners, telling Dáil Éireann that my views are correct.

I wouldn't dream of actually doing a transaction without taking proper professional advice. But, when I do, I'll be looking for an adviser who can tell me why the Minister and I are both wrong about this rather than just hyperventilate about "unfounded FUD disinformation", and who's not going to sneer at me for not being privy to information that he has but is unwilling to share.

TomEdison said:

information that he has but is unwilling to share.

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I'm not withholding any information here. I have never claimed nor even indirectly purported to be an expert on the technical side of estate administration and the resolution of otherwise intractable difficulties that can arise therein, but I have seen enough cases where Deeds of Family Arrangement have been used to successfully avert the worst of these difficulties to know and understand that they can in certain circumstances be a powerful and most effective tool.

I stand by that understanding.

TomEdison said:

Which is precisely why anyone considering a deed of family arrangement needs to satisfy himself that it won't have adverse tax consequences.

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I agree 100%.

T McGibney said:

I have seen enough cases where Deeds of Family Arrangement have been used to successfully avert the worst of these difficulties to know and understand that they can in certain circumstances be a powerful and most effective tool.

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Oh, I don't disagree — a deed of arrangement can be an extremely useful tool and I have used them in my own practice. (Not in Ireland but in Australia, where CAT isn't a consideration).

But, depending obviously on the particular circumstances of a specific case, the transactions which they effect look to me to potentially give rise to a charge to gift tax and so to present the risk of a double CAT charge as outlined by the Minister for Finance in my earlier post. And obviously that's a risk that has to be considered, examined and taken into account before entering into a Deed of Family Arrangement.

In the hypothetical which I outlined in post #4 I think the arrangement described would give rise to taxable gifts, though (a) I'm happy to be shown that I'm wrong about that, and (b) even if I'm right about that the recipients might obviously have sufficient unutilised threshold to avoid any liability to tax.

TomEdison said:

In the hypothetical which I outlined in post #4 I think the arrangement described would give rise to taxable gifts, though (a) I'm happy to be shown that I'm wrong about that, and (b) even if I'm right about that the recipients might obviously have sufficient unutilised threshold to avoid any liability to tax.

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Taxable gifts are certainly possible if the thing was badly drafted or implemented - but this should not happen if a competent solicitor is engaged.

On the facts outlined by OP, it should be possible to achieve the desired outcome with no 'second bite' of CAT exposure.

MOB said:

On the facts outlined by OP, it should be possible to achieve the desired outcome with no 'second bite' of CAT exposure.

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Hypothetically, how would we go about avoiding it?

The opening position is that the three siblings inherit the property jointly, in equal shares. They agree to partition the property into three separate properties and take one each, but the OP stipulates that the three properties do not have equal values, so among the the siblings there are "winners" and "losers".

For illustration, suppose that:

• The undivided property is worth 120 (so each sibling would, but for the deed of family arrangement, inherit a share worth 40)
• To keep things simple, assume that each of the siblings would have available Category A threshold to cover this amount, so none of them would incur any CGT liablity on their inheritance.
• The property is divided into three properties worth 45:35:30
• (This doesn't add up to 120. Thats because I'm assuming some value is lost on the partition of the property.)

On the face of it, the sibling who gets the property worth 45 would be getting a taxable gift, value 5, from the other siblings.

There might be no actual tax, but that sibling would at the very least use up the amount of 5 from their Category B threshhold. And, if they don't have sufficient available Category B threshold, then there would be tax.

Can we avoid the tax? That sibling could pay the amount of 5 to the other two siblings so that there would be no gift.

Is there any other way of avoiding the tax?

Is there anything else we can to to ameliorate the position? Each sibling will be using up 40 of their Category A threshold. They may not care about this if they expect no other gifts or inheritances from parents but, if they do care about it, is there anything we can do?