Distribution of ARF on death

I am just trying to clarify that I am reading previous posts correctly. If I left my ARF to be part of my estate and that estate is distributed to my adult children, it goes in with no tax being deducted and forms part of the overall value of the estate and inheritance tax rules apply on whatever each individual child receives. Whereas if I left it specifically to one or more children they are charged 30% tax on the value of the fund but this does not form part of their inheritance for inheritance tax purposes. Thankyou

I don't think this is correct. If one or more of your children inherits your ARF then no CAT (inheritance tax) is payable but a special tax rate of 30% will be charged assuming the children are over 21 at the time.

Any use...

Shelby219 said:

If I left my ARF to be part of my estate and that estate is distributed to my adult children, it goes in with no tax being deducted and forms part of the overall value of the estate

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I'm presuming this is how it roughly works....

You are implying in Scenario 1 that your ARF will not be specifically disposed of in your Will.

It therefore is included in the residue of your Estate as it is not left to a specific beneficiary (note: I'm not saying its paid gross to the Estate, which I think is what you are getting at).

But if your Estate's beneficiaries are only your adult children, they'll be entitled to your ARF.

The Executor will be knocking on the door of the ARF provider with your death cert and other documentation.

The ARF provider will request confirmation of the beneficiaries of the ARF as the ARF provider is obliged to deduct Income Tax.

The Executor informs the ARF provider that the beneficiaries are adult children.

The ARF provider liquidates the assets in the ARF and withholds 30% Income Tax to pay to Revenue and pays out the balance.

In Scenario 2, the ARF is specifically disposed of in your Will to your adult children.

The Executor will be knocking on the door of the ARF provider.........the ARF provider liquidates the assets in the ARF and withholds 30% Income Tax and pays out the balance.

So either way 30% tax is going to be deducted? If the PRSA is not converted to an ARF then does the total go into the estate and only inheritance tax applies if they go over the threshold?

Shelby219 said:

So either way 30% tax is going to be deducted? If the PRSA is not converted to an ARF then does the total go into the estate and only inheritance tax applies if they go over the threshold?

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No.

If children are over 21, 30% tax is deducted. It does not form part of your estate for CAT purposes. If they are under 21 years of age, it is taxed under CAT rules.

If you leave it in a PRSA and die, it goes to your estate and is paid to your children under CAT rules, so they can inherit up to €400,000 tax free and the remainder is liable to CAT at 33%.

Shelby219 said:

So either way 30% tax is going to be deducted?

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Yes.

In both of the scenarios you outline, the ARF makes its way to an adult child beneficiary and so Income Tax has to be operated.

You cannot Will your ARF "gross" to your estate. The ARF provider has the responsibility to operate Income Tax before funds leave the ARF provider's environment.

Shelby219 said:

If the PRSA is not converted to an ARF then does the total go into the estate and only inheritance tax applies if they go over the threshold?

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Yes.

A PRSA is an excellent estate planning tool.

However, a lump sum must not have been taken from it. If a lump sum has been taken from the PRSA, it is known as a 'vested PRSA' and so the tax treatment on death will follow that of an ARF.

A PRSA is automatically treated as vested though at age 75.

EDIT: @Steven Barrett alluded to the distinction between a child under 21 and over 21. My reading of Post #1 is that @Shelby219 is aware of that age distinction and the differing tax treatment, and by "adult children" is referring to children over the age of 21, though technically an 'adult child' could be aged 18,19,20. The technical point at issue is whether the ARF is specifically disposed of by Will and the obligation of the ARF provider to operate tax. Just in case anyone is reading and is confused.

Tax consequences on death of an ARF or Vested PRSA holder

PRSA has to be coverted to ARF/Vested PRSA at age 75.

Thankyou for the clarification, a bit of thought and planning now going forward.