How can I avoid my grandchildren having to pay inheritance tax?

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Livingthedream

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I am a widower finalising my will. I have 3 adult children and want to share property & assets equally (total value approx half million). One of my offsprings is deceased (the deceased childs share will go to his 2 adult children). Another offspring is in the process of an acrimonious divorce & has 2 children (my wish is to give that offspring 50% of her one third share, and other 50% to her 2 children, thereby safeguarding those children). My question is how can I avoid my grandchildren, i.e. the children of my soon to be divorced child and the children of my deceased child paying inheritance tax.
 
Livingthedream said:
want to share property & assets equally (total value approx half million)
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How liquid are your assets? Specifically do you have a lot of cash savings and would you be willing to part with them already?

This is relevant when it comes to tax avoidance specifically for the grandchildren. You can give anyone €3k per year and it does not count against the lifetime threshold for tax on inheritance.
 
@NoRegretsCoyote thank you, that's worth considering. Although about 90% of my assets are tied up in the value of the property. I thought about giving the entire two thirds share to my soon to be divorced child and the spouse of my deceased child (in other words nothing officially to grandkids) with the provisor that they pass on the respective amounts to their children (my grandchildren). My daughter would therefore give 50% of her third to her two kids, split evenly & my deceased son's spouse would hand over the entire amount to her two children. The thought process being that there would be less tax implication for the patents than grandchildren but I could be wrong. And it could be messy. I want to be sure my grandkids get their fair share but don't want to cause unnecessary stress or potential family feuds. I despise the tax man taking my hard earned assets!
 
You do need to get legal advice. There is no point in writing an unenforceable will or put in provisions that Revenue would see through as tax avoidance measures.

Are you really considering leaving money to your son John but putting a line that says " John must also leave money to his daughter Mary in his will". For this to be enforceable, John cant touch the money, so you havent really left it to him. Whose going to enforce that when John dies in many years time ?

As it stands, your €500K will be split 3 ways.
This will leave each of your grandhildren with a CAT bill of €3K.

(500K/3) = 166.67K / 4 = €41.6K. The tax free allowance of CAT B is 33000.
41.6K - 32.5K = 9166K *0.33 = 3K

If it bothers you that much, Give them €3K each now and then leave them 32000 in your will.
 
@NoRegretsCoyote thank you, that's worth considering. Although about 90% of my assets are tied up in the value of the property. I thought about giving the entire two thirds share to my soon to be divorced child and the spouse of my deceased child (in other words nothing officially to grandkids) with the provisor that they pass on the respective amounts to their children (my grandchildren). My daughter would therefore give 50% of her third to her two kids, split evenly & my deceased son's spouse would hand over the entire amount to her two children. The thought process being that there would be less tax implication for the patents than grandchildren but I could be wrong. And it could be messy. I want to be sure my grandkids get their fair share but don't want to cause unnecessary stress or potential family feuds. Iand yet despise the tax man taking my hard earned assets!
huskerdu said:
You do need to get legal advice. There is no point in writing an unenforceable will or put in provisions that Revenue would see through as tax avoidance measures.

Are you really considering leaving money to your son John but putting a line that says " John must also leave money to his daughter Mary in his will". For this to be enforceable, John cant touch the money, so you havent really left it to him. Whose going to enforce that when John dies in many years time ?

As it stands, your €500K will be split 3 ways.
This will leave each of your grandhildren with a CAT bill of €3K.

(500K/3) = 166.67K / 4 = €41.6K. The tax free allowance of CAT B is 33000.
41.6K - 32.5K = 9166K *0.33 = 3K

If it bothers you that much, Give them €3K each now and then leave them 32000 in your will.
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@huskerdu many thanks!
 
NoRegretsCoyote said:
@Livingthedream

Do you have one deceased child and two living? Or one deceased and three living.

It looks like the former but not fully sure from your posts.
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@NoRegretsCoyote I have one deceased child, let's call him John (with 2 children), John's entire share should go to his children. I also have two other living children, one of whom is going through a divorce, let's call her Mary. Mary has two children and I'd like to split her share 50% to her and 50% split between her two kids. From what I gather grandchildren (unlike offsprings) are liable to inheritance tax. And this is what I'm trying to get around.
 
It’s not true that there is CAT for grandchildren but not for children . The thresholds where tax is payable are different .

The calculation I did was accurate for Mary’s children but not for John’s . There is more information here

Capital Acquisitions Tax (CAT) thresholds, rates and aggregation rules

This page outlines CAT thresholds, rates, and aggregation rules
www.revenue.ie www.revenue.ie

Also your daughter in law who is the widow of your deceased son will pay even more CAT than her children . AFAIK. As far as I can tell she is cat C.

As I said you need some proper legal advice
 
Mary and Paddy can inherit up to €335k each without paying any CAT.

Grandchildren can inherit up to €33,500 tax-free and pay 33% on any excess over that.

The daughter-in-law seems to be Group C, so she can inherit only €16,250 tax free.

So J1 and J2 will have the following computation:

Bequest: €83k
threshold€33k
Taxable : €50k @ 33%
=€16,500

M1 and M2
Bequest: €42k
Threshold:€33k
Taxable : €9k
Tax : €3k

You can start giving the grandchildren €3k a year now.

You should not leave any complex provisos in your will. Leave M1 and M2 €33k, and leave the balance of the third to their mother.

You can't really do much more about J1 and J2. Leaving their mother €16,750 will save €5,500 tax.

If any of the grandchildren are married, you can leave their spouses €16,750. And if they have children, i.e. your great grandchildren, you can leave them €33k.

Brendan
 
NoRegretsCoyote said:
If they are under 18 when benefactor passes away they are Category A though as the child of the benefactor is deceased.

No tax in these circumstances.
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Yes, but the OP has already stated that they are adult children, so it doesn't apply here.

"the deceased childs share will go to his 2 adult children"
 
Brendan Burgess said:
Even though it doesn't apply here, I hadn't realised that.
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The daughter-in-law gets the €335k Group A Threshold.

There’s a provision whereby the surviving spouse of a person who’s a closer relative of the donor/deceased gets that closer relative’s higher Group Threshold.

It’s in Schedule 2 CATCA 2003 from memory.
 
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So the right strategy here is?

Leave each of the adult grandchildren the €32,500 threshold.

Leave the daughter in law the balance without any restriction.

The daughter in law can, if she wishes, pass on gifts to her children and avail of the €335k Threshold.

Brendan
 
Yes, and the ‘connected gifts’ / ‘gift splitting’ rules obviously wouldn’t apply to inheritances.

i.e. the anti-avoidance whereby a gift from one person to a second person which is then onward gifted to a third person within three years is deemed to be a gift from the first person to the third person.
 
Gordon Gekko said:
Yes, and the ‘connected gifts’ / ‘gift splitting’ rules obviously wouldn’t apply to inheritances.

i.e. the anti-avoidance whereby a gift from one person to a second person which is then onward gifted to a third person within three years is deemed to be a gift from the first person to the third person.
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All very interesting and useful, thank you to everyone for all for solid advice. I'd originally intented for my deceased son's entire share to go directly to J1 & J2 but may rethink this. Giving €16,500 to taxman is ! M1 & M2 are currently under 18 but I still have a few years left in me!
 
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