Presented by Robert Kennedy, Partner, to the International Women’s Organisation on 28th January 2009.
1. When should a will be made?
Anybody who owns an asset or who expects to receive a gift or inheritance in the future should make a will. It is also important to up-date one’s will as circumstances might warrant. Be mindful of the following:
- On marriage, all previous wills are automatically revoked
- Change in marital status (divorce or separation)
- If one has children, dependants or otherwise
- If one is in a long-term relationship but is not married
- Travelling abroad
- Retiring, getting older or suffering from illness.
2. Why should a will be made?
Certainty, Control and Peace of Mind
By making a will, one decides what happens to one’s property after death and who will be the beneficiaries of one’s assets. If there is no will (intestacy), the law will make certain assumptions in favour of a spouse and children or otherwise more distant next of kin. It is therefore in most cases prudent to make a will and in this way the testator determines who succeeds on his or her death.
Smoothes out the legal process and minimizes legal costs
A will simplifies the legal process for heirs and successors. Administrating a testate estate is usually more straightforward than an intestate one. It is also usually cheaper. It will also make what is a most difficult time easier for loved ones and if drafted correctly will hopefully prevent bitter family disputes. In some cases if the testator discusses with the beneficiary what he/she is proposing to leave in the will, the beneficiary can engage in tax planning to ensure he/she can capitalize on the asset.
Children under the age of 18
Guardianship and Trusts If a parent were unfortunate enough to be killed in an accident leaving children under the age of 18, the relatives would have to apply to court to have guardians appointed for the children. This can be avoided by naming a guardian in the will. A testator also may not wish for his/her children to receive money directly on death but may wish to place a fund in trust for them until they reach the ages of 18, 21 or sometimes older. You cannot do this unless you have made a will and appoint trustees.
Children and Others with Disabilities
Discretionary Trusts If a testator has a child with a learning disability, a discretionary trust can be set up whereby the trustees hold a specific fund or share of the testator’s estate with power to distribute same, at their discretion, when required by the child. The testator should also specify how any undistributed part of the trust fund will be divided on death of the child. Discretionary trusts can also be used if a beneficiary has a drink or gambling problem or is not financially astute when it comes to handling money etc.
As the law currently stands unmarried couples are viewed as “strangers in blood” and have no automatic inheritance rights unlike married couples. A will can be used to make provision for a lifetime partner, often referred to as the common law husband and wife or for the same sex partner.
Separation per se does not mean that the spouse automatically loses his/her legal right to the estate; however, his/her rights may be cancelled under the terms of the separation agreement or judicial separation, or can be cancelled by court order when a couple divorce. A new will can help clarify matters, particularly if the testator still wants to leave something to an ex-spouse.
Early Onset of Dementia/Alzheimer’s Disease One has to stress the importance of putting a will in place while still of “sound disposing mind”.
By making a will, the testator can distribute one’s assets to several members of the family to minimise the overall inheritance tax liability. A testator can also leave assets in trust under the will, which can avoid or postpone a liability to inheritance tax.
In addition, there are special inheritance tax reliefs for agricultural property, family businesses and where a home is inherited in certain circumstances.
Sometimes it may be very beneficial from a beneficiary’s perspective if he or she knows of the testator’s intention to benefit him or her in the will. For instance, if there is a farm or business involved, the beneficiary may very well be able to plan so as to be able to qualify for maximum reliefs available. For a beneficiary to claim favourite nephew relief or agricultural relief or business relief may mean a substantial saving on inheritance tax.
For example to qualify for agricultural relief, the beneficiary must bring himself or herself into a situation that he or she qualifies as ‘a farmer’, which funnily enough is a technical legal term. On receipt of the inheritance, to be a farmer, 80% or more of the beneficiary’s assets must be agricultural. Therefore, if say, a beneficiary has a very valuable house (which would not be viewed as an agricultural asset) it may be possible to divest himself or herself of that particular asset by say, in certain circumstances, transferring the asset into the sole name of his/her spouse. If the ‘farmer test’ is satisfied, the advantage of claiming agricultural relief, is that it reduces the value of the agricultural inheritance by 90% so that, in effect, the beneficiary is only liable to pay inheritance tax on 10% of the value of the asset so received.
It should be noted that there is no inheritance tax payable on an inheritance taken by a spouse. Also, a child enjoys a large threshold before being liable to pay tax. In certain circumstances, a gift or inheritance of the principal private residence from one sibling to another or from one life time partner to another (the co-habiting couple) will not be liable to gift/inheritance tax. One should take professional advice from a solicitor and/or accountant before taking this step to ensure due consideration is given to the legal and tax implications involved such as gift tax (this may arise where the threshold is exceeded), stamp duty and capital gains tax. These three taxes have always to be taken into account in any voluntary transfer. The doctrine of survivorship applies on the death of one of the joint tenants, meaning that the property will pass automatically to the survivor and the asset will therefore fall outside the scope of one’s will or one’s estate on intestacy. This will mean that if one’s sole asset is the family home that it may not be necessary for the beneficiary to have to go to the expense and anxiety of taking out a grant of probate (in the case of a will) or a grant of letters of administration (in the case of an intestacy where there is no will).
Annual Tax Exemption
One can give the sum of €3,000.00 tax free to a beneficiary on an annual basis without giving rise to payment of gift tax. This can be a useful and tax-efficient way of setting up a fund for a relative or loved one during one’s life-time.
3. Are there some assets that a testator cannot include in a will?
The following are examples of assets which pass outside the will or intestacy:-
- Assets passing by nomination, e.g. the deceased may have instructed An Post to pay saving certificates on his or her death to a particular person called the nominee
- Death benefits passing under a life insurance policy or pension scheme where the beneficiaries are particular family members named in the policy or scheme
- Assets passing in which the deceased had an interest for his or her life only
- Assets placed by the deceased in the joint names of the deceased and another person with the intention of benefiting that other person on the deceased’s death
4. Testamentary Freedom. Has a testator the right to make a will as he or she pleases?
One has to bear in mind the following limitations:-
Spouse’s legal right share Under the Succession Act, 1965, a surviving spouse is legally entitled to a specific share of the estate of the deceased spouse depending on whether the deceased had any children. This is called a ‘legal right share’ and arises where there is a will and the surviving spouse has never waived his/her rights and is entitled to make a claim. If the deceased had children, the surviving spouse is entitled to a ONE-THIRD SHARE of the estate. If the deceased had no children, the spouse is entitled to a ONE-HALF SHARE of the estate. The executor is obliged to notify a surviving spouse of this RIGHT OF ELECTION. The surviving spouse must exercise the right of election within six months of receiving such notification from the executor or within one year of the issue of the grant of probate, which ever is the later. Joint property is not taken into account in calculating the legal right share.
Legal right of children It is important that an executor is aware or informed of the legal rights of children under their parent’s will. A child, unlike a spouse, is not entitled to a specified share in a deceased parent’s estate as a right. However a ‘child’ who feels aggrieved with a legacy, bequest or share which he/she may have received under a parent’s will may make an application to court asking the court to find that the parent has failed in his/her moral duty to make proper provision for that child in accordance with his/her means, whether by will or otherwise. Each case is decided on its own merits and the court looks at the situation from the point of view of a ‘prudent and just’ parent. It should be noted that the legal right share of a surviving spouse or bequest to a spouse cannot be set aside in order to give a child a share.
Devolution of forgein based assets
The assets of an individual are generally divided into two categories:-
(a) Moveable property such as cash, furniture, paintings and jewellery and (b) Immovable property such as houses, land, and other permanent structures. In general, the devolution of moveable property is dealt with by the law of the country where the person is domiciled, while the devolution of immovable property is dealt with by the law of the country where the property is situated.
There are various issues of domicile that can be explored further as there are concepts at law such as domicile of origin, domicile of choice, domicile of dependency and deemed domicile that should be discussed with your legal advisor.
If you do own immovable assets in a foreign jurisdiction, then you do need to make a will in that foreign jurisdiction, in order to deal with those assets on death.
Where a person has assets in another jurisdiction it is important that care is taken in relation to the execution of foreign wills. It is vital that a will made in the Irish jurisdiction would not inadvertently revoke a will made in a foreign jurisdiction or vice versa.
A sample revocation clause is as follows:-
THIS IS THE LAST WILL AND TESTAMENT OF (insert name of testator), of (full residential address), made by me on the (date) day of (month), (year). This will is intended to deal with my property in the Republic of Ireland only and all provisions in this my will relate only to my property in the Republic of Ireland. I HEREBY REVOKE all wills and other testamentary dispositions previously made by me.
One of the main reasons for making a will in foreign jurisdiction relate to taxation issues which vary between jurisdictions. For example, in Ireland there is no inheritance tax between spouses while in Spain there is no such exemption except for a small allowance. Of course the rules with regard making a will also vary for example in Spain unlike Ireland it is possible to make a verbal will.
Another very important reason why we advise our clients to make a will in another jurisdiction is that if a will is not made then the estate may be distributed according to that jurisdiction’s rules of intestacy which can vary quite substantially. Intestacy rules are the rules used by the law to deal with the assets of a deceased person, who has made no will. Again for example, in Ireland the basic rules of intestacy are that if the testator dies leaving children and spouse, the spouse takes 2/3 and children take 1/3 of the assets. If there are no children, then the spouse takes all. Contrast this to the position in Spain. In Spain, where there is a spouse and children, the estate is divided in equal share between the children and the spouse amazingly gets only a life interest in the property.
So you will see from the above, the law in this area differs substantially from country to country. It is therefore extremely important that you would consult a local lawyer in the country where you hold immovable property in order to obtain the proper advice necessary to avoid difficulties and complications, not to mention expensive testamentary disputes, after your eventual demise.
Take stock of your present and future financial position. This is the time to plan ahead but take action now. Begin perhaps by making a will or give thought to up-dating your existing will. Remember, a will is a private document that does not come into effect until you are deceased. It is also a document that can be changed by you up until that time, so do not be afraid to put a will in place now, reflecting your current circumstances. You can always change it in the future.