Q1: I have been advised by my Accountant to opt for Income Averaging due to the higher than normal farm profit this year. My wife works off the farm and the increased profit will be at the top rate of tax. What is your opinion.
In general, I advise my clients against the use of the Income Averaging system. I do this because in my opinion, the Averaging system is only a deferral of the tax over a period of years rather than a reduction/avoidance. However, you have pointed to an interesting aspect of the system which may benefit you in the long term. By going on Income Averaging you will reduce the taxable value of your farm profit for this year. This reduction will reduce the amount of profit taxable at the top rate for this year and delay the taxing of same to the following years. It may occur in the following years that the income of you and your wife would fall and the total income for the following years, while on averaging, may not bring you into the top tax rate. I can see the advantage in using the Averaging rules to maximize the married tax bands and rates.
I presume your wife’s income is from an employment as you cannot opt for Averaging if you or your wife have other trade income.
Q2: We intend to pass our farm property to our son and apply for the Old Age Non Contributory Pension. Are you aware of the amount of property we can retain before our Pension is effected.
I have had reason to deal with this specific query recently. Where you apply for the Non Contributory Pension, you and your wife are entitled to retain, a dwelling house, a motor car and € 26,000 value of cash/investments. If the value of cash/investments exceed that amount then your Pension will be effected on a proportionate basis.
In my opinion, if the value of your investments exceeds the above amount then you could consider distributing the excess to your children and only apply for the Pension once that distribution has occurred.
Q3: I am in the process of transferring my assets to my children. I will retain some property and cash which I will leave to my children on death. Many years ago I took out a section 60 Inheritance Tax Policy to cover the eventual Inheritance Tax liability, should I continue with this as the majority of property has been distributed.
Whether or not you should continue with the Section 60 Policy depends on 2 things, (a) the amount of the Tax Free threshold which your children have used in respect of the benefits they have now received from you, and (b) the value of the future benefits which they will take.
If you took out your section 60 Policy many years ago, you will now see how the Inheritance Tax rules have changed over the years. Many tax reliefs have improved and your insurance cover calculated under the old system may have been overestimated. Now that some property has passed, your Accountant will be better able to estimate what cover you now require. Furthermore, previously all benefits in your children’s lifetime from 1982 were aggregated when calculating the tax. Presently, the aggregation date has been brought forward to 1991 and this may improve your children’s Inheritance Tax position.
In practice I consider that many Section 60 Policies, if revisited, could be discontinued.
In your question the beneficiary under a Will has predeceased the Testator. In general, where this occurs, then the gift lapses i.e. fails, and the property will pass in accordance with the remaining wording in the Will. There are exceptions to this general rule. The 2 most common exceptions are as follows. Firstly, the Testator may have included in his Will a wording to take into account the possibility of the beneficiary predeceasing him. In this event the benefit will pass in accordance with those terms e.g. if John predeceases me then the lands shall pass to Tom. The second exception arises where the beneficiary is a child or issue (descendant) of the Testator. If that beneficiary has surviving children or issue, then the gift will not lapse. For example, if a Testator John bequeaths property to David, who is a child of his, but David predeceases John, the gift to David will not lapse if David has issue living at John’s death.
The general perception of covenants was that they were mostly used and beneficial when covenanting a child or nephew. These types of covenant did indeed cease in April 1996. However that is not to say that all covenants ceased. It is still possible, although restricted, to covenant certain individuals and claim tax relief for the payments. The covenant referred to by your friend, are covenants to persons over the age of 65 years restricted to 5% of the covenanter’s income. These would be common where children are covenanting their parents. Other exceptions include covenants to persons who are permanently incapacitated or to a body established for the promotion of human rights.
Q6: I intend to transfer my farm property to my son and claim the old age non-contributory pension. In the transfer deed for the lands my Solicitor is suggesting that I include protection for myself in the form of rights. Would the inclusion of these rights affect my claim for the pension, as it is means tested?
This is a very relevant question. There has been much debate between professionals and indeed the Office of Social Welfare in respect of the effect such rights would have on your claim. In practice, I have discovered that the Social Welfare Offices in each County tend to look at the effects of the rights in differing ways. In years gone by, the inclusion of any right would be attributed a value and directly affect your claim. However, in recent years and to date, the attitude taken by the Welfare Offices seems to be as follows. If the rights included do not refer specifically to a money value, then they will not affect your pension claim e.g. a general right of support and maintenance. If however, a money value is included, then it will affect your claim e.g. the right to the payment of 3,000 Euro per year for support and maintenance.
In practice I have formed the opinion that your qualification for the pension is of such importance that a discussion should be undertaken with the local Social Welfare Office prior to signing the transfer deed in order to receive confirmation from them that the rights intended will not affect your claim.
Q7: My unmarried sister in law made a Will a number of years ago naming my husband and I as Executors in the Will. In the Will she bequeathed all monies and residue to my late husband who died some time ago. Does this affect the outcome of the Will?
The Will itself is still satisfactory as one of the Executors is still alive. If no Executor survives then the Will is still valid but will require legal intervention to appoint an Executor.
With regard to the benefits. In a situation where a named beneficiary of a Will dies before the testator (i.e. the maker of the Will) then the bequest to that beneficiary fails. In that situation the bequest will pass under the residue clause of the Will. There is an exception where the beneficiary is a child of the testator but that is not applicable in your case. You find yourself in a situation where your husband has predeceased your sister in law. The bequest to him in her Will fails and therefore the monies and residue will not pass to your late husband. In my opinion they will pass under the rules of intestacy, that is, to the next of kin of your sister in law.
If you are to receive the monies intended for your husband then your sister in law will have to change her Will.
The situation here is partly covered by the exception referred to in the last question. As your brother has predeceased your mother then normally the benefit to him would fail and pass under the wording of the residue clause, if any. However, as your brother was a child of the testator, then the house will pass to your brother’s children if any exist. If no children exist then the benefit will fail. The house does not pass to your brother’s wife.
In both cases it is preferable to ensure that new Wills are made as circumstances have changed. If new Wills are not made then no one can complain when the property passes under rules laid out in Law which attempt to cover the changed situation.
Q9: My brother died without a Will and his next of kin consists of myself and 3 brothers. I am aware that the Estate of my brother will pass to us all equally. However, my brother did have a joint bank account with me and my brothers presume that this account also forms part of the estate and be distributed equally. Is this correct?
Joint bank accounts often cause problems as described in your question. One would presume that as the account was in joint names then the proceeds would pass to the survivor. Admittedly this is more often the outcome. However, in some situations the account may only have been owned jointly so as to allow the other named individual assist the account holder in financial transactions e.g. the withdrawing of money where the party is immobile and cannot visit the bank. In these situations it could be argued that it was not intended to benefit the survivor with ownership of the account and the monies are rightly considered to be part of the entire estate of the deceased. If you can prove that you had access to the account during the lifetime of the deceased and that you were entitled to enjoy the monies for your own use then I would be of the opinion that your brother’s argument would not be successful.
Q10: In the near future I intend to build a house on my parent’s farm. If I take a site in my own name now, will it come against me when I get the farm from my parents in the future? Is it best to leave the site pass as part of the farm.Also, I am married and live with my wife in a house in her maiden name. I do pay the mortgage. Will this be taken into account when it comes to my inheritance of the farm?
A receipt of the site from your parents does, in my opinion, give rise to the possibility of a more disadvantageous tax position for you. The gift of a site now would probably come within the new relief introduced by the Revenue for site transfers to children. There would be no liability to CGT nor Stamp Duty. The site would however, have two Inheritance Tax consequences (a) it would be regarded as a benefit and use up a portion of the tax free amount available to you from your parents and (b) more importantly, if you were to build on the site, that house would be regarded as a non agricultural asset and may make you ineligible for agricultural relief. I would deem it much more simple and sure, to allow all the lands pass to you as a farm unit and avoid taking the site at this early stage.
The second part of your question reiterates the advice above. A non farm house owned by you, may make you ineligible for agricultural relief. The fact that the house is owned by your wife allows you to exclude its value when taking the farmlands and thus not effect your Inheritance Tax position. Although you do pay the mortgage, the defining fact is; who is the registered owner of the house. When you take the home farm, you should ensure that you possess and own very little non farming assets.
For your information. If you are eager to take a site and build a house, you can still do so as long as you plan and watch the values of what you own and of what you intend to receive. By careful planning it may be possible but in my opinion, the issues and worry should be avoided.