Inheritance tax planning
Each of your children can inherit €320 from you before paying any tax on the assets. A relative who is not your child may inherit €32,500 before paying tax. Any other beneficiary may inherit €16,250 before paying tax. Inheritance Tax, also known as Capital Acquisitions Tax is currently 33%.
Trusts are sometimes used to reduce the tax burden on beneficiaries. Subject to specific family law provisions, assets placed in trust do not legally form part of the estate on death because they were legally placed in the beneficiary’s ownership on the establishment of the trust.
Trust administration service
Trust law and the reporting duties of a trustee can be complex, so using a professional trust administration service can be a more reliable way to manage a trust. A solicitor can protect the trust assets and optimise the beneficiaries’ benefits by:
- Managing the administration of the trust
- Carrying out one-off administrative or compliance tasks - a single tax return, for example
- Preparing trust accounts
- Keeping the trust compliant legally and for tax purposes
- Advising the trustees on their legal powers and duties
- Acting as a professional trustee
Duties of Trustees
A trustee is appointed to manage the assets of a trust for the benefit of its beneficiaries in line with the terms of the trust. The trustee’s duties include:
Duty to the terms
A trustee must follow the terms of the trust set out in the trust deed.
Duty of loyalty
A trustee must manage the trust purely in the interest of the trust beneficiaries, and their interest must not conflict with the beneficiaries’. Apart from a fee for their trusteeship, trustees should not gain personally from their role as trustees.
Duty to manage the trust efficiently
The trustee must familiarise themselves with the terms of the trust, the trust’s assets and liabilities, the circumstances of the beneficiaries and the purpose of the trust. They must use effective management systems to ensure that proper decisions are made in a timely manner in line with the terms of the trust and the interests of the beneficiaries. They must also communicate satisfactorily with relevant parties and keep adequate records.
A trustee is required to invest wisely on behalf of the trust and diversify the investment of trust assets in the interest of beneficiaries.
Duty to act personally
Trustees must be involved personally in decision-making with regard to a trust. They may engage advisers such as lawyers and financial advisers, but the final decision on trust matters should be made by the trustee. Sometimes, trustees may delegate powers to third parties by power of attorney or deed of delegation, but this must be allowed by the trust deed.
If there are multiple trustees, decisions must be made unanimously unless otherwise allowed by the trust deed.
Duty to consider the beneficiaries
A trustee must act impartially toward the beneficiaries by considering all beneficiaries in their decision making. They should not follow the instructions of the settlor, although they may consider their wishes. The settlor’s wishes are not binding unless included in the terms of the trust.
Duty to account
Unless the trust stipulates otherwise, a trustee must keep trust accounts and other records. They must also respect beneficiaries’ rights in relation to requests for trust information.
A will trust in Ireland is a type of trust that takes effect only after the death of the person making the will. The will trust gives an individual the right to administer the assets of the person making the will for the benefit of other persons, charity, or any other purpose that is recognised under the local legislation.
A will trust must contain the following:
- The subject of the trust must be clearly set out, with details of the property that is subjected to the trust, in addition to the way in which the beneficiaries will receive their rights.
- The names of the beneficiaries
- A clear description of how the testator’s intentions should be followed
The legal requirements for having a valid will trust are provided in the Succession Act 1965.
A beneficiary of a discretionary trust gets no immediate benefit from its assets and may not compel a trustee to act in their favour. The trustee manages and distributes the assets in the trust as they deem appropriate. The trustee decides how to pay and apply income or capital for the beneficiary. The settlor of the trust may provide direction for the trustee through a “letter of wishes” outlining how he would like the trust assets to be distributed, but this letter puts no legal obligation on the trustees to follow it.
The tax implications of setting up a discretionary trust can be substantial, so expert tax advice should always be obtained.