Estate Planning, Power of Attorney, Pension Adjustment Orders

Transcription

1 Estate Planning, Power of Attorney, Pension Adjustment Orders Sarah Kemple Kemple Gormley Solicitors 12 University Road, Galway k l l li it i kemplegormleysolicitors.ie

2 Contents t 1. Estate Planning - CGT -CAT - Stamp Duty -Reliefs ees 2. Power of Attorney - General Power of Attorney - Enduring Power of Attorney 3. Pension Adjustment Orders

3 Estate t Planning Important to plan for succession, particularly for where there are substantial family assets and/or a family business On a transfer of assets, 3 taxes must be considered- d Capital Gains Tax, Capital Acquisitions Tax, Stamp Duty Capital Gains Tax-a tax on the gains realised by individuals on the disposal of assets Capital Acquisitions Tax-Tax charged on the recipient of gifts and inheritances Stamp Duty Tax on instruments e g Transfer of Stamp Duty- Tax on instruments e.g Transfer of Property

4 Capital Gains Tax Capital Gains Tax is a tax on the gains realised by individuals on the disposal of assets No charge on transfers arising on death Inter vivos transfers, current rate 30% Reliefs should be utilised where possible Main relief- Retirement Relief

5 Capital Gains Tax Other Reliefs - CGT exemption on first (current 00( rate) - Principal Private Residence - Transfer to spouse/civil partner - Transfer of site to a child

6 Retirement t Relief Section 598 of the TCA 1997 offers relief to an individual disposing of his business assets subject to certain conditions Conditions- -an individual -over 55 years -disposing of qualifying assets -qualifying assets must have been held for a minimum period of 10 years before the disposal

7 Retirement t Relief Section 599 TCA Disposal to a child Qualifying i criteria i in S 598 TCA 1997 apply Definition of a child includes favourite niece/nephew, validly adopted children, stepchildren and non-marital children Possible loss of relief clawback if asset is disposed of within six years

8 Prior to The Finance Act 2012 The relief was allowed an individual id to dispose of qualifying assets to third parties for consideration not exceeding 750, Disposals to children- No monetary limit

9 Finance Act 2012 From the 1 st of January 2014 Relief will be restricted t where the business owner has attained the age of 66 For transfers to family, relief will only apply to the first 3 million of assets For third party transfers, relief will only apply ppy to the first 500,000 The old rules will apply to those disposing of The old rules will apply to those disposing of their business between the ages of 55-65

10 Finance Act 2012 For those who have reached the age of 66 or will reach it by the 31 st of December 2013, the old rules will apply until the 31 st of December 2013.

11 Marginal Relief on balance after threshold reached After the threshold is met, the amount of capital gains chargeable on the gain accruing on the disposal shall not exceed 50 per cent of the difference between the amount of that consideration and the threshold amount Threshold amounts , 3 rd party, 750, , child, unlimited No CGT 66, 3 rd party, on or before 31 st December 2013, 750,

12 Marginal Relief 66, child, on or before 31 st December No CGT 66, child, on or after 1 st January ,000, third person on or after 1 st of January , third person, on or after 1 of January ,000

13 Capital Acquisitions iti Tax Tax charged on the recipient of gifts and inheritances Current rate is 33% Tax free thresholds which are determined by the relationship between the disponer and beneficiary 3 relationship thresholds

14 Relationship Thresholdsh Group A- Child, minor child of deceased child of the disponer, parents - 225,000 Group B- Brother, sister, niece, nephew, lineal ancestor or lineal descendant of disponer- 30,150 Group C- All other cases. Will include uncles, aunts, step-brothers & sisters, grand nephews & nieces, natural parents of adopted children, cousins, strangers in blood - 15,075

15 Capital Acquisitions iti Tax Thresholds are lifetime thresholds and prior gifts are aggregated To aggregate means to include prior gifts along with the current gift when calculating the value of the total gifts received from any persons in relation to whom the beneficiary is in the same group threshold

16 Capital Acquisitions iti Tax Reliefs - Small Gift Exemption- 3,000.00, applies to gifts -Spousal Relief- Gift/Inheritance from spouse or civil partner -Agricultural Relief -Business Relief -Favourite Nephew Relief

17 Agricultural l Relief Section 89 TCA 1997 provides that - If applicable can provide relief of up to 90% on gifts or inheritances - The relief operates by reducing the market value of agricultural property by 90% so that the gift or inheritance tax is calculated on the reduced amount, the agricultural value

18 Agricultural l Property Agricultural land, pasture and woodland situate in a member state of the EU (pre 20 th Nov 2008, applied to land in the state only) Crops, trees and underwood growing on such land Such farm buildings, farm houses and mansion houses(together with the lands occupied on such farm buildings, farm houses and mansion houses) as are of a character appropriate to the property

19 Agricultural l Property Farm machinery, livestock & bloodstock on such property EU single farm payment entitlement Conditions - Property must be agricultural property at the date of the gift/inheritance and at the valuation date (date at which the property is valued for gift or inheritance tax purposes) p -Beneficiary must be a 'Farmer' at the valuation date

20 Farmer For the purposes of the relief, a 'farmer' means: an individual in respect of whom at least 80% of his or her assets, after taking a gift or inheritance, consist of agricultural property on the valuation date of the gift or the inheritance.

21 Agricultural l Relief- Clawback Clawback - If the agricultural l property is sold within six years and is not replaced within one year of the sale of or within six years of the compulsorily acquisition by other agricultural property. p - Pre 7 th Feb Requirement that the individual in receipt of the benefit be resident in the State for all of the three tax years immediately following the tax year in which h the valuation date falls, if not, relief is withdrawn -

22 Agricultural l Relief Clawback Finance Act 2012 removes the above condition for gifts/inheritances taken after the 7 th of February 2012

23 Business Relief The relief applies to gifts or inheritances of relevant business property which was owned by the disponer or his/her spouse for the relevant period immediately prior to the gift/inheritance A business includes all the various types of business carried on for profit whether incorporated or not, does not apply to investment business. Relief is 90% of the taxable value Relevant business property must have been owned by the disponer and/or the disponers wife for a minimum period

24 Business Relief Minimum period of ownership In the caseof an inheritance, it which h was taken on the death of the disponer, a period of 2 years immediately prior to the date of the inheritance In any other case, e.g. Gift or on the death of a life tenant, a period of five years immediately prior to the date of the gift or the inheritance

25 Favourite Nephew Relief Favourite Nephew/Niece relief entitles a beneficiary who is a child of the disponer's s brother or sister or a child of the civil partner of the disponer s s brother or sister to be treated as a "child" of the disponer provided certain conditions are met. Where the relief applies, the niece or nephew is entitled to the Group A threshold instead of the Group B threshold. Can be used simultaneously with other reliefs Can be used simultaneously with other reliefs, Agricultural Relief, Business Relief

26 Conditions Favourite Nephew Relief Applies to a niece or nephew who has worked substantially bt till ona full-time basis for the period of five years ending on the date of the benefit The relief will only apply to assets used in connection with the business Farming is a business for the purpose of the relief Beneficiary must have worked a minimum of 15 hours per week for a small business, 24 hours per week in a larger business

27 Favourite Nephew Relief Small business - business carried on exclusively l by the disponer, the disponer s spouse or civil partner and the nephew/niece. Large Business - where there are other employees

28 Stamp Duty SD10B- Revenue document Consanguinity it Relief- non residential, 50 % reduction Spousal Relief

29 Power of Attorney A Power of Attorney gives either a specific or general power and ceases as soon as the donor becomes incapacitated. A Power of Attorney can be specific (e.g. they can have the power to sell your house), or general, general meaning that they can have a wide range of powers in relation to property, business and financial affairs Ceases on the death of the donor

30 Enduring Power of Attorney Executing an Enduring Power of Attorney will mean that if a person becomes of unsound mind and unable to look after their own affairs, the person elected will step into this role. If an Enduring Power of Attorney is not in place, the person of unsound mind may have to be made a Ward of Court. Execution of an Enduring Power of Attorney should be considered d by anyone putting their affairs in order and can often be considered at the time of making of a will.

31 Enduring Power of Attorney It is of particular importance for people who may live on their own and may not have a family who can take care of them The person that is appointed power of attorney should be someone trustworthy, reliable and honest and someone who is well known to the individual. They should be familiar with what the wishes of the person would be.

32 Creation of an EPA The document creating the power must be in a particular format and must include the following: A statement by a doctor A statement from you A statement from a solicitor

33 Creation of an EPA At least 2 people must be notified of the making of an EPA, none of whom will be the attorney. One of the notice parties must be your spouse or civil partner if living with you. If this does not apply, one of your notice parties must be your child. If neither is applicable, one of the notice parties must be any relative (that is parent, sibling, grandchild, widow/widower/surviving civil partner of child, nephew or niece).

34 Enduring Power of Attorney The Enduring Power of Attorney must be registered to come into force The courts have a supervisory role & they have the power to give directions about the management and disposal of your property Thecourt can order cancellation or revocation in certain circumstances Once registered, a court application must be made for revocation EPA ceases on the death of the donor

35 Pension Adjustment t Orders Family Law Act judicial separation/foreign divorce Family Law (Divorce) Act Divorce Civil Partnership and Certain Rights and Obligations of Cohabitants Act registered civil partners/qualified cohabitants A PAO is an order made by the courts, designating g part of the benefits of a pension to a non-member spouse or dependent child

36 Pension Adjustment t Orders PAO is not applicable to a spouse that has remarried No PAO on foot of a separation agreement, must be a court separation, divorce or dissolution of civil partnership by the court Pension Adjustment t Od Order can only be made in favour of a Civil Partner under the 2010 Act, there is no provision for the making of an order in respect of a dependent member of the family For the purposes of PAOs, benefits are broken into two types- contingent benefits and retirement benefits

37 Pension Adjustment t Orders Contingent benefits- means death in service benefits under a pension scheme Retirement benefits- means benefits payable payable on or following retirement A pension scheme member may be eligible for one or both types of benefits. Each type of benefit must be applied for separately under different PAO's PAO for contingent benefit must be made within 12 months of granting of decree

38 Pension Adjustment Orders- Variation A Pension Adjustment Order in relation to Retirement Benefits can be varied No power to vary a PAO in relation to contingent benefits Difference between defined benefit defined Difference between defined benefit, defined contribution, hybrid schemes

39 Pension Adjustment t Orders- Calculation l The Court decides the level of benefit to be made to the non-member spouse and this is worked out by calculating a 'relevant period' and the 'relevant percentage'. Relevant period- the period during which the benefits were earned i.e. Start date to end date and it cannot extend beyond the date of the decree of the divorce R l t t th t f th Relevant percentage the percentage of the benefit to be taken into account that is earned during the relevant period

40 Pension Adjustment Orders Alternatives- PAO not always the best solution The court may take account of pension benefits by means of any other type of order under the Act (e.g. by making an adjustment to the allocation of non-pension matrimonial a assets i.e. property, savings, shares etc. Court may decide that adequate financial protection could be made for the non-member spouse by requiring the other spouse to effect a suitable life assurance policy instead of making a PAO in respect of a contingent benefit

41 Estate Planning, Power of Attorney, Pension Adjustment Orders Sarah Kemple Kemple Gormley Solicitors 12 University Road, Galway k l l li it i kemplegormleysolicitors.ie