The original allocation of my mother’s estate included all her children. Since my brother has unfortunately passed away, she has touched up her will to accommodate my sister-in-law, dividing the estate equally among her remaining children and my brother’s wife. Yet, it’s expected that my sister-in-law might incur expenses due to the reduced Capital Acquisitions Tax (CAT) limit.
How can this be prevented? Will my brother’s share of the estate be channelled to his wife without the burden of the lower CAT limit if my mother maintains her original will?
This is indeed a noteworthy point. Drawing attention to Section 98 of the Succession Act, it turns out there might be a way around it. Importantly, the solution hinges on if my brother became a father before his demise.
If my brother had children, his share of our mother’s estate wouldn’t dematerialise with him. However, it doesn’t directly transfer to his offspring either. It gets incorporated into his estate instead and may be settled years after his passing.
Therefore, if his will named his wife as the sole beneficiary, she would be assigned the portion of our mother’s estate that was initially meant for my brother. The best part is that no tax is attached to the transfer between spouses.
If he appointed his wife and his children as beneficiaries in his will, this forthcoming inheritance from our mother would be divided likewise. His wife’s inheritance would continue to be tax-free, and his children’s share would fall under the category A tax-free limit from parent to child, presently capped at €335,000.
Should this limit has already been exhausted, they would face a tax charge of 33%, otherwise, no tax would apply.
Now, in the scenario where he failed to draft a will, there would be a similar outcome. Nonetheless, intestacy laws would govern our mother’s bequest to him. His widow would receive two-thirds and his children would share the remaining third.
Once again, this provision only stands if he had children.
The “doctrine of lapse” stipulates that if an individual set to inherit predeceases the benefactor, their intended inheritance becomes part of the residue. The residue is the remaining part of your mother’s assets after all specific gifts specified in her will have been accounted for. If this happens in the absence of your brother’s progeny, the originally intended portions for him become redistributed according to the conditions laid out in your mother’s will.
However, if your brother sired children, the inheritance remains as it is. Alternatively, if he didn’t, or if your mother anticipates that the inheritance will bypass his widow but desires otherwise, she must redraft her will.
Additionally, she must also take into consideration the tax implications. Whilst any inheritance passed onto her children falls under Category A of the inheritance tax law and its €335,000 threshold, any inheritance bequeathed to her child’s spouse or partner — in this situation, your brother’s widow — gets classified under a lower tax exempt bracket.
According to the inheritance tax law, your brother’s wife is considered unrelated to your mother — a stranger. Consequently, her tax-free receipt limit under category C, applicable to non-direct blood relatives, is only €16,250.
This threshold also extends to any inheritance she may have already accrued from anyone who is not her parent, grandparent, sibling, uncle or aunt.
This would only be an issue if your mother decides to revise her will. If her intended allocation for her daughter-in-law surpasses this rather humble tax-free threshold, she can mitigate this by restricting her bequest to the cap limit and, while still alive, gift her €3,000 per year. There are no tax repercussions for such a gift for your mother or her daughter-in-law.
However, it should be noted that this “small gift exemption” is only valid for gifts made while your mother is alive. If she passes away soon after, this exemption will do little to enhance the amount bequeathed in the will. Furthermore, one must bear in mind that older individuals often have fewer available funds for annual gifting of amounts such as €3,000.
“To avoid overcomplicating matters, remember that even if the tax free limit of €16,250 is exceeded, your brother’s widow would still receive two-thirds of any remaining inheritance from your mother, since the tax on inheritances above this limit is 33% – steep, but not entirely depleting.
One last crucial point… a term known as a “legal right share” exists. This is only applicable if your brother had children, hence your mother’s inheritance to him moves to his estate. Regardless of what his will stipulates, if children are involved, his wife is automatically eligible to one-third of the estate (equating to one-third of your mother’s inheritance to him).
This doesn’t mean the children split the remaining two-thirds, their share will depend on the directives in his will. The legal right share merely safeguards against instances where a will doesn’t allocate at least one-third of an estate to the wife. Though it’s a rarity. The common practice is to bequeath everything to the spouse barring the stray bequest as it’s the most tax-savvy method.
In summary: if there are children involved, your mother doesn’t need to revise her will; if there aren’t any children and she wishes to leave something for her daughter-in-law, then yes, she must update her will.”