I have a stepson from my now deceased wife’s first marriage and two children from our marriage.
My will states that my estate will be divided equally between the three of them.
However, my stepson has already received property and monies valued close to the maximum allowed tax free, from his deceased father’s estate.
My question is: can I will some of my estate to my stepson’s wife and their two children aged 15 and 12 at present, without their incurring tax liability?
If so, what is the maximum I can will in each case?
JT
Planning is the key to good management of your estate, even more so with the concept of blended families that is a more frequent factor in Ireland today – not least as you will not be around to clarify when the issue becomes relevant.
Your stepson is fortunate in that he has already benefited significantly from an inheritance from his biological father but it clearly will affect what he can inherit tax free going forward.
Under Irish inheritance tax law, a stepchild is considered to fall under category A, the highest tax-free category for the purposes of inheritance where there is a will. Section 2 of the 2003 Capital Acquisitions Tax Consolidation Act – which governs Irish inheritance tax – defines the term “child” as including a stepchild or an adopted child.
As your experience shows, one unaddressed consequence of the law for blended families is that a person can have more than two parents to share this €400,000 tax-free threshold, which can make estate planning tricky.
You are keen that all your children are treated equally and there is nothing to stop you doing so, but there is certainly a limit on what this stepchild can receive free of tax.
Spreading his intended inheritance more widely among his family would certainly help.
As the stepson is accepted in law as falling under category A, their children would be treated as category B, meaning that they are able to inherit up to €40,000 each free of tax under current thresholds.
Your stepson’s wife, your daughter-in-law, as with all in-laws, falls under category C where the maximum tax-free benefit is €20,000.
As with your stepson, all these thresholds are cumulative so the €40,000 applying to the children of your stepson also covers any inheritance they may have received from his biological parents, grandparents, and aunts or uncles related by blood.
In their mum’s case, that €20,000 also covers an inheritance she has previously received from anyone but close relatives. That would include her father-in-law who, as you note, left his son a significant inheritance when he died.
Assuming they have no previous inheritances, the maximum you can direct towards your stepson’s family other than to him directly is €100,000 before tax becomes an issue.
He appears to have some limited tax-free capacity left himself, though you don’t clarify how much. After that, he still benefits obviously; he just has to pay the State a third of what he receives from you.
You will certainly need to amend your will to specifically include bequests to your stepson’s wife and children if you decide on this path.
And the wording will need to be careful to ensure all your three children continue to be treated equally as you intend. A careless slip could see the €100,000 allocated to his children and wife and he still being treated equally with his stepsiblings in terms of the split of any remaining assets.
Given that these relations will be specifically mentioned in the will and not others, it might also be worth including reference in the will, or more likely a side letter, explaining your thinking in doing so to ensure there is no ill feeling within the family when, as I said previously, you won’t be around to unravel any misunderstandings.
One thing to mention which is not relevant here as you have a will but is a factor to consider for the majority of people who do not have wills: they should be aware that when they die, any stepchildren will have no automatic right of inheritance – with or without a tax bill – unless they have been formally adopted.
Some people assume because they are granted category A tax-free status in inheritance tax legislation, they are covered, but there is no mention of stepchildren in the Succession Act which covers intestacy – the situation where someone dies without a will. Adopted children are mentioned and covered.
Many families do not go through the formal step of adopting their stepchildren. And most adults in Ireland do not have a will including, presumably, many of those in blended families. The law as it pertains to stepchildren is just one more reason why they should make a will without delay.
