- June 1, 2019
- Bob Quinn
- Estate Planning
Receiving an inheritance from an older family member is not all plain sailing. It can be a source of emotional turmoil and in some cases the beginnings of a family rupture.
I’ll give you just one example. A client of mine was left her grandfather’s homeplace. It’s three hours’ drive from where she and her family are now rooted. It needs substantial refurbishment to make it attractive to live in. On top of that expense, she is facing a hefty tax bill. As a grandchild, her CAT (Capital Acquisitions Tax) threshold is €32,500 (Group B). At 33% on anything over this amount, her tax bill will be €39,000.
What my client wants to do is to sell the house. It’s not that she needs the money or doesn’t want to pay the tax bill; the truth is, this very significant chunk of her past has no place in her future.
Other members of the family don’t see it like that. They have a nostalgia for the place that overrides any practical consideration. My client’s aunts, uncles and even her mother are shocked that she would consider selling it. She would be the fifth generation to live in it, after all. My client is in turmoil. She feels the weight of family history on her shoulders.
It doesn’t have to be this way. I believe we can take some the emotional turmoil out of inheritance by bearing in mind three elements.
Generational attitudes to inheritance
Have we any right to suppose that our values will be honoured by the next generation when we leave them our wealth? Our parents (assuming they are Baby Boomers or older) have a strong sense of responsibility towards any bequest from their parents or grandparents. This may come from the fact that they witnessed the hard graft the previous generations put in to accumulate their wealth. They are inclined to be conservative with the proceeds of inheritance and often simply act as a conduit between their parents and their children by passing the money or assets on in their own wills.
My client’s generation has a different attitude. Perhaps shaped by the property bubble, the crash and the chronic shortage of houses we are currently experiencing, they are inclined to help their children out now, if they need it, rather than when they pass on. By then, their children are more likely to be financially independent and won’t need the money or assets as much.
Her generation is also more inclined to want their parents to benefit from the wealth they have accumulated. They’d rather their parents spent their money on making the house comfortable for themselves in the older years or going on a round-the-world trip than scrimping to make sure there is something to pass on.
Understanding these different attitudes would help people make better decisions about how to pass on their wealth.
Communication is key
This to me is the crux of the issue. Parents don’t tend to discuss with their children how they will pass on their estate. If you think about your own relationship with your parents, you may not know how much they actually have to pass on, or what hopes they might have attached to their plans. They, in turn, do not know what your expectations are in terms of their legacy.
It is not just anecdotal evidence that bears this out. Research from the US Trust (2011) shows that 60% of transitions of wealth failed due to a breakdown in communication and trust in the family unit; 25% of failures in family wealth transfer were caused by inadequately prepared heirs.
By talking about your financial needs now and in the future, parents and children can avoid such needless failures.
Add a rider to your will
My client made a throwaway remark as she told me her story: “I wish Granda had written in the will that I could do whatever I wanted with the house, or even that I could only have it if I was prepared to live in it. That way at least we’d know what he expected of me.”
Ideally there would be no need for this because the conversation I mentioned above has taken place, but in lieu of talking about it, the disponer can at least make his or her hopes or intentions clear in the will. This takes away the guesswork and gives the recipient the ability to point out the disponer’s wishes in the face of disapproval or opposition from family members.
What I’m suggesting is profoundly different to how we approach succession, but it is essential smooth the passing of wealth to the next generation.