QI recently received my tax-free lump sum from my pension. I want to give some of this to my kids to help them buy a house. What is the best way to do this and are there any tax implications of giving money to an adult child? I realize you can give €3,000 tax-free per year, but I was thinking of a larger amount.
A You’re right about the €3,000 annual exemption for small gifts. You can receive a gift of up to €3,000 from anyone in any calendar year without having to pay Capital Acquisitions Tax (CAT).
However, according to attorney Susan Murphy of MakeMyWill Solicitors, your children also have the CAT gift/inheritance tax limit from a parent, known as the Group A threshold. This threshold is currently €335,000. Ms Murphy said you should keep in mind that gifts you made while you were alive will be taken into account when it comes to your children later receiving an inheritance from you.
For example, if you gift them €50,000 now, they don’t have to pay CAT now, but that lump sum will be removed from their Group A threshold when it comes to their inheritance tax liability, the lawyer said.
Q I am considering a job change and see that some companies are offering a death benefit as part of their compensation package. What is it and is it valuable?
A Death on the job is an employment benefit that pays a lump sum to your named beneficiaries if you die while working for your employer. The cause of death need not be work-related or have occurred at the workplace, according to Karen Gallagher, interim head of Royal London Ireland.
She said you simply had to be on the company payroll at the time of death to qualify. However, sometimes you also need to register with your employer’s pension scheme to qualify. The amount paid out varies, but is usually two to four times your annual salary. For example, if you earn 50,000 euros a year, 100,000 to 200,000 euros could be paid out to your beneficiaries, Ms Gallagher said.
Funeral insurance is very valuable, but should not be viewed as a substitute for life insurance
You can determine who the payment should go to. If you die and the benefit is triggered, the money is usually paid to the nominee or, if you have not nominated anyone, to your estate. Ms Gallagher said the death benefit is extremely valuable but it should not be seen as a substitute for life insurance and cannot be used to cover your mortgage.
In addition, you cannot choose the coverage amount, as this is set by your employer. This means that the payment may not be enough to help your loved ones deal financially with your death. And if you leave the company, you lose the advantage, she said.
Q I have significant retirement benefits from my previous employer. I have now received notification that this pension plan will be terminated due to IORP II legislation. What options do I have?
A Many readers are likely to receive similar letters on company pension schemes in the coming months.
According to Mark Ruddy, Head of Client Management at Lockton Ireland, a company that advises on pensions and employee benefits, pension schemes must comply with the European Union’s IORP II (Institutions for Occupational Retirement Schemes) Directive by 1 January next year. The directive means many pension systems are looking to ditch their existing pension arrangements and set up a new Master Trust pension plan, Mr Ruddy said.
The letter you received notifying you of the settlement will describe the “default position” chosen by the trustees and also outline what fees will be charged under the new plan, the pensions expert said. This means that if you do not contact the pension provider within the 30-day reporting period, your assets will automatically move to the default position selected by the trustee.
By default, you’ll likely be offered one of two options: transfer to your former employer’s new Master Trust retirement plan; or transfer to a personal pension scheme in your own name. You might also have other options, including transferring to your current employer’s pension plan or retiring your benefits when you are over 50.
Since you’ve built up a significant advantage, Mr. Ruddy advises that you seek impartial advice on your options.
https://www.independent.ie/business/personal-finance/your-personal-finance-questions-how-do-i-minimise-tax-when-giving-children-help-to-buy-a-house-41878090.html Your personal finance questions – How do I save on taxes by helping children buy a house?