Five considerations for transferring assets to your children

Who doesn’t want their children to have more than they had? Successive generations all do their best to make sure their children enjoy a life more comfortable than their own, Brian Walsh, Director of Financial Planning with Davy, gives us some insight.

Parents who are in a position to help their children don’t want to remove the challenges that will help their children grow and develop into well-rounded people. For that reason, most parents want to provide assistance that alleviates life’s struggle without eliminating it altogether. Striking this balance can be challenging.

1.  Ask the hard questions

While parents naturally want to help their children they should also ask:

• Will financial help prevent them from becoming self-sufficient?

• Will it stunt their ambition to study, work and generally push themselves?

• What level of assistance is the right level?

It’s an important conversation to have, given the number of families that have fallen out over inheritance. The best way to avoid this is to include your children in the discussion.

2.  Start planning

In shaping your succession plan, start with a statement of net worth and a schedule of income. This will help you predict what you’re going to spend in the future and help you target the level of funds you’re likely to need for retirement and what is potentially available to be transferred.

The nature of parental assistance in Ireland remains largely property-related with parents contributing towards deposits or simply agreeing to be guarantors for their children.

3.  What to do and how?

Once parents have sufficient assets to meet their own needs, they should focus on a detailed strategy by asking:

• Should we transfer the asset(s) during our lifetime or as part of our estate?

• If we transfer the assets now, how do we retain control?

• Can we avail of any tax reliefs?

• Are we availing of the lifetime thresholds for capital acquisition tax (CAT)?

4.  Consider a Family Partnership

Most parents are reluctant to transfer assets without maintaining some control over what is being passed on. In the case of business assets, that means retaining more than 50% of the business or creating a special type of share that grants control over the board of directors.

In the case of purely financial assets, the creation of a Family Partnership can ensure that:

• Parents retain control of the assets.

• Children benefit from financial education and professional advice.

• Any future growth of the asset is free from CAT.

5.  Transferring assets via trust

For parents, leaving assets to minors or children who are not ready or capable of managing an inheritance, it’s essential to draw up a Will that allows for the assets to pass into a holding structure, known as a discretionary trust.

This ensures that:

• There is flexibility to distribute the assets on a phased basis rather than a full transfer upon death;

• Control is maintained by trustees who operate in accordance with the trust document (or parents’ letter of wishes);

• Certain tax reliefs are available, where conditions are met during the period in which the assets are held by the trust.

Final thoughts

Helping children financially can give them a solid platform for the rest of their lives, but there are a number of important emotional as well as practical questions to be addressed before taking that step.

Whatever your family situation is, our advice is to start your succession planning as soon as possible.

Brian Walsh is a Director of Financial Planning with Davy. He works with company owners and their advisors to ensure that any investment strategy is considered in conjunction with an overall financial plan and is structured in a tax efficient manner.

Please note that this article is general in nature and is not intended to constitute tax, financial or legal advice. It does not take account of your financial situation or investment objectives. Prior to making any decision which may have tax, legal or other financial implications, you should seek independent professional advice. There are risks associated with putting any financial plan in place. The value of investments may go down as well as up.

J&E Davy, trading as Davy, is regulated by the Central Bank of Ireland.

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