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Business Matters The facts about inheritance taxes

February 16, 2011

By Staff Reporter

By Patrick Duffy

In 1990, I purchased a piece of property in Ireland for 160,000 punts. The property is now valued at _1.2 million. I intend to leave 75 percent of this property to my daughter. Could you give me a rough estimate of how much inheritance tax she will have to pay and if there is any way I can take out inheritance insurance to help her when she inherits it.

– K.D., the Bronx

First of all, K.D., congratulations. You must have been the first to see the coming of the Celtic Tiger. Your property has appreciated at an annual rate of more than 25 percent.

That’s the good news. The not so good news concerns your question, inheritance tax.

According to Irish law, a child can receive up to 188,400 punts of property as an inheritance and pay no tax. This amount is index linked and changes regularly, though not at a significant rate. The next 10,000 punts is taxed at a rate of 20 percent, the next 30,000 punts at a rate of 30 percent and the remainder at a rate of 40 percent. This tax will be paid by your daughter.

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The rates could change if your daughter has inherited any other property since June 2, 1982. That property will be aggregated with the present property and the calculations become a little more complex.

You do not state what kind of property it is. This could be very important. If it is agricultural or business property, special rules apply with regard to the amount of the value that is taxable. In the case of agricultural property, your daughter would have to qualify as a “farmer” and 80 percent of her assets after receipt of the inheritance would have to be agricultural land, livestock, bloodstock or equipment.

Similar type conditions apply if the property is business related.

If either agricultural or business related and your daughter sells the property within a six-year period, the benefits are cancelled. The benefits would be partially disallowed if sold within a period of six to 10 years.

With regard to inheritance insurance, yes, you can do something to help your daughter in that regard. Section 60 policies are specifically designed for such cases. The proceeds of the policy can be earmarked to pay any taxes arising out of your estate when you die. This policy can be purchased either as term, whole life or index linked insurance.

Alternatively, you could leave your daughter net property, i.e. an amount after the taxes have been paid by your estate.

You might consider gifting the property instead of leaving it in a will. If you do this, your daughter will pay less tax. In Ireland, gift tax is 75 percent of what the inheritance tax might be.

I suspect your case is a little more complicated than the question indicates. For instance, there is no indication as to whether you are undocumented, a green card holder or a U.S. citizen. Neither is there any indication as to whether or not you have property/assets in the U.S. If this is the case, careful coordination between the laws of both countries would need to be taken into account.

But once again, congratulations, you are looking ahead to anticipate potential problems. In time, your daughter will appreciate what you are doing now.

Patrick J. Duffy MS, CFP is a certified financial planner practicing in New York City. He specializes in business and personal financial planning with the overall aim of enhancing an individual’s or family’s quality of life. His office is at 767 Lexington Ave., New York, N.Y. 10021 and he can be reached by telephone at (212) 755-7736.

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