Why is There so Little Estate Planning in Ireland?

Why is there so little Estate Planning in Ireland?

We were engaged by a couple in their mid-50s recently for Financial Planning advice. Firstly, we ensured that their family would be protected come what may. The couple’s retirement plan was on a very clear path, and they were happy with their investment portfolio. Their investments reflected both their personal values and their appetite for risk.

In their minds, they both felt that we were approaching the end of the financial planning process…

Wealth Transfer to Children

We had completed the work with tax efficiency in mind, both now and through retirement. We were also mindful of wealth transfer to their two children in the future. However, there were also some remaining and unexplored areas that we wanted to discuss in relation to estate planning.

As we raised the subject, the couple confirmed that they hadn’t given a moment’s thought to estate planning or transferring their wealth onto their children. They felt they were too young for this discussion. It was a conversation that they had never had before – with their previous advisor, their friends, or their family. They asked us why there is so little talk of estate planning in Ireland.

An Interesting Question…

Estate planning is such an important part of financial planning. Large tax bills can arise when somebody inherits assets. However, these bills can be mitigated if approached strategically and in time.

Estate planning isn’t that common in Ireland. We believe that this is because much of the wealth in Ireland has been created in the last 50 years. There just isn’t the tradition handed down from one generation to the next of deliberately moving assets efficiently onto the next generation.

Many people don’t believe they are wealthy enough to need estate planning. They just don’t ‘feel rich’. Once retired, they may be relying on their state pension, often a relatively small private pension and hopefully some savings. While they might have a property worth a million euros (and sometimes substantially more) that they have lived in for many decades, their only thought about this is how costly it is to heat. They haven’t sold it, so don’t see the value of it in their bank account. We often call these people asset rich but income poor. They don’t see a need for estate planning.

Insufficient Planning

Then there are others who have a lot of money in the bank, but this is already allocated for a ‘rainy day’. It’s not a conscious strategy, it’s usually just accumulated and it’s difficult to break that habit of saving for some unknown event in the future. These people typically have an income greater than their expenses, and the cash just builds up over time. Careful estate planning is also required in this scenario, even though these people don’t consider the need.

Another consideration that is often overlooked is that expenditure tends to decline in real terms by 1% to 2% pa during retirement. This means that someone who retires with a comfortable pension in their 60s has a significant surplus income in their 80s that they will struggle to spend. They don’t really feel richer as their income is not increasing. However, their bank balance is, and so their future inheritance tax bill is growing. Again, these people don’t feel rich and estate planning doesn’t come to mind.

But it needs to.

The Need for Estate Planning

Ireland has a quite penal inheritance tax climate, with low thresholds before the tax kicks in and a high tax rate of 33% on amounts above the threshold. A good estate plan can step in and take care of your heirs rather than handing a significant chunk of your wealth to Revenue. It requires time, careful planning and the guidance of an expert in this area.

We’re fortunate in Everlake that our Managing Director Marc Westlake, in addition to probably being Ireland’s most qualified financial planner, is also a registered Trust & Estate Practitioner. Marc and our team of expert financial planners can guide you through even the most complex estate planning scenarios. But as we’ve suggested above, the inheritance tax net is thrown much wider than many people anticipate, with lots of people not realising they have a need for estate planning advice. Time is a critical factor in estate planning, so prepare as soon as possible for the tax efficiency opportunities now and down the road.

To review your financial circumstances and estate planning opportunities, please get in touch or download our guide

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