The Importance of Succession Planning

Thinking about the future, especially in terms of what happens after we’re gone, is something many people prefer to avoid. However, planning ahead ensures that your assets are protected, your loved ones are looked after, and your wealth is transferred in a structured and tax-efficient manner. Succession planning is not just about wealth—it’s about ensuring stability, security, and peace of mind for those you leave behind.

Why a Will is Essential

The starting point for any succession plan is putting a will in place. A will clarifies how your assets will be distributed and who will have legal responsibility for dependents. Without a will, your estate will be distributed according to the rules of the Succession Act, which may not align with your wishes.

A well-structured will addresses key issues such as:

  • Who inherits specific assets
  • Guardianship arrangements for minor children
  • How assets are transferred to minimise tax liabilities
  • Who will act as executor of your estate

It’s advisable to review your will every 3–5 years or as circumstances change. If you have minor children, a child with a disability, or assets located outside Ireland, additional planning will be necessary to ensure the best possible outcomes.

Understanding Capital Acquisitions Tax (CAT)

A crucial aspect of succession planning is understanding the tax implications of transferring wealth. In Ireland, Capital Acquisitions Tax (CAT) applies to gifts and inheritances above specific thresholds. The current CAT rate is 33%, and it operates on a cumulative basis, meaning all gifts or inheritances received since 5th December 1991 within the same tax class are added together.

Each individual has a tax-free threshold depending on their relationship to the deceased:

  • Group A: €400,000 – applicable to children inheriting from parents
  • Group B: €40,000 – applicable to siblings, nieces, nephews, and grandchildren
  • Group C: €20,000 – applicable to all other individuals

Any inheritance exceeding the relevant threshold is taxed at 33%, making it essential to structure wealth transfers carefully to avoid excessive tax burdens.

Tax-Efficient Gifting and Estate Planning

One effective way to reduce the impact of CAT is by making use of the small gift exemption. This allows any individual to gift €3,000 per annum tax-free to another person. Since this exemption applies per giver, multiple individuals (e.g., parents, grandparents) can collectively gift significant amounts without eroding tax-free thresholds.

Another common issue beneficiaries face is how to fund CAT liabilities. Due to accelerated payment timelines, assets may have to be sold at inopportune moments, or beneficiaries may need to secure loans to cover the tax bill. One solution is a Section 72 life insurance policy, which is designed to cover CAT liabilities. Unlike standard life insurance, the proceeds of a Section 72 policy are exempt from CAT when used for tax payments, providing a structured way to ensure beneficiaries do not struggle with unexpected tax burdens.

Choosing Executors and Estate Equalisation

Selecting the right executors is another critical decision in succession planning. Executors are responsible for administering the estate, handling legal matters, and ensuring assets are distributed according to the will. Given the complexities involved, it is advisable to appoint someone familiar with financial matters or seek professional assistance.

For those wishing to distribute wealth equally among children, estate equalisation should be considered. This involves keeping records of past gifts, loans, or other financial arrangements to ensure a fair distribution of wealth among heirs.

Taking a Proactive Approach

Succession planning is about more than just wealth—it’s about ensuring stability, reducing stress for loved ones, and protecting your legacy. Whether through drafting a will, considering tax-efficient transfers, or securing a Section 72 policy, taking proactive steps today will provide peace of mind for the future.

At Lynx Financial Services, we are here to help you navigate the complexities of estate planning, ensuring your assets are protected, and your loved ones are provided for. Talk to a financial advisor today to start planning for tomorrow and beyond.

Planning for Today, Tomorrow and the Unexpected

At Lynx Financial Services, we believe financial planning shouldn’t be complicated or overwhelming. That’s why we take a personalised, straightforward approach, helping you save for today, tomorrow, and the unexpected.

No jargon. No hidden fees. Just clear, honest advice tailored to your goals.

Whether you’re looking to grow your investments, plan for retirement, protect your family, or secure the right mortgage, our expert advisors are here to guide you every step of the way. Your financial security is our priority, and as a member of Brokers Ireland, regulated by the Central Bank of Ireland, you can trust that you’re in safe hands.

Wherever you are in life, whatever your financial goals – we’re here to help. Get in touch for a no-obligation chat.