At this time of the year, LOVE is all around us and Valentine’s Day is nearly upon us. It is the time of the year when I hear of lots of people getting engaged, but what are the issues surrounding your marital status and having a child with special needs?
Most parents I meet fall into the married category. As my wife might be reading this, I have to say this is the best category!!
But it actually is, when it comes to building a larger Special Needs Trust. There are several reasons for this: married couples pay less tax because they can share tax credits. In certain circumstances, they may also claim additional credits such as Home Carers Tax Credit on top of the Incapacity Child Tax Credit. This allows a parent to earn more money, pay less tax and put themselves into a better financial position.
Being married also has a considerable advantage in Capital Acquisitions Tax (CAT), the main tax people pay to the government when they pass away. In 2021 if you inherit above your allowed threshold, you will have to pay CAT at 33%.
The following bands apply
• Married couple or civil partnerships = Unlimited – no CAT payable
• Parent to Child – €335,000 exempt then 33% over this threshold
• Family members – €32,500 exempt then 33% over this threshold
• Others – €16,250 exempt then 33% over this threshold
For this article, I have simplified the above information because what I wanted to highlight is that when you are married (or civil partnership), when you pass away, your surviving spouse has no CAT liability. This means that all your assets transfer to them with no deduction or money passed on to the government.
If you are not married, divorced or living with your partner, you fall into the “Other” category. This is unfair, but it is the current law.
In this scenario then any assets, money, life policies, house, etc. you inherit from your partner that is above €16,250, then you will have to pay 33% immediately over to the government in the form of CAT.
This is a major issue for all parents who fall outside of the “Married Couple” band. In particular, you are focussed on passing your possession on to your children and in particular into your child’s Special Needs Trust.
I recently had a zoom consultation with a couple that I explain this issue during our first meeting and by our second meeting 4-weeks later they had set a date to get married in a register office after 12-years of living together! All jokes aside, they have no CAT issues in the future and can rest assured knowing that their family home, savings, pension and whatever else of value they have, can ultimately end up going to their children before the government can get their hand on any part.
Further information
If you fall into the “not married” category, you might consider picking up a ring when you grab the flowers from the supermarket this year! I am sure the Garda will wave you on when you explain the situation “Essential Services”. Do stay safe.
You can read more on CAT
https://www.citizensinformation.ie/en/money_and_tax/tax/capital_taxes/capital_acquisitions_tax.html