Marriage, Tax Entitlements and Special Needs Trust Planning
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 many people getting engaged, but what are the issues surrounding your marital status and having a child with special needs and setting up their Special Needs Trust?
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 2022 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), your surviving spouse has no CAT liability when you pass away. 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 significant 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 into your child’s Special Needs Trust.
I recently met a couple that I explained this issue to 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.
If you fall into the “not married” category, you might consider picking up a ring when you grab the flowers from the petrol station this year! You can read more on CAT