By Marie Carr
RECEIVING an inheritance rarely feels like good fortune in the moment. It often arrives during grief and the pressure to make quick decisions about a lump sum can add to an already difficult time. Financial experts say the first rule is simple: there is no need to rush.
How and when an inheritance is paid depends on the size and complexity of the estate. Settling debts, selling property and dealing with multiple beneficiaries can take anywhere from several months to more than a year. Only once the deceased’s own debts and bills have been cleared is the remainder distributed to those named in the Will.
Once funds do arrive, most planners recommend parking the money in a high-interest savings or notice account for three to six months before making any major decisions. That waiting period allows space to think clearly, rather than being pressured into fast choices.
Tax is another factor beneficiaries need to understand. Capital Acquisitions Tax applies to inheritances above certain thresholds, which vary depending on the relationship to the deceased.
Children inheriting from a parent currently have a threshold of €400,000, close relatives €40,000 and all other beneficiaries €20,000. Anything above the relevant threshold is taxed at 33 per cent.
Deadlines for returns can differ case by case, so those affected are advised to check their specific position.
When it comes to deciding what to do with the money itself, there is no single correct approach. For many, clearing high-interest debt such as credit cards, personal loans or car finance offers an immediate guaranteed benefit, since it removes interest that would otherwise be difficult to outperform through investing.
Others may choose to overpay a mortgage or build up an emergency fund of three to six months’ expenses.
Those not ready to commit to longer-term plans can simply save, with fixed-term deposit and notice accounts often paying better rates than everyday current accounts.
Families wishing to share some of the windfall should note that up to €3,000 per person, per year, can be gifted tax-free under the Small Gift Exemption.
For those thinking longer-term, pension contributions are often highlighted as one of the most tax-efficient options, given the income tax relief available. Beyond that, a wider range of investment options exists, though all carry different levels of risk.
One word of caution recurs throughout: avoid rushing into property or other large, irreversible purchases in the immediate aftermath of a bereavement.
Given the sums often involved and the complexity of tax rules, professional guidance matters. Anyone dealing with an inheritance is encouraged to seek advice from a qualified financial planner or tax adviser before making significant decisions.
l Marie Carr, CFP MSc BBS QFA RPA SIA is a CERTIFIED FINANCIAL PLANNER. You can contact her through Fairstone Letterkenny (formerly John F. Loughrey Financial Services) by telephone on 074-9124002 or by email on [email protected]