TAKE THE OPPORTUNITY IN ADVERSITY: PLAN FOR SUCCESSION NOW

In a recent survey I conducted of people sitting near me in the pub on a Friday evening, in answer to the question “what do you call 10,000 lawyers at the bottom of the ocean?” many people felt that it would be a pretty good start! As a curious member of this misunderstood profession, this made me wonder why so many people have such a poor view of what lawyers have to contribute to society.

The obvious answer seems to me to be costs, or the large fees that are often reported as paid to lawyers for long, difficult and sometimes nasty court cases. In the areas in which I specialize (wills, probate and tax – for which I will use the catchall phrase of succession planning) this is typified by the attitude that when lawyers become involved in dealing with a person’s affairs after they die, what doesn’t go in taxes gets gobbled up in lawyer’s fees.

This perception, combined with the fact that most sensible people wish to spend as little time as possible thinking about their death, means that many (if not most) people do not have the most basic protection to safeguard their family’s wealth and security if anything unforeseen were to happen; a will.

Benjamin Franklin’s wisdom that the only two certainties in life are death and taxes endures. While a lawyer can’t help you cheat the former and only a crooked one would help you cheat on the latter, the one thing that a good lawyer can do that no one else can is to make sure that your family pays the least in tax if anything were to happen to you. This is perhaps the greatest paradox in the public perception that lawyers are expensive trouble makers.

A third certainty that we might add to Ben’s famous two is that if you do not prepare in advance, it is quite likely that whatever can go wrong will. However, the other side of this coin is that we can prepare in advance simply and at very little cost, relative to what will be involved if we do not. The unfortunate fact is that it is the failure to consult a good lawyer in advance that gives rise to the problems that result in the bad lawyer jokes.

The solution to this conundrum is to contact a solicitor specializing in the areas of succession law and tax. You should ensure that they have the specialist qualifications to be able to advise you fully whatever your personal or family circumstances. The primary qualification that someone needs to be able to advise you is to be a solicitor regulated by the Law Society of Ireland. However, this is a general qualification to deal with everything from copyright to murder and therefore you should look for someone who has chosen to specialize in the area of concern to you.

Tax is a large factor in any decisions to be taken in relation to the transfer of property and succession and you should ensure that the solicitor advising you in this area is an Associate of the Institute of Taxation in Ireland which is the recognized qualification for tax practitioners in this country. It is signified by the letters “AITI” after a person’s name.

While tax is an important factor, it should always be ancillary to the main transaction and needs to be kept in perspective. The Society of Trust and Estate Practitioners is the international governing body of legal professionals working in the areas described as succession planning and in order to become a member one must have obtained additional specialist qualifications in these areas. Membership of the Society of Trust and Estate Practitioners is signified by the letters “TEP” after a person’s name.

No article published anywhere in this country in “the current economic climate” can be complete without mentioning the recession. You may take the point of view that we have enough to be getting on with at the moment without worrying about what may happen when we die. Well a lot of people have a lot to worry about at the moment, but the thing about worry is that while it may give you something to do, it doesn’t get you anywhere! However, the simple act of reviewing your circumstances and making a will or taking other appropriate action to plan for the future will eliminate one area of worry and allow you to get back working towards the recovery that must inevitably come.

The recession places two facts in this country in very sharp focus, asset values have fallen dramatically after a period of unprecedented growth and taxes are set to rise considerably from a historically low level. This presents an opportunity for succession planning now that should not be missed.

The fact that asset values have fallen means that assets can now be transferred, either into the names of others or into joint names with others for succession planning purposes without generating the tax liabilities which transfers at the values attained during the boom years would have made prohibitive. This should be looked at as part of life long strategic succession planning and this is a topic to which I shall return in later articles.

Ten years ago, early in the boom, the rate of inheritance tax on property transferred by will was 40% together with a probate tax of 2% (just for good measure!) This was changed to a flat rate of 20% in 1999 and probate tax was abolished in 2000. Along with many other things during the boom, we became used to this low rate of tax over the last decade. However, this 20% rate has already been increased twice within the last 18 months to a current rate of 25%; an increase of a quarter. Given that we know that the government has yet further dramatic action to take to restore the public finances, the area of inheritance tax represents a soft target in which we can be sure to expect further increases.

As well as increasing the rates of tax, it is very likely that the generous reliefs that have applied to inheritance tax will continue to be reduced. The threshold which a parent may give to a child free of tax has been reduced twice within the last 18 months; by 20% in April 2009 and by a further 5% in January of this year. The reliefs available on the transfer of farms and businesses are also in the firing line.

The AITI and TEP qualifications are the ones you should look for in choosing a solicitor to advise you in this area. After that, you do not need to make any preparations or to do any work in advance. You just call them up on the telephone or send them an e-mail requesting an appointment, it is as simple as that and you can do it today.

In that first consultation they should outline the process to you, explain clearly what will be involved and what it will cost. They should review your personal and family circumstances in detail and discuss with you how you would like to organize your affairs. If you are not sure, they can provide you with suggestions and advice based on their expertise and experience. Depending on your personal circumstances, the solicitor will usually be in a position to prepare a will for you based on that first meeting and will arrange an appointment to meet again to have the will signed, while sending you a draft in the meantime for you to mull over. If your circumstances are more complex, a number of meetings may be necessary but this is all the more reason to start this process immediately.

Once it is done you can forget about it and your life expectancy will not have changed one iota. You can get on with living your life in the security and certainty that if anything does happen to you, your solicitor has made sure that you are in control of your affairs and you have protected your family’s wealth from the tax man and the greedy lawyers!

Florence McCarthy LLM, AITI, TEP is a partner in McCarthy & Co., Solicitors Clonakilty. He specializes in the areas of tax and succession planning and commercial law. flor@mccarthy.ie

This article first appeared in The Southern Star on 17th April 2010.