Changing Will by Agreement

James McNulty

Best friend has 4 siblings and the terms of their parents will should have been favourable to all (will drawn up in 2007 so a lot has changed since then). 4 properties held by parents and cash in bank accounts. They wanted to leave a house to each child and cash to the fifth but since 2007, cash has been depleted by nursing homes etc and the values of the houses are completely out of skew with each other.

All siblings get on really well and have decided to ignore the terms of the will and divide everything 5 ways. I told them to seek legal and tax advice ASAP, The mother died a while back and the father has dementia.

Any ideas?

Allinall

Is it the mother's or father's will they want to change?

James McNulty

https://www.boards.ie/discussion/comment/122330981#Comment_122330981

The mother died and left everything to the father so it's his will they want to change. I need to stress (according to them) there is nothing underhand. They just want to divide everything equally in the interest of fairness

hullaballoo

The only person who can change a will is the testator. It's incredibly messy what they are proposing and rightly you point out there are tax risks. There are also other risks, legal risks like inadvertently "disinheriting" themselves to use a colloquialism.

Basically, the testator (person who made the will) can leave property to whomever they choose. If a beneficiary doesn't want the property, they can do something called "disclaiming" the property - i.e. reject the property. They can either disclaim the property, or disclaim it in favour of another person (or a few people if they wish). However, if they disclaim in favour of another person (or persons), Revenue take the view that this is a gift from the beneficiary to the other persons. In such a case, Revenue inevitably takes most of the property or its value because the person disclaiming pays tax according to the relevant thresholds for inheriting the property AND THEN the person(s) they gift the property to also pays tax on the relevant thresholds.

The alternative is to disclaim the property simply. Then it goes back to the estate for division according to the remainder of the will. That might work in this case depending on the terms of the will. But here be dragons. I have seen cases where something like this was attempted but someone missed a provision of the will or got their law mixed up. What should have been a small gift to a distant cousin ended up being a gift of the entire very generous estate because everyone disclaimed the property named in the will, this went to the residue of the estate, which then went to the distant cousin by operation of the will.

Yes, be very careful.

Ted222

If the father has dementia, the opportunity to amend the will has passed. I think the best advice would be to discharge the will in accordance with its provisions and see where that leaves each of the four.

If they want to balance things up subsequently, that’s fair enough but there may be further tax implications for the recipients at that stage. I don’t think there’s any way around this given the father’s current condition.

Claw Hammer

https://www.boards.ie/discussion/comment/122331400#Comment_122331400

If they want to change the will they will have to wait till the father dies and then enter into a deed of family arrangement. All beneficiaries have to agree. There will be no tax implications if they all join in a deed before any distribution is made.

Spanish Eyes

They could get legal advice as to how effective "Disclaimers" would be in their circumstances. Technically they could each disclaim their benefit entirely and the total would fall into residue. Assuming all children share the residual clause equally(if any) under the will they would then each take a 1/5th share of the residue which would be equal shares. The value of each person's share is the amount to return for CAT from the parent.

Disclaimers can be complex, but with the right advice they can be effective. Depends on many different scenarios. I've just set out the basic one. There are many steps to disclaimers and they do not always achieve what they set out to, but it might be worth exploring with a professional adviser.

Otherwise any movement of funds from one sibling to the other will incur a tax liability if the amount exceeds Class B threshold.

EDIT I see that hullaballoo has mentioned disclaimers also.

Ted222

https://www.boards.ie/discussion/comment/122331460#Comment_122331460

That’s very interesting. Thanks for the info

Spanish Eyes

https://www.boards.ie/discussion/comment/122331460#Comment_122331460

There's a CGT exemption if deed executed within two years alright, but there may be a CAT (Gift Tax) liability if the arrangement results in someone taking more under the DOFA than they would have under the will.

The siblings could give 3k per annum to the one sibling receiving cash to even things up, that's 12k per year TAX FREE, until he gets an equal amount.

Calahonda52

All siblings get on really well is all fine and dandy until there is mula involved.

Do this by the book or it will be a clsyerfcuk, with estate wasted on legal fees.

Been there as an executor, twice. first one cost 250k in legals, leaving 250 k for distribution

Ted222

https://www.boards.ie/discussion/comment/122331630#Comment_122331630

That’s interesting but what is the difference therefore between a DOFA and a more informal agreement between the four siblings. They’re both the same from a tax exposure perspective?

Spanish Eyes

https://www.boards.ie/discussion/comment/122331664#Comment_122331664

A DOFA has a CGT exemption within two years if say a house is re distributed in the mix, which would normally be a disposal for CGT but if done within two years it is exempt. The Gift Tax still applies to the recipient either under DOFA or not.

Otherwise everyone would be divvying out the inheritances to save tax, assuming the beneficiaries are all talking to one another and want to equalise things!

The Disclaimer mentioned above if executed properly (Most definitely get advice on that one) may not result in any tax at all, depending on the amounts the recipients end up with and if the disclaimer works and achieves what everyone wants.

It's a minefield all this, but if they find a good adviser they'll know the most efficient and legal way of going about it.

Or maybe each of the four just gifting the difference and be done with it!

Ted222

https://www.boards.ie/discussion/comment/122331710#Comment_122331710

That’s really interesting. Thanks

James McNulty

Some really eye opening advice here and so relevant. I've tell them to read this thread ASAP as the grounds for seeking legal and tax advice.

It's up to them to sort it now. Many thanks to you all for taking the time to answer.