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Estate Planning and Asset Protection in Ireland: A Guide for High-Net-Worth Individuals 

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Posted: 4th December 2024 by
John Gill, Maeve Lochrie, Rebecca Dorrington
Last updated 22nd December 2024
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Estate Planning and Asset Protection in Ireland: A Guide for High-Net-Worth Individuals.

Estate planning is a critical component for high-net-worth individuals looking to secure their assets for future generations while minimizing tax liabilities and protecting wealth from potential risks. In Ireland, various investment vehicles, including trusts and family limited partnerships, are commonly used to achieve these goals. This interview with John Gill, Maeve Lochrie and Rebecca Dorrington of Matheson explores key estate planning strategies in Ireland, offering valuable insights into the legal, tax, and practical considerations involved in protecting assets, preserving wealth, and ensuring that one's estate planning objectives align with broader financial goals. We dive deep into the most effective structures for wealth transfer, risk mitigation, and the latest regulatory changes that impact estate planning in Ireland.  

john gill

John Gill Partner and Head of Private Client

maeve lochrie

Maeve Lochrie Senior Associate

rebecca dorrington

Rebecca Dorrington Senior Associate

What are the most commonly used investment vehicles in Ireland for estate planning, and how do they contribute to asset protection for high net worth individuals?   

Two of the most commonly used investment vehicles in Ireland for estate planning are family limited partnerships and trusts.    

Family limited partnerships allow families to pass assets to a structure whereby the general partners (typically parents) retain a degree of control over the partnership assets (which could be investments or trading assets), which they wish to share and / or pass to their children during their lifetime.   Management decisions, such as investment strategy and distributions of partnership assets remain with the general partners, and where Wills are suitably structured, this control can continue after the death of the surviving general partner.  

The limited partners, typically children and / or grandchildren hold a valuable economic interest, but are not permitted to participate in the management of the limited partnership.  The family limited partnership can also be more flexible in capital tax terms than a trust or a holding company, and the limited partners have income and capital benefits within their ownership, although the limited partnership assets are not within their control.  From a tax perspective, as income and capital gains are taxable on the partners in proportion to their interest in the limited partnership assets, a double layer of tax is avoided.      

The use of discretionary trusts can also be an effective investment vehicle for asset protection / wealth preservation for high net worth individuals.  They tend to be used for legal reasons rather than being motivated by tax concerns.  They can be particularly effective for managing assets for minor beneficiaries, or beneficiaries who may not otherwise be able to manage wealth themselves, due to lack of mental capacity or other reasons, where the trust structure can provide for the gradual passing of wealth to future generations.  

Other attractive characteristics of a discretionary trust structure may include asset protection from creditors or other third parties.  This can be particularly beneficial for settlors in safeguarding the financial interests of vulnerable beneficiaries for whom the settlor would ultimately lie to benefit.  An example, may be a child exposed to financial claims form creditors or potential family claims.   

How can different types of trust structures, such as discretionary and fixed trusts, be utilized in Ireland to achieve specific estate planning goals and safeguard assets?  

The most common types of trusts in Ireland are:  

  • Discretionary trusts: where the trustees hold the trust fund for the benefit of a class of beneficiaries, where the trust assets are essentially ring-fenced and the trustees have discretion as to the timing and nature of distributions and to whom these are made.   
  • Bare trusts: where trustees hold the legal title to property on the beneficiary’s behalf, and the beneficiary holds the beneficial interest; and 
  • Fixed trusts: where the beneficiary has a fixed entitlement to the trust fund and the trustees have no discretion in this regard.

Discretionary trusts are the most frequently utilised trust structure for estate planning purposes, particularly in the case of high-net worth families and those with young and / or vulnerable children.   

Due to the flexible nature of a discretionary trust, this can allow individuals and families to achieve specific estate planning goals, such as preservation of wealth and the controlled passing of assets to children / future generations.    

From a tax perspective, one of the primary benefits of a discretionary trust structure in Ireland is that it can defer capital acquisitions tax (CAT), until such time as assets are appointed to the discretionary beneficiaries.    The flexibility provided here means the transfer of ones’ assets to a trust can allow individuals to manage their CAT liability and incidentally their own tax planning.    

Discretionary trusts may be subject to discretionary trust tax (DTT), by way of an initial charge of 6% of the trust value on either the death of the settlor or the date on which all principal objects of the trust have reached the age of 21, whichever is the later, although this can be reduced to 3% where the trust fund is transferred to the beneficiaries within five years of the initial charge arising.  Thereafter an annual levy of 1% of the trust value arises as at 31 December each year.      The DTT charge does not apply to fixed interest trusts, so this should also be considered when weighing up the most appropriate trust structure be utilized in Ireland to achieve specific estate planning goals.  

What key factors should individuals in Ireland consider when choosing the right trust structure for their estate planning needs?  

Important factors include the ages and circumstances of the beneficiaries i.e. are they minors, do they require funds to be available for maintenance, education and / or other specific needs, do they have capacity to manage their own financial affairs, do they have the financial maturity to manage substantial assets? 

Depending on the outcome of those questions, the trust may be appropriately structured in relation to the passing of income and/ or capital at different times / events.  Tax is a relevant consideration not only in the context of how the trustees are going to be taxed but also the tax outcome for the beneficiaries which may vary significantly depending on their tax residence profile.  For example, a trust with exclusively Irish resident beneficiaries, will have different consequences than one where there is a beneficiary living abroad where the trust is considered non-Irish resident from that jurisdiction’s perspective.   

The relevant considerations are as much practical as they are legal and tax-related, in this context.    

Another important practical consideration is how much the individual(s) establishing the trust are willing to pass into the trust structure, given they will effectively be relinquishing direct ownership and control of the assets passing into the trust.    The individuals should consider how much value they want to retain in their personal free estate, for the purposes of maintaining their own lifestyle and upkeep, especially if approaching retirement, for example.   

These factors, among others, will assist in determining the most appropriate trust structure, or alternative investment vehicle, which is suited to an individual in the context of their specific estate planning needs.  

Can you explain the benefits and potential drawbacks of incorporating offshore trusts into estate planning for Irish residents, particularly regarding asset protection?  

Benefits  

A primary driver and advantage of implementing an offshore trust structure, is that they can help to defer and / or minimise exposure to Irish tax, such as CAT.   

In many offshore jurisdictions there is often specific legislation which is advantageous from an asset protection perspective.   

They can also be an effective investment vehicle for wealth preservation on a dynastic basis for high net worth individuals, in the same way as an Irish tax resident trust.    

Drawbacks  

Despite the potential tax benefits referenced above, Irish tax legislation contains targeted anti-avoidance provisions that can attribute the income and capital gains of offshore structures to an Irish resident settlor, or an Irish resident beneficiary in receipt of a benefit.  Other anti-avoidance provisions restrict the ability to shelter income or capital gains with the offset of losses.  The application of these rules therefore requires careful scrutiny on a case by case basis, in order to determine if they may apply.  

Notwithstanding the targeting anti-avoidance provisions referred to above, income tax at marginal rates may also apply on distributions to Irish resident beneficiaries based on first principles, which must also be taken into account.  

Establishing and maintaining an offshore trust can also be expensive, in terms of seeking legal and tax advices from multiple jurisdictions, implementation and ongoing administrative costs.  A cost-benefit analysis should therefore be undertaken to ensure an offshore trust is an effective structure for the individuals concerned.  

How do investment vehicles, such as family limited partnerships or private investment funds, function within the context of Irish estate planning and asset preservation?  

Investment vehicles such as family limited partnerships fulfil this role, by allowing families to pass assets to a structure whereby the general partners (typically parents) retain a degree of control over the partnership assets (which could be investments or trading assets), which they wish to share and / or pass to their children during their lifetime.    

For the reasons outlined above, they can be a useful succession planning tool in the context of asset preservation and growth, while allowing parents to maintain control of the partnership assets.  This contrasts to a trust structure where that degree of control can be lost following the establishment of a trust, particularly in the case of an offshore trust (where this control passes to the trustees).  Some individuals may prefer to retain this element of control.  

They are also relatively straightforward to set up and ongoing compliance requirements are not overly burdensome, which makes them an attractive model for many individuals in the context of their Irish estate planning and asset preservation.  

Private funds are used more regularly by non-Irish resident families due to the favourable tax regime that apples for non-resident investors which justify the set up and administration costs involved.   

What are the specific legal and tax considerations for establishing trusts and investment vehicles for estate planning in Ireland?  

Specific legal considerations in Ireland include a trust law which is quite historic and requires appropriate drafting to overcome the deficiencies in the legislation.  More recently, in line with broader anti-money laundering requirements, the obligation to register beneficial ownership of trusts was introduced under the 4th and 5th Anti-Money Laundering Directives which require each EU Member State to establish a Central Register of Beneficial Ownership of Trusts (CRBOT). The regulations are far-reaching and extend to most express trusts, where the obligation lies with the trustees to gather the relevant information and file the same via the Revenue Online Service.  

In terms of tax considerations, attention needs to be focussed on the tax-residency of the trustees to avoid a non-resident trust inadvertently becoming Irish tax resident, or in the alternative an Irish tax resident trust inadvertently becoming non-resident, subjecting the trust to a capital gain tax charge on exit.  

Other than the registration of Irish tax resident trusts in Ireland with Irish Revenue and the CRBOT filing requirement, there is no requirement  to deposit the trust instrument with any government / Revenue authority.  

How can clients in Ireland ensure that their investment strategies align with their overall estate planning objectives and asset protection goals?  

Clients will first need to consider the appropriate structure, which will likely be determined by estate planning considerations.  In this regard, the decision is usually whether the investments are held directly, through a corporate vehicle, limited partnership, or whether a trust is used, and in case of each of the above, whether the entity is Irish tax resident or otherwise.  

If asset protection is a requirement, it will be necessary for an investment to be kept remote from the individual and likely in the form of a trust, which by its nature requires a person to divest themselves of assets / value and permit trustees to make the investment decisions will be required.  

In what ways do recent regulatory changes in Ireland impact the use of trusts and investment vehicles for estate planning and asset protection?  

Recent years have seen increased transparency requirements where Ireland participates in global initiatives like the Common Reporting Standard (CRS) and the Automatic Exchange of Information (AEOI).    

Further, as well as the CRBOT filing requirements referred to above, other regulatory changes include DAC6, an EU directive that introduces reporting obligations for a wide range of cross-border tax arrangements and the Registrar of Beneficial Ownership (RBO), a central register of beneficial ownership of companies and industrial and provident societies.    

In terms if limited partnerships, typically they availed of relatively benign reporting requirements. The Irish General Scheme of the Registration of Limited Partnerships and Business Names Bill 2024 was however recently published which includes several proposals in relation to the regulation of limited partnerships.  For example, the proposals include a requirement for 1907 limited partnerships to maintain a continuous connection with Ireland, which is not a requirement under the current rules.  For the most part, the proposals should not have a significant impact on “family” limited partnerships in Ireland but must nonetheless be taken into account when considering whether to set up a limited partnership as an investment vehicle for succession planning purposes.  

Should you require further information about the material referred to in this article or have any queries, please contact any member of the Private Client team at Matheson.  

  • John Gill, Partner and Head of Private Client
  • Maeve Lochrie, Senior Associate
  • Rebecca Dorrington, Senior Associate

Matheson LLP 

Dublin  |  Cork  |  London  |  New York  |  Palo Alto  |  San Francisco 

Tel: +353 1 232 2000 

dublin@matheson.com
www.matheson.com 

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