My wife and I have four children. I am the birth father of two of them; my wife is the birth mother of the other two.
We have always assumed that, when we married, our respective children became in law our common children as well. In other words that, for inheritance purposes, my two stepchildren are the same as my paternity children and that my wife’s two stepchildren are the same as her maternity children. Are we right? Note, we have not adopted each other’s children assuming that was not necessary.
In our wills, we have left all our assets to each other, which ever survives. When the second one dies, our wills indicate that our assets should be divided equally between our four children. Will stepchildren be treated differently for tax purposes from birth children?
Mr EM
Blended families are no longer exotic outliers in Irish society. These days it is perfectly normal for people to find themselves with partners who have children from previous relationships.
But the law can be slow in Ireland to catch up on social reality so there can be understandable concern about the position of family members when it comes to key life events, including inheritance.
I suspect your question has been triggered by last week’s query from a reader who is only now discovering that his wife’s nieces and nephews might qualify for a €40,000 tax free inheritance from her but only €20,000 from him – a problem given she has now died and they had agreed that the surviving spouse would split their estate evenly across both sides of the family.
And, given the way you have constructed your respective wills, you certainly need to be sure that your respective children will not lose out simply by virtue of their status when one or other of you dies.
As you are aware, children are granted the most generous tax relief when it comes to inheriting. They will be granted an exemption from tax on the first €400,000 that they receive from their parents – 10 times the next category of family relationship.
It’s worth bearing in mind that this figure can, and has, changed over time – generally, but not always, upwards. The relevant threshold on relief will obviously be the figure in place when you die and inheritance becomes an issue.
The news for you is good but not for others – specifically the many thousands of parents who for one reason or another have not yet made a will. The distinction comes because there are two separate relevant pieces of legislation – the 2003 Capital Acquisitions Tax Consolidation Act and the 1965 Succession Act.
The first covers the issue of inheritance tax, the second deals with the wider issue of who has the right to inherit in the event of intestacy – ie where there is no will.
Section 2 of the Capital Acquisitions Tax Consolidation Act deals with definitions under the legislation and it defines a child as including a stepchild, regardless of whether they are formally adopted or not.
For what it is worth, it also includes anyone who might be adopted either in Ireland or abroad. In fact, even foster children can avail of the exemption from inheritance tax on the first €400,000 they receive, whether that comes from their foster parents or birth parents as long they have been fostered through a formal process or have lived with your foster parent at their expense for at least five years.
The sum is aggregate, so it includes anything received from any parent, step-parent or foster parent, depending on circumstances.
[ My husband says it’s pointless for him to make a will. Is he right?Opens in new window ]
That means that you can rest assured that when the second of you dies and the estate is divided among your four children, all four of them will be treated equally for tax purposes regardless of who their birth parents are.
They key thing here is that you have made wills. If you had not, the position of any stepchild would be much more parlous.
How the estate of anyone who dies without having made a will is distributed is determined by the Succession Act. And it makes no provision for stepchildren or foster children.
It says that if there is a spouse and children, the spouse gets two-thirds of the estate and any “issue” share one-third. Issue in this case means children for whom you are the birth parent either inside or outside marriage as well as children whom you have formally adopted.
Crucially, however, it does not include stepchildren or foster children.
So if someone else was in the same position as you and had not made a will, their two stepchildren would inherit nothing – never mind how much they could get tax free. That is just one more reason for people to get around to actually making a will rather than just talking about doing so.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice.