One in ten people in Ireland are now cohabiting, meaning that they live together, have children together, or maybe even own their family home or other assets jointly, all without being married. Are you one of them?
Refreshingly, the government has recognised that not all families fit the traditional mould, and has passed legislation giving some rights and protections to cohabiting couples. But in many cases, the legislation does not go very far. It is important for cohabiting couples to realise that situations may arise in which they would be treated very differently to married spouses.
To start with, cohabiting couples should consider guardianship of their children. While this may change in the coming months, only mothers and married fathers have automatic guardianship rights in Ireland. In the event of his partner’s untimely death, an unmarried father may have to go to court to seek guardianship rights over his own children. You should seek the advice of your solicitor in helping you plan for this kind of event.
It is prudent for everyone to make a will, but this need is even more pressing in the case of unmarried couples. When you get married, your spouse automatically becomes your next of kin, but no such right is given to the partners of unmarried couples. If you die without making a will, your partner may discover that he or she has no automatic right to inherit.
Additionally, tax law deals with the passing of assets on death very differently if couples are cohabiting rather than married. Only legal spouses and registered civil partners currently enjoy an exemption from inheritance tax. All other couples, regardless of how long they have lived together, are treated as strangers for inheritance tax purposes, and their tax-free threshold is currently set at €15,075. Inheritances over that amount are subject to Capital Gift Tax tax at a rate of 33%.
With the possible exception of the family home, or a death benefit under an insurance plan, the €15,075 threshold could easily be exceeded quickly, leaving thousands owed in tax.
Is this something that you want to leave to chance?
Non-traditional families need to plan for the unexpected, even if they are young and healthy. Irish legislation provides extensive protection for married couples, but cohabiting couples should understand that they can be left vulnerable if they don’t make proper provisions.
Planning for inheritance tax bills can be taken care of easily by setting up a Section 70 policy (formerly Section 60) which aims to cover costs that may arise. Your financial advisor can help you calculate the amount of cover you need.