Your ARF in Estate Planning
At the point of retirement many clients will opt to establish an Approved Retirement Fund (ARF) with their accumulated pension fund rather than purchasing an annuity from a life assurance company. One of the main advantages of the ARF is that you retain the capital value at retirement and any balance remaining on your demise can be passed to your Estate. How it is eventually distributed is something that you should consider and include in your Will.
Your ARF is a personal asset. Unless it is specifically disposed of by Will, it is included in the residue of your Estate and is succeeded to by residuary beneficiaries. On occasion, this may be contrary your intention. It should be noted that there is no requirement that you should have directed how the ARF would be distributed, by Will or some other form of direction before your death.
Once the funds are distributed, by your decision, as the ARF holder, in your Will or by the Qualifying Fund Manager (QFM)/Trustee, the tax treatment set out below will apply. The QFM for the ARF is responsible for deducting income tax under Section 784A TCA 1997. The beneficiaries are responsible for paying any CAT due directly to Revenue.
Death of ARF Holder
|Who inherits the ARF||Income Tax||CAT|
|Spouse’s ARF||No Subsequent withdrawals subject to PAYE||No; |
Spouse / Civil partner exemption
|Child under age 21||No||Yes Taxable Inheritance|
|Child over age 21||Yes Subject to 30% tax regardless of fund size.||No Exempt|
|Others (Including spouse or civil partner directly)||Yes Income of deceased in year of death. Qualified Fund Manager (QFM) deducts higher rate tax under PAYE||Yes Taxable Inheritance (spouse exemption applies to legal spouse)|
As you can see from the table, the tax treatment of the value of the ARF will be different depending on the age of the child receiving it. A child over age 21 will be subject to tax at 30%, regardless of the size of the fund.This may present some planning opportunities for individual’s with larger Estates.
To ensure your Will correctly reflects your wishes, we recommend that upon next reviewing it with your solicitor, your ARF policy be clearly and separately identified – leaving it, or a stated percentage or share of its value on your death, by means of specific legacy to one or more named beneficiaries.
If you would like to discuss how your approved retirement fund (ARF) fits in with your overall Estate Planning, please contact you Private Client Advisor on 01 2375500 or email email@example.com.
The particular tax treatment contained herein is based on Harvest Financial Services Limited’s understanding of current Revenue practice as at February 2021. Please note that the tax treatment depends on the individual circumstances of each client and may be subject to change in the future. You should take such independent tax advice as you deem appropriate.