The Benefits of Bare Trusts In Providing for Children

bare trust

A bare trust, also known as a simple trust, is a tax efficient way to provide a nest egg for a minor.

What is a bare trust? When the ownership of an asset is held by one person-the legal owner-for the benefit of a different person-the beneficial owner. The legal owner is known as a trustee.

This type of structure is useful to allow the holding of assets-real property or money, for example-for the benefit of a minor child until the child reaches the age of majority-18.

Tax benefits

There are tax benefits in bare trusts, too.

Capital acquisitions tax is the tax payable by the recipient of a gift or legacy in a will. However, there is a small gift exemption of €3,000 per person per year and using this exemption on an annual basis does not affect the recipient’s group threshold which is determined by the relationship between the recipient of a gift or inheritance.

In 2019, for example, the group threshold for a child receiving a gift or inheritance from a parent is €320,000.

A bare trust allows a child receive a gift of €3,000 from each parent; over 18 years this amounts to a tax free gift of €108,000-that is, €6,000 X 18 years.

Real property

Real property, which is likely to increase in value over time, can be transferred into a trust when the value of the property is at a low point. CAT is payable when the asset is placed in the trust but this will almost certainly be at the lowest valuation vis a vis future growth and the value of the property when it is being transferred out of the trust to the child on reaching the age of 18.

The current thresholds for CAT are €320,000 (to a child from parent), €32,500 (to a parent, brother, sister, niece, nephew, grandparent, grandchild, lineal ancestor or a lineal descendant of the disponer), €16,250 (strangers).

You will note that a parent can gift up to €320,000 tax free to a child. Remember, however, that capital gains tax may arise on the transfer of the gift into the trust as a transfer of a house, for example, is considered to be a disposal from a capital gains tax perspective.

The donor/settlor needs to remember

  1. he will be unable to take the assets back once they are transferred into the trust and
  2. The recipient, when she reaches the age of 18, can call on the trustees to transfer the assets to her.

The settlor also needs to consider who will act as trustees; although one trustee is all that is required at least two trustees are recommended and one of them can be the settlor.

Vat on Property in Ireland-the Essentials

Vat on property is something that is easy to overlook if you are buying commercial property. It may also apply to residential property, depending on the circumstances, so you need to be careful and obtain expert tax advice if there is any doubt in your mind.

The current situation with regard to VAT and property is the regime in place since 2008.

Since then most property transactions are exempt but there are important exceptions where the option to tax the supply of the property is exercised in certain situations.

When we refer to ‘property’, remember, we are also referring to leasehold property in addition to freehold interests.

Commercial property, new buildings

Vat is chargeable at 13.5% on a new building. A ‘new building’ is

  1. The first supply of a completed property within 5 years of completion
  2. The second and subsequent supply of a property, if the supply is made within five years of completion, and the building has been occupied for less than two years.

Commercial property, second hand buildings

Properties developed after 1st July, 2008 are exempt but the vendor and purchaser can jointly opt to tax.

If this option is not exercised the vendor/developer will face a clawback of a proportion of the vat which he has already reclaimed from Revenue on the acquisition or redevelopment of the property. This clawback will be calculated on the vat life of the property.

Leasehold property

After 1st July, 2008 all lettings are exempt from vat.

The landlord can, however, elect to tax and charge vat on the rent at 21%. If he does not opt to tax he will face a clawback based on the vat he has already claimed on the development and/or acquisition of the property.

This option to tax does not arise if the landlord himself or a person connected to him occupies the building.

Assignments of leases

The assignment of surrender of a long lease will be chargeable to vat if the tenant who is the assignor was entitled to reclaim vat on acquiring the original lease or the development of the property.

Residential property

The first supply of new residential property is liable to vat.

Valuable resource

This page from the Revenue Commissioners is worth reading closely if you are concerned about vat on property. You are strongly advised to obtain tax advice from an accountant or tax consultant if you suspect that the vat position is not clear in either your supply or purchase of property.

Woman Walks Into Lift Door at Work and Sues Her Employer for Personal Injuries

differential costs order

This personal injuries case involves a woman who worked in Abbott Ireland in Clonmel since 1999 and who injured her head as she entered a lift at her workplace in 2014. She was speaking with a colleague as she entered a lift and was looking away from the lift doors towards her colleague.

The woman, Geraldine O’Grady, gave evidence that she expected the lift sensor to prevent the door from closing on her and that she had previously heard a voice over would give a warning that the doors were closing. She was struck on the head by a lift door and suffered a haemotoma (a localized bleeding outside of blood vessels).

Ms O’Grady went on holidays shortly after this incident and suffered headaches and had bruising on her face. When she went back to work she suffered from loss of concentration and headaches.

She also claimed to have suffered from post-concussion syndrome, post-traumatic stress, flashbacks, feared she was going to die, and her confidence was affected.

High Court personal injuries action

Ms O’Grady brought High Court personal injury proceedings claiming the employer was negligent, had failed to provide a safe place of work, had failed to provide a safe system of work, had breached health and safety regulations, and breached the contract of employment.

She claimed the employer was negligent by reason of its failure to have the lift emit a sound when the doors were closing, the lift doors were an excessive width, and so forth.

Justice Creedon’s decision

Justice Creedon found that only 40% of lifts nationwide are fitted with voice warnings. She also held:

“Beyond the home, doors are part of everyday life and automatic doors are no exception. They are commonplace in buildings of every nature. Automatic doors are encountered in every type of public building including hospitals, schools, courts and offices.”

She found the employer was not negligent and that Abbott was not in breach of the reasonably practicable test by reason of its failure to locate a sensor on the outer doors.

The Health Safety and Welfare at Work act 2005 provides that the employer must take whatever steps are ‘reasonably practicable’ for section 8 provides, inter alia,

8.—(1) Every employer shall ensure, so far as is reasonably practicable, the safety, health and welfare at work of his or her employees. (Section 8 Safety, Health and Welfare at Work Act, 2005).(Reading the full section 8 will give a good idea of the employer’s duties under this act).

In summary Justice Creedon held that the injuries sustained by Ms O’Grady were by reason of her own inadvertence and failure to pay attention when entering the lift.

Absolute duty on employers?

Justice Creedon rejected the argument that there was an absolute duty on employers to ensure the safety of employees and referred to section 8 (1) (set out above) referring to the employer’s duty to ‘ensure, so far as is reasonably practicable’ the safety of employees.

She also pointed to the employee’s obligations for her own safety set out in section 13 of the Safety, Health and Welfare at Work Act, 2005.

This case is Geraldine O’Grady –v- Abbott Ireland [2019] IEHC 79.

The Members’ Voluntary Liquidation of a Company

A company can be dissolved by liquidation and there are three categories of liquidation:

  1. A voluntary liquidation by the members after the making of a statutory declaration of solvency
  2. A voluntary liquidation by the members which is ratified by the company creditors
  3. A court ordered liquidation

In a voluntary liquidation the appointed liquidator must file accounts with the Companies Registration Office and the company is then dissolved 3 months after that.

Every invoice, letter, email or order for goods thereafter should indicate that the company is in liquidation.

Members voluntary winding up

The two main requirements for a members voluntary winding up include:

  1. A statutory declaration of solvency
  2. A special resolution must be submitted to the CRO (Companies Registration Office)

The Declaration of Solvency is made on form E1 which involves the directors declaring that they have enquired into the affairs of the company and are of the opinion that the company will be able to pay its debts in full within a period of 12 months from the commencement of the winding up.

Within 1 month/30 days of making this declaration of solvency the members must pass a special resolution to wind up and appoint a liquidator (form G1).

The resolution to wind up must be advertised in Iris Oifigiúil within 14 days of passing the resolution.

Forms E1, G1, and a Notice of Appointment of Liquidator (Form E2) must be filed with the Companies Registration Office.

The statutory basis for the Declaration of Solvency is set out in section 207 of the Companies Act 2014.

Procedure for commencement of a members’ voluntary winding up

Section 579 of the Companies act 2014 sets out the procedure for the commencement of a members’ voluntary winding up in Summary Approval Procedure, which requires a special resolution of the directors.

Alternatively, an ordinary resolution of the directors will be sufficient if the procedure under section 580 of the Companies act 2014 is adopted in respect of companies of fixed duration or a company which is to dissolve on the happening of a fixed event:

a) on the expiry of the period, if any, that is fixed for the duration of a company by its constitution; or

(b) should such happen, when the event occurs on the occurrence of which a company’s constitution provides that the company is to be dissolved;

a members’ voluntary winding up of the company may, alternatively to the employment of the Summary Approval Procedure for that purpose, be commenced in accordance with section 580.

In summary, three forms must be filed with the CRO (Companies Registration Office): E1, E2, and G1 and an advertisement must be placed in the Iris Oifigiúil publication.

A form E3 may be required if the liquidation is not completed within 12 months; E3 is a form in which the Liquidator gives an account of his acts and dealings.

3 months after the date of registration of the final accounts (forms E6 and E5), the company is deemed to be dissolved.

Under section 708 of the Companies Act 2014 a company’s dissolution can be voided within 2 years and returned to liquidation. This procedure involves an application to the High Court.

Qualifications for appointment as liquidator

The qualifications for appointment as a liquidator are set out in section 633 Companies act 2014 and there are 5 categories of individual who qualify.

Eligible individuals include practicing solicitors, members of prescribed accountancy bodies, a person with practical experience of winding ups and knowledge of the law, members of a professional body recognised by the Supervisory Authority, and a person qualified under the laws of another EEA state.

The liquidator will need professional indemnity cover and certain persons are disqualified from acting as liquidator-for example, the company auditor, or an officer or employee of the company.

Section 583 of the Act provides that the company can appoint the liquidator at a general meeting. A general meeting can also remove or replace the liquidator.

Declaration of Solvency

The declaration of solvency form (E1) must be completed correctly and it is vitally important to check it carefully before submitting it to the CRO; if not directions from the High Court will be required.

It also must contain an Independent Person’s report in accordance with section 580(4) of the Companies act 2014  which confirms that the Declaration of Solvency is not unreasonable.

The Independent Person’s report must contain certain prescribed information such as the scope of the work performed by the statutory auditor and the opinion of the statutory auditor that the declaration of solvency is not unreasonable.

“Subject to Contract”-What Does This Mean?

“Subject to Contract” is a phrase you may come across from time to time.

I encounter it most frequently in relation to the purchase and sale of property and in employment law settlement agreements.

What does it mean? Let’s take a look, shall we?

At its simplest it means that an agreement is being negotiated but all the terms have not yet been agreed formally in a contract. All correspondence prior to the formal contract being agreed is “subject to contract” as the correspondence is an attempt to arrive at an agreement between the parties and the proposals in the correspondence or documents will not have legal effect until it is agreed to be binding on the parties.

The words “subject to contract” are said to have suspensive effect because the parties will not be bound until there is some form of formal agreement or contract.

In land deals all correspondence will be marked “subject to contract/contract denied” or “subject to lease/lease denied” until a binding contract comes into existence when both parties sign it.

The bottom line is that no binding contract for the sale or purchase of property comes into existence until signed by both parties.

Up to this point the correspondence and documents which are exchanged between the parties in order to arrive at an agreement are an attempt to agree all terms of the contract and are marked “subject to contract/contract denied” as a consequence.

Precisely the same effect is caused in commercial disputes when correspondence is entered into to settle the issue and some type of formal contract will be entered into at the end of the process.

The most common agreement of this type that I come across is a settlement agreement between employer and employee whereby the employee is leaving the employment.

Other attempts to arrive at a settlement agreements would see all preceding correspondence marked “subject to contract” or “without prejudice”.

Employment settlement agreement

The correspondence, and the agreement itself, will be marked “subject to contract/without prejudice” until both parties sign the agreement. Then, and only then, does it become binding and can be sued upon.

You can learn more about employment settlement agreements here and without prejudice correspondence here.