If you are retired, you may have an Approved Minimum Retirement Fund (AMRF), Approved Retirement Fund (ARF), or both.
While there are some technical differences between AMRFs and ARFs (hereafter collectively referred to as ARF), both are simply policies under which matured pension monies may be held after you retire and from which you can, subject to tax, withdraw cash to supplement your State pension and other income in retirement.
Strictly speaking, monies held in your ARF as at the time of death pass to your Estate. This is one of the principal advantages of an ARF; the fact that it may be succeeded to by anyone on your death, in accordance with the terms of your Will. Generally, an ARF will be succeeded to by the deceased’s spouse and/or children.
How successors are taxed, depends largely on their relationship to the deceased and, at least insofar as children are concerned, their age as at the date of death of the ARF holder.
Where ARF Monies Pass to the Estate of the Deceased:-
- They do so subject to the deduction of income tax, USC and PRSI, as applicable. This is the case where the ARF holder decides to leave his monies to someone unrelated to him – perhaps a neighbour, a friend, or a charity.
Where ARF Monies Pass as Cash to a Surviving Spouse:-
- The monies must first pass via the deceased’s Estate. Funds are taxed as income of the deceased in the year of death. The net residual funds are then succeeded to by the surviving spouse.
Where the Surviving Spouse ‘steps into the shoes of the deceased’:-
- An ARF must first be established for the surviving spouse. The deceased’s funds are then transferred to that ARF. No tax is deducted on funds transferred.
- The surviving spouse may then, subject to applicable taxes, withdraw cash as and when required to supplement their State pension and other income in retirement.
Where ARF Monies Pass to the Deceased’s Children:-
- Where a child has not attained 21 years of age; ARF monies inherited will be subject to inheritance tax at 33%, but
- Where a child has attained 21 years of age; ARF monies inherited will be subject to a once-off income tax deduction at 30%.
Your ARF and Your Will
An ARF is a personal asset. Unless it is specifically disposed of by Will, it is included in the residue of an Estate and is succeeded to by residuary beneficiaries. On occasion, this may be contrary to the ARF owner’s intention.
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.
Should you have any queries on any of the issues addressed, please feel free to contact us.