Trust and Inheritance Considerations for Children with Additional Needs

The Irish Times - Ask The Lawyer Series

Greg Flanagan, Partner, contributes to The Irish Times 'Ask The Lawyer' series, responding to a reader’s query about a trust established for their daughter with additional needs, as well as future inheritance planning.  

Below is an extract from the full article.

Bare Trusts and the Small Gift Exemption 

The parents have used the small gift exemption here to good effect. This is where anyone can give someone else €3,000 a year, tax-free. That’s a potential gift of €6,000 per calendar year from two parents without reducing a child’s lifetime Capital Acquisitions Tax (“CAT”) threshold.

This money has been accumulating in a bare trust for their daughter’s benefit.

"Parents considering gifting money in this way should ensure the account is designated as a trust at the outset", says Greg Flanagan.

"If it’s simply in a bank account in a parent’s name, Revenue may refuse to recognise it as being in trust for the child", he says. "This will have tax implications".

Discretionary Trust Exemption

A discretionary trust is normally subject to tax of 6 per cent of the capital value of the trust fund in year one, and 1 per cent of the capital value for each year afterwards, for as long as the trust continues. If the beneficiary has additional needs and the trust is set up exclusively for them, a discretionary trust tax exemption may apply.

"To qualify, Revenue usually requires a medical report or letter from a doctor confirming the child is incapable of managing their own affairs", says Flanagan.

"When assets are eventually distributed or appointed out of the trust to a beneficiary, standard gift or inheritance tax rules and thresholds still apply at a rate of 33 per cent on amounts above the child’s €420,000 tax-free threshold, regardless of disability", Flanagan says.

Dwelling House Exemption

"The parents might also want to consider the dwelling house exemption, this would allow their daughter to receive the parents’ main home, lived in until the time of their death, tax-free if certain conditions are met", Flanagan says.

"If the daughter has occupied this as her main home three years before the date of inheritance, and will continue to do so for at least six years after, and she doesn’t have an interest in another residential property at the date of inheritance or the valuation date – in her own right or in her parents’ will – she could inherit the property tax-free".

Read the Full Article: What happens to our daughter’s trust fund at 18? (The Irish Times, 22 October 2026)

Further Information

For further details on the legal issues covered in this article, see our Administration of Trusts and Inheritance Planning pages.