Fiscal Planning: Estate Matters (2)

To: Fiscal Planning: Estate Matters (1)

Fabrice Ketoff writes:

Transferring your assets to your heirs can take place either during your lifetime or once you have died (through your will and/or the rules that apply in the absence of a will).

The situation for foreigners resident in Brussels varies enormously and it is important to get advice on your own situation regarding the rules on inheritance here and in your home country.

This article will focus on the transfer of assets to your heirs during your lifetime.

The gift is a cornerstone of Belgian estate planning and is often used for such a lifetime transfer. Several types of gift exist, such as: the notarial gift, the manual donation, the indirect gift.

The most popular gift type in Belgium is the manual donation, because very few formalities are involved and it is in principle tax-exempt.

The manual donation, as the name hints, only requires the transfer of assets from hand to hand. This transfer goes back to the Roman times wherein transfer of ownership occurred via the so-called "traditio", which only required the physical delivery of goods.

This historic background also delimits the actual scope of manual donations: real estate and immaterial rights that are not embedded in a deed cannot be physically transferred and therefore cannot be transferred via a manual donation.

The manual donation as such does not have to be registered with the tax authorities nor is the beneficiary obliged to declare the gift in his/her income tax return. It is therefore very discreet.

In addition, if the donator dies the given assets are not subject to inheritance tax, except if the donator's death occurs less than 3 years after the manual donation. Only in this case is the beneficiary obliged to declare the received assets for inheritance tax purposes.

This 3-year hurdle can hamper manual donations, especially if the donator is of advanced age.

Recently, the lawmakers of the different regions in Belgium have addressed this problem by introducing lowered gift rates on donations of moveable assets provided these gifts are disclosed to the tax administration.

The Flemish Region was the first to introduce a flat rate of 3 % on gifts between (grand)parents and (grand)children. Gifts between others (relatives or non-relatives) are taxed at a 7 % flat rate. These rates have been copied by the Brussels Region.

Gifts that have been subjected to these lowered rates are precluded from any inheritance tax and thus circumvent the risk of sudden death.

Assets can be given free of use and charge (unconditional gifts), or can be encumbered with certain rights. Often, (grand)parents choose to retain the right to use the assets or wish to receive the income that will accrue to gifted financial assets (interest and dividends). In general, this is achieved via a right of "usufruct" (i.e. the Roman law equivalent of a leasehold).

All the aspects pertaining to the different types of gift (timing, conditions to the gifts) are very personal issues and advice in these matters should be tailored to meet your personal needs and preoccupations. A notary or estate-planner may provide guidance in these decisions.

To: Fiscal Planning: Introduction

Author: Fabrice Ketoff
Published: 24 May 2006