Will: pay less taxes on your inheritance


 
 
  

The drawing up of a will or an inheritance often raises interesting questions.

We try to provide some answers with the help of these articles. In the first article we discuss the duo-bequest?


  
  
  
  

What is the duo-bequest?

The duo-bequest is a legal method that allows the testator to give a part of his/her estate to charity and another part to his/her inheritors.

Thanks to this duo-bequest the testator kills two birds with one stone:

1) A part of the money goes to charity.

2)  The duo-bequest can be fiscally advantageous: Article 64 of the Inheritance Tax Code states that one can appoint a person as an inheritor without having to pay inheritance tax, on the condition that the other person or association pays the inheritance tax. 

This means that the inheritors receive a greater part of their inheritance because they have to pay less inheritance tax. Who doesn’t like to receive more money than expected…

There is a but… A duo-bequest gives inheritors the opportunity to gain more inheritance, but unfortunately this is not always the case: specific requirements have to be met.

 

Duo-bequest: things to consider:

1) Where does the testator live?

The different Belgian regions (the Flemish Region; the Brussels-Capital Region and the Walloon Region) charge different tax rates for inheritors.

2) Where is the office of the NPO based?

The different Belgian regions (the Flemish Region; the Brussels-Capital Region and the Walloon Region) charge different tax rates for NPOs. 

3) In which line does the inheritor inherit?

Progressive tax rates depend on the sum of the inheritance and the line of the inheritors. Let’s take the Flemish Region as an example:

The taxes, paid by the inheritor, depends on his/her line (or order): (Inside the order, the degree decides whether one inherits – info in later articles).

Flemish Region

Lineage Relationship with the testator Sum of the inheritance Inheritance tax rates
1 Lineal descendants: all descendants of the testator: children, grandchildren, great-grandchildren, … 1) From € 0 to € 50.000
2) From € 50.000 to € 250.000
3) € 250.000 and up
To be paid: total amount of 3 sums
3%
9%
27%
 
2 Collateral descendants: If the deceased does not leave behind any descendants: the parents of the testator together with his/her brother(s) and sister(s) and/or their descendant(s) 1) From € 0 to € 75.000
2) From € 75.000 to € 125.000
3) € 125.000 and up
To be paid: total amount of 3 sums
30%
55%
65%
 
3 If the deceased does not leave behind any descendants, nor brother(s), sister(s) and/or their descendant(s): all relatives in rising line: parents, grandparents, great-grandparents, … 1) From € 0 to € 75.000
2) From € 75.000 to € 125.000
45%
55%
4 If the deceased does not leave behind any inheritors of first, second or third line: uncles, aunts and their descendants (nephews and nieces), granduncles, grandaunts. A higher lineage always excludes a lower one. 3) € 125.000 and upr
To be paid: total amount of 3 sums
65%
 

4) What is the age of the adult?

- Is the inheritor less than 18 years old?

- Is the inheritor more than 21 years old?

5) Does the inheritor have a handicap?

6) Which kind of property goes to the testament?

- Immovable property,
- Movable property. 

7) Is the heritage for 100% destined to an inheritor or several inheritors?

8) In the former situation, you have to take the personal income tax into account.

To put the ‘dead’ letter into practice, we introduce two exercises. 

Both examples apply to the Flemish Region.

Example 1: Lode and his niece Mimi

Lode is a widower and doesn’t have any children. He would like to bequeath € 100.000.

Situation 1:

Lode bequeaths € 100.000 to his niece Mimi.
(Lode lives in the Flemish Region, Mimi is 30 years old, no handicap)

What does Mimi inherit?

Calculation of the inheritance tax on € 100.000, to be paid by Mimi
1) From 0 to 75.000 * 45% = 75.000 * 45% = 33.750
2) From 75.000 to 100.000 * 55% = 25.000 * 55% = 13.750
Calculation of the total tax to be paid by Mimi
3) 33.750 + 13.750 = 47.500
Calculation of what Mimi inherits net:
4) 100.000 (inheritance) - 47.500 (inheritence tax) = 52.500
Mimi inherits € 52.500 net

Situation 2:

Lode bequeaths € 60.000 to his niece Mimi and € 40.000 to the ALS Liga:
(ALS Liga has an office in Flanders)

What does his niece Mimi inherit?
What does the ALS Liga receive?

Calculation of the inheritance tax on € 60.000, to be paid by Mimi
(= in practice ALS Liga pays this sum):
1) From 0 to 60.000 * 45% = 60.000 * 45% = 27.000
Calculation of the inheritance tax on € 40.000, to be paid by ALS Liga:
2) Total sum, here 40.000 * 8,5% = 3.400
Calculation of the total tax for niece Mimi + ALS Liga:
3) 27.000 + 3.400 = 30.400
Calculation of what the two inheritors, niece Mimi + ALS Liga, inherit together:
4) 100.000 (inheritance) - 30.400 (inheritance tax) = 69.600
Calculation of what Mimi inherits net:
5) 69.600 (net inheritance) - 9.600 (part of ALS Liga) = 60.000
Mimi receives € 60.000 net
Calculation of what ALS Liga receives net:
6) 69.600 (net inheritance) - 60.000 (part of niece Mimi)= 9.600
ALS Liga receives € 9.600 net

Difference between situation 1 and situation 2:

In situation 2 (duo-bequest) niece Mimi inherits € 60.000 net, € 7.500 more than in situation 1, in which she only inherits € 52.500 of the full inheritance of € 100.000.

Example 2: Maria and her only son Karel:

Mary has an only son. She wishes to leave behind € 1.000.000

Situation 1:

Maria bequeaths behind €1.000.000 to her only son Karel:
(Karel is 30 years old, not handicapped)

How much does son Karel inherit?

Calculation of inheritance tax, to be paid by Karel:
1) From 0 to 50.000 * 3% = 50.000 * 3% = 1.500
2) From 50.000 to 250.000 * 9% = 200.000 * 9% = 18.000
3) From 250.000 and up * 27% = 750.000 * 27% = 202.500
Calculation of taxes to be paid by Karel:
4) 1.500 + 18.000 + 202.500 = 222.000
Calculation of what Karel inherits net:
5) 1.000.000 (inheritance) - 222.000 (inheritance tax) = € 778.000
Son Karel inherits € 778.000 net

Situation 2:

Maria bequeaths behind € 750.000 to her son Karel and € 250.000 to the ALS Liga:
(ALS Liga has an office in Flanders)

How much does son Karel inherit?
How much does ALS Liga receive?

Calculation of the inheritance tax, to be paid by her son Karel
1) From 0 to 50.000 * 3% = 1.500
2) From 50.000 to 250.000 * 9% = 200.000 * 9% = 18.000
3) From 250.000 and up * 27% = 500.000 * 27% = 135.000
Total tax to be paid by Karel
(= in practice ALS Liga pays this sum):
4) 1.500 + 18.000 + 135.000 = 154.500
Calculation of the inheritance tax, to be paid by ALS Liga:
5) Total sum, here 250.000 * 8,5% = 21.250
Total tax, to be paid by Karel and the ALS Liga:
6) 154.500 + 21.250 = 175.750
Calculation of what both inheritors (son Karel + ALS Liga) receive together net:
7) 1.000.000 (inheritance) - 175.750 (inheritance tax) = € 824.250
Calculation of what Karel inherits net:
Son Karel inherits € 750.000 net
Calculation of what ALS Liga receives net:
ALS Liga receives € 74.250 net

Difference between situation 1 and situation 2:

In situation 2 (duo-bequest) son Karel inherits € 750.000 net, which is less than in situation 1, in which he inherits € 778.000 of the entire inheritance of € 1.000.000.

 

Our conclusion:

The duo-bequest gives you the chance to support a charity. At the same time it gives you the possibility to increase the inheritance of your inheritors, as they will pay less inheritance tax.

However, keep in mind that this financial advantage only applies under certain conditions. With these conditions in mind, we advise you, before switching to a duo-bequest, to create a simulation for you to estimate if the duo-bequest is interesting or not.

 

Olga Verzhikovskaya,

ALS LIGA

Translation: Sophie

Important links:

http://www.testament.be/

http://www.notaris.be/

http://www.vlaanderen.be/nl/gezin-welzijn-en-gezondheid/overlijden-en-erfenis/erfenis

 

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