Cosita Delvaux, a notary, states: “In Luxembourg, the general rule is that there are no direct inheritance taxes. But if a will modifies the rights of heirs and creates an imbalance between them, then taxation will apply.”
Preparing your estate means first of all analysing your family and wealth situation, in order to put the right measures in place and ensure that your last wishes are observed as much as possible.
Your family situation has a great impact on inheritance matters. Whether you live with a spouse or not, whether you are married, in a civil partnership or simply in a common law relationship, take time to sit down and reflect. Is there a marriage contract? Is this a blended family? Depending on the answers you give to these questions, a notary can advise you on the right decisions to make.
“The first step is probably to settle the rights of the other spouse in the event of death. With a marriage contract, we can in particular define what is due to each member of the couple and what will be left in the estate,” explains Cosita Delvaux, notary and secretary of the Chamber of Notaries of the Grand Duchy of Luxembourg. “The main principle is to protect the people you want to protect.”
Identification of heirs and expectations
Who are the legal heirs and what are their rights? Do the planned bequests meet their expectations? “The civil code provides for a lot of things and makes it possible to resolve most of the situations encountered, but it no longer meets the needs of blended families who want an equal distribution between all the children,” says Delvaux. “Society is changing faster than the law.”
“Fortunately, we are finding solutions to achieve this balance as closely as possible while guaranteeing this sought-after legal certainty,” she said. The place of residence of the heirs may have an influence on the organisation of the succession. For example, if an heir resides in France, they will be taxed, under certain conditions, on everything they receive.
The surviving spouse
Under French law, the spouse has the right to remain free of charge in the accommodation which constitutes the main residence for one year after death and cannot be deprived of this right, even in a will. This is not the case in Luxembourg, where the spouse can, if the case calls for it, be deprived of their rights in a will.
In some cases, it may be advantageous to choose your national law as the applicable law. The usufruct reserve is larger in Belgium than in Luxembourg. But be careful, it is important not to confuse tax and civil law rules in estate planning. Tax law cannot be chosen. It applies according to the place where a succession process starts, namely the habitual residence and the location of real estate, as well as, where applicable, the residence of those who inherit property.
What is the estate to be passed down?
To be effective, the notary must have the widest possible view of the existing estate. It is therefore important to make an inventory of the estate, at least in general terms. This would include real estate--here and abroad--bank accounts, furniture, company shares, etc.
“When an estate reaches a certain size, the desire may be to keep part of it as a family patrimony that we do not wish to see split up. In this case, you need to place it in a family holding company”, advises Delvaux. In the case of a family business, a whole series of questions must also be addressed with the notary, but also with other stakeholders, such as private bankers, lawyers and other persons concerned, who are often very involved in the various stages of handing over a business.
Do I have to write a will?
If you are thinking about drafting a will, it is best once again to discuss it with your lawyer beforehand.
“In Luxembourg, the general rule is that there are no direct inheritance taxes. But if a will modifies the rights of heirs and creates an imbalance between them, then taxation will apply, and we will have to establish a complete and tedious inventory of the estate to settle the succession,” explains Delvaux. “Our goal is to avoid as much as possible unequal treatment, which could also lead to disadvantageous taxation. "
Therefore, in many cases, the provisions of the civil code offer the best solution. The children share the existing assets between them. The inheritance is said to be simplified and avoids many worries between the heirs from both a family and administrative point of view.
Originally published in French by Paperjam and translated for Delano