Are you looking for an opportunity to transfer part of your assets to the next generation in a tax-friendly manner during your lifetime? Then you can also consider an insurance gift.
Through a gift you can donate part of your assets during your life to your partner, to your children or to a third party. When it comes to movable assets (money, a car, a painting, etc.), it is even possible without formalities. The mere handing over of the good is sufficient. There are no financial charges.
Moreover, if the donor is still alive three years after the donation, no inheritance tax must be paid on the donation by the beneficiaries. If he dies within that period, he must do so. In this way, the legislator wanted to prevent someone on his deathbed quickly giving everything away to save his heirs the inheritance taxes.
There is, however, a possibility to cancel that three-year period. But then formalities can be fulfilled. To achieve that, the gift must be recorded in an authentic deed at the notary’s office. In Flanders and Brussels, 3% of gift taxes must also be paid for gifts directly or to the partner and 7% for gifts to third parties. In Wallonia that is 3.3% in a straight line and for the partner, 5.5% for others. Those rates are a lot lower than those for inheritance taxes.
Just like any other movable property, you can also give a life insurance policy. With a life insurance policy, a policyholder concludes a contract with an insurance company. In exchange for a premium payment (one-off or staggered), it undertakes to pay an amount to the designated beneficiary upon the death of the insured.
A father or mother can designate their children as beneficiaries. Their choice is not definitive. If the relationship later becomes clouded, the beneficiary can always be changed. The disadvantage is that the payment of the life insurance is taxable.
The life insurance policy can also be used to optimize the inheritance tax. This way the policyholder can transfer all his rights while still alive. If he does that to his son, for example, then the policyholder will be in his place. The remainder of the contract remains unchanged. The son – who is now both the policyholder and the beneficiary – still receives a sum if the father-insured dies.
The advantage of this insurance gift is that the death benefit of the insured is no longer the result of a succession (after all, the contract was no longer in the assets of the deceased), but of a contractual agreement between the new policyholder-beneficiary and the insurer. Consequently, no inheritance tax is due on this.
The insurance gift must be included in an authentic deed before a notary. Donation rights are therefore due on the value of the policy upon donation.
In the Brussels and Walloon regions, this logic of exemption from inheritance tax has always been fully followed. In the Flemish region that was not the case. The Flemish tax authorities relied on a fiction provision for this. This meant that inheritance tax had to be paid, even though gift taxes were already levied on the transfer.
In the meantime, the Flemish tax authorities made adjustments. To avoid a double tax, the inheritance tax has since only applied to the difference between the (surrender) value of the moment of gift (at which gift tax was paid) and the value at the time of the death of the insured.
There is also an alternative to the insurance gift. In this way the father can donate a sum of money to his son, albeit on condition that he has to put it into a life insurance policy with the father as the insured. Here, too, the benefit will only be paid at the time of his death. If this happens at least three years after the donation, the benefit is exempt from inheritance tax. Inheritance tax must be paid within three years, unless the choice was made to include the gift in an authentic deed and gift tax was paid. This is a traditional gift of movable property, namely a sum of money.