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taxation.be

Tuesday
Oct 17th
Home arrow Estate Planning

Estate Planning

Misunderstandings about estate planning

These are ten of the most common misunderstandings newcomers to Belgium have about estate planning.

1.        “Surely, this does not concern me; I am not Belgian”

2.        “I have no worries about inheritance tax. I have taken up domicile in Sweden and Sweden has no inheritance tax anymore”          

3.        “I will just leave everything to my wife, and she will leave everything to me. When I am gone, she can then decide what she does with our money”.           

4.        “My wife and I made a will in Ireland to leave each other our house in Dublin. There is no inheritance tax between husband and wife there.”

5.        “My first wife took half of everything when we divorced in the U.K. Now I just want to think about giving some financial security to my new wife and our children. The children from my first marriage are well taken care of: they will inherit from their mother”              

6.        “My husband and I divorced last year; it was not pleasant at all. Now I have a good job and I could finally buy a house. I want to leave my house to my daughter. She is three now; I do not want my husband to live in the house.”       

7.        “I work for the EU Commission. I joined from the U.K. so that my heirs will pay inheritance tax in the U.K. If I leave everything to my wife, we do not have to worry about Belgian inheritance tax.”        

8.        “We have paid tax on my husband’s company pension when he redeemed it upon retirement. That was last year; surely we do not have to pay inheritance tax as well”      

9.        “My husband has set up his personal services company Jack O’Donnell SPRL and that works out very well. He saves on social security and tax. We have the house and the cars in the company and we pay little tax.”

10.      “If I read this book, I can do my own estate planning”

Estate Planning

For many estate planning is nothing more but planning to avoid the inheritance tax. If you have been living in different countries, and have properties, investments and stock options, and pension rights in different countries, tax planning is a large part of it. But estate planning is more than that.

During your working life, you have been saving and investing … for later.  Many of us save through their employer, in a pension fund or a group insurance. When they retire they will receive an annuity for the rest of their life and for the life of their partner. Contrary to many countries, in Belgium one can opt to take out the entire capital that is in the plan. And that is what most do, and it is tax efficient as well. There is a social security charge of about 5.5 percent and the tax is a mere 10 percent, if they have been working until 65. 

Estate planning is also about taking care of that capital so that it lasts long enough for you and your partner, and hopefully to leave something for the children or the nieces and nephews. It’s about managing and preserving your estate, and then about transferring ownership over your estate to whom, when and how you want.

It is, in the first place, about you.

It is to give you the peace of mind that you have arranged your affairs the way you want.

It is about knowing that you have taken care of your partner, your children or other relatives. And for some it is also about making sure that your business can continue when you are not there anymore.

But I don't have an estate

During your working life, you have been saving and investing … for later.  You may think that you do not have much to worry about, but you may be saving – via your employer – in a pension fund or a group insurance. When you retire you will receive an annuity for the rest of your and your partner’s life. But, contrary to many other countries, in Belgium you can opt to take the entire capital out of the plan. And that is what most do.  It is very tax efficient as well. There is a social security charge of about 5.5 percent and the tax is a mere 10 percent, if you kept working until 65. 

And then you probably have bought the house you are living in. Undoubtedly, you have seen the value go up over the years. That is likely to continue. And when you started paying of the mortgage, the monthly payments sounded massive, but after so many years, they do not weigh on your budget that much anymore. 

Estate planning is not just for the super-wealthy. Everyone has an estate. It’s just that some are larger than others. 

Overview

What we are going to see in this work is how you can plan your estate.

To do that, you need to understand some fundamentals. And then we can jump questions wills and succession. How do you write a will in Belgium and how does your succession work when you have not made a will.

The quote is usually attributed to Benjamin Franklin, but many have a claim to it : 'nothing in this world is certain but death and taxes'. In 'Life, Death and Taxes', we examine the inheritance tax (and in Belgium we should say 'three inheritance taxes') and how they affect your estate. 

The easiest way of avoiding inheritance tax is to make sure there is nothing left to inherit. But then you may get caught by the gift tax. Moreover, unfortunately, most of us have no idea when they will die and are reluctant to let go. There are ways of transferring parts of your estate without giving up the income from the assets. What is important then is to stay in control over these assets. What you need to work out is how much control you want to retain and how much income you need.

We will look at some planning techniques to reduce the inheritance tax, before we give you a few hints about how to set up your estate plan.

Estate plan

Regardless of the size of your estate, if you want to control it, you need an estate plan.

And that plan must be adapted regularly to take account of any changes in your personal or .  Just like a business plan, an estate plan must evolve with you. It must adapt to the changes in your life, in your financial situation and in your prospects.

And that is why it is very personal.

The same solution does not work for a businessman in the middle of building a business and a company director about to retire.  

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