Gift or inheritance? Avoid these 3 big pitfalls (and any unnecessary tension)

You gather quite a few assets in a lifetime. You want those assets to end up in the best possible hands when you are no longer here. Nevertheless, many people postpone these plans. That’s hardly surprising, because not everyone feels compelled to arrange their inheritance when everything is right as rain. Whether you are making a gift or planning your inheritance, it is best to develop a concrete plan of action. For your own peace of mind and that of your loved ones. So, which pitfalls should you avoid at all costs?

Pitfall 1: you decide not to register your gift

Gifts are a popular way to transfer some of your assets to your children or other heirs during your lifetime. If you do this through the official channel of a notary's office, you will be subject to gift tax rather than inheritance tax.

For real estate, such as your home, a notary's involvement is always mandatory. Movable property, such as money, you can simply give to someone yourself or by bank transfer. In that case, you are not required to involve a notary. In other words, you can avoid the gift tax. Sounds great, right?

What can go wrong?

• You give someone a significant amount without registering your gift with a notary, on the assumption that this is more favourable for tax purposes.
• However, if you die within five years (for residents of Flanders and Wallonia) or three years (for residents of the Brussels-Capital Region) after your gift, the tax authorities will still charge inheritance tax, which is higher than gift tax.

Pitfall 2: you misjudge the tax situation

Many people don't give the tax impact of their inheritance much thought and therefore miss out on achieving significant tax benefits for their loved ones. In some cases, inadequate inheritance planning can result in heirs having to pay thousands of euros more in inheritance tax than is necessary.

What can go wrong?

• You do not take into account the different inheritance tax rates (applicable in each Belgian region)
• You do not use the available tax exemptions or deductions to reduce the inheritance tax
• If your heirs inherit assets that are difficult to liquidate (such as real estate), this may make it difficult for them to pay the inheritance tax

The tax aspect is perhaps the most complex inheritance aspect and may deter people. That’s why it’s important to get advice from professionals in good time, ideally when time is on your side. Some useful tips:

• Make a detailed inventory of your assets in good time
• Contact a tax expert to look at the possible tax impact on your inheritance or gift together
• Check whether you can benefit from certain financial advantages, for example by making several gifts spread out over time

Pitfall 3: you disinherit your legal heirs

Your legal heirs are determined by law based on the degree of relationship, but the type of relationship can also play a role. For example, children are always entitled to a certain part of the inheritance, even if the parent would have preferred a different distribution scenario. It is impossible to fully disinherit your children in Belgium.

What can go wrong?

• For example, you want to give a larger part of your estate to one heir, but you do not take into account the rules of forced heirship
• Other heirs may feel disadvantaged and challenge the distribution legally

To avoid (legal) conflicts between family members, it is therefore best to obtain all the available information on the rules of forced heirship and to put everything down on paper in as much detail as possible together with a notary. This is the only way to ensure all your arrangements are tax-optimised and legally watertight.

Do you want to be absolutely certain?

In summary, the more information you gain in advance, the greater the chance that you will benefit your heirs or the recipients of your gift. So, be sure to keep the following tips in mind.

1. Consult a notary or tax expert

A professional can analyse your personal situation in depth and help you to develop a tailored plan. They may also point out tax advantages and legal pitfalls to you. An additional advantage is that they clearly put everything down on paper, so that you have sufficient documents to present as proof in the event of any ambiguities.

2. Update your plan regularly

Your life changes, so your inheritance plans may often need to evolve with it. Did you recently get married or divorced, or have you just welcomed a new grandchild? Then it makes sense to review your will and inheritance plans.

3. Communicate openly with your family members

Talking about a will or leaving money to others can be uncomfortable and lead to friction, but it is an absolute necessity. Clear rules prevent unpleasant surprises and misunderstandings. So be transparent and talk with your family in detail. This manages expectations and reduces the chance of any disputes afterwards.

Avoid stress, protect your inheritance

By planning well in advance, you spare your heirs unexpected high inheritance taxes or protracted family conflict. Small adjustments to your inheritance planning can offer substantial financial and emotional benefits. A well-prepared estate means peace of mind, both for you and your loved ones.

To find out more about gifts and inheritance, dive deeper into this subject on our Keytrade Bank blog.

Learn more about gifts and inheritance