Buying real estate together? Consider a rights of survivorship clause
What is a rights of survivorship clause?
A rights of survivorship clause is an instruction that you can include in a notarial deed. You can insert a rights of survivorship clause if you are buying real estate in equal shares with someone else, which means that you are each buying half of a property together.
If you include a rights of survivorship clause, "your half" of the joint home will go to your partner in the event of your death. If you are not married, your half might otherwise go to your legal heir. However, with a rights of survivorship clause, it will go to the partner with whom you purchased the property. That way, you protect the surviving partner, as he or she can then continue living in the house or apartment without having to worry about your legal heirs being able to claim half its value.
The part covered by this right is not included in your estate. In the event of a rights of survivorship clause, the surviving partner does not inherit the property, but instead takes it over. The surviving partner therefore does not have to pay inheritance tax on your share, but does pay the duty for registering the title.
Who should be looking at a rights of survivorship clause?
For married couples and legal cohabitants the family home is already protected. The family home includes the shared home and the household effects of the cohabitants. One of the cohabitants cannot simply decide to sell, give away or take out a mortgage on the family home. The other cohabiting partner has to agree to it. Moreover, legal cohabitants - just like married couples - also retain the use (usufruct) of the family home upon the death of the partner. This means that the surviving partner can remain in the family home, and the legal heirs of the deceased cannot claim half of the family home.
If you are unmarried and live together without a declaration of legal cohabitation, you are de facto cohabitants. Compared to married couples and legal cohabitants, you enjoy less legal protection as a de facto cohabitant. De facto cohabiting partners do not inherit from each other by default, unless they draw up a will.
A rights of survivorship clause is therefore popular between unmarried cohabiting partners. With such a rights of survivorship clause, neither the ownership nor the use of the (family) home can be claimed by parents, children, brothers or sisters. Without a rights of survivorship clause, the legal heirs would inherit half of the home immediately. As de facto cohabitants, you can therefore protect each other with a rights of survivorship clause in the event that one of the partners dies, to pass on full ownership to each other.
However, a rights of survivorship clause is not only of interest for de facto cohabitants. Married and legally cohabiting couples can also have a rights of survivorship clause included for any other property they purchase in joint ownership. That way, they can protect the surviving partner. Suppose you are legally married and you buy a second home together by the sea. By including a rights of survivorship clause in the deed, you can ensure that the surviving partner can freely dispose of the second residence following the death of one of the partners. Otherwise, this second residence would pass into the hands of their legal heirs, perhaps the children.
However, a rights of survivorship clause may also be of interest to persons who do not have an emotional relationship with each other. For example, siblings who own real estate (e.g. inherited from their parents) or business partners who jointly hold the assets of their company and in this way want to guarantee the continuity of the company if one of the business partners dies.
Good to know
- The rights of survivorship clause is not limited to two persons. You can also use a rights of survivorship clause between several people, as long as they are also buying the property under joint ownership, meaning that each party makes an equal contribution.
- The rights of survivorship clause is a "lottery contract" in which all persons must have equal chances. This means that everyone involved must have more or less the same life expectancy, and each must make an equal investment (50% each for 2 people, 33.3% for 3 people, etc.). A rights of survivorship clause cannot, for example, be agreed between a 30-year old and 70-year old, nor can one partner finance 75% of the purchase and the other 25% (unbalanced contributions can be technically resolved by including a debt declaration in the deed).
- Even if a deed of purchase has already been executed, you can still have a rights of survivorship clause inserted by a notary years later. So you don't have to do it at the same time as the purchase.
- You can also make a rights of survivorship clause optional and combine it with a will. Then the surviving partner can choose what he or she uses.
- Partners can break a rights of survivorship clause, but only if all the parties involved agree. You can also attach a rights of survivorship clause to a condition precedent, for example in the event of divorce.
What about taxes when there is a rights of survivorship clause?
The surviving partner does not have to pay inheritance tax on the share held by the deceased, (see box), but does have to pay half of the same title registration duty as paid at the time of purchase. This is half of 7% for homes purchased after June 2018 in the Flemish Region. In the Brussels Capital Region, this is half of 12.5%. In the Wallonia Region, there are still two tiers - large properties (12.5% - half of this) and small properties (6% - half of this). Whatever region you live in, this is a very attractive tax benefit if you compare it to inheritance tax.
Rates for inheritance tax between de facto cohabitants
- You pay the same inheritance tax as married couples on the family home or other property if you actually lived together for at least one year (3% on the first EUR 50,000, then 9% on the next bracket up to EUR 250,000, and 27% above EUR 250,000).
- ○ You do not have to pay any inheritance tax on the family home if you have actually lived together for three years. Please note that inheritance may therefore be more attractive than a rights of survivorship clause, which is why sometimes both a will and a rights of survivorship clause are drawn up, then the surviving partner can choose the option which attracts less tax.
- ○ If you have been living together for less than one year, the surviving partner will pay 25% inheritance tax on the first bracket of EUR 35,000 in the Flemish Region, scaling up to 55% for the bracket over EUR 75,000.
- The surviving partner pays 30% inheritance tax on the first bracket of EUR 12,500 in Wallonia, and up to 80% on the bracket above EUR 175,000.
Brussels Capital Region
- The surviving partner pays 40% inheritance tax on the first bracket up to EUR 50,000 in the Brussels Capital Region, scaling up to 80% on the bracket above EUR 175,000.
Also note: as a de facto cohabitant, in principle you do not inherit anything unless a will has been drawn up.
Restricting the rights of survivorship clause to use (usufruct): when is that helpful?
It is also possible to limit the rights of survivorship clause to the use of the home, excluding actual ownership. You should take into account that the heirs of the first partner to die will not necessarily inherit from the surviving partner. In that case, the home to which the rights of survivorship clause applies will move out of the estate of the family of the first partner to die. You can compensate for this disadvantage by using a rights of survivorship clause that is limited to the usufruct of the home.And finally
Generally speaking, the rights of survivorship clause can be very helpful. However, each situation is unique, so it is best to discuss it very thoroughly with your notary. Want to know more? Go to notaris.be or contact your notary.