1. Flemish government rejects deduction of debt towards the surviving spouse in the estate of the predeceased spouse
On 14 July 2017 the Flemish government approved a bill that makes the deduction of a debt to the surviving spouse in the estate of the predeceased spouse, in accordance with the marriage contract, impossible for the calculation of the inheritance tax.
The Flemish government is responsible for the levying of inheritance tax over estates of residents of the Flemish region. In principle, the bill is not applicable on estates of residents of the other Belgian regions.
2. Marriage contracts with settlement clause
The Court of Cassation confirmed in three judgments earlier this year the deduction of a debt in the estate of the predeceased spouse, in compliance with a settlement clause in the marriage contract.
The settlement clause is a clause in the marriage contract between spouses married under the matrimonial property regime of separation of assets. The spouse with wealth commits himself (or herself) to transfer (certain) assets to the other spouse upon dissolution of the marriage by demise. For example, the spouse with wealth commits himself (or herself) to transfer half of the assets earned during marriage to the other spouse upon demise, as if there was a community. The debt towards the surviving spouse is deductible from the estate for the calculation of Flemish inheritance taxes. In principle, according to current legislation, deduction of a debt is possible in the taxable estate of the predeceased spouse. The estate is reduced with half of the assets earned during marriage for inheritance tax purposes.
According to current legislation, the debt needs to be deducted from the taxable estate. However, the Flemish Tax Administration rejects the deduction. The Flemish government foresees an amendment of the Flemish Tax Code, which makes the deduction of the debt in the estate of the predeceased spouse impossible, even if the debt is less than half of the assets earned during marriage.
For example, two people marry under the legal matrimonial property regime of community of acquisitions. Acquisitions are the assets earned during marriage. The husband is successful in his business. His spouse takes care of the children and has no professional income. The husband demises with an estate of 5.000 euro. Due to the legal matrimonial property regime, his spouse has a claim of 2.500 euro upon dissolution of the community. She does not need to pay inheritance tax on her part.
A second example: two people marry under the matrimonial property regime of separation of assets. Upon demise of the husband, the surviving spouse is entitled to half of the assets earned during marriage according to a settlement clause in the marriage contract. In principle, given the amendment of the Flemish Tax Code, the surviving spouse needs to pay inheritance tax on the assets she receives through the settlement clause. The surviving spouse will be taxed upon a legacy of 2.500 euro. The claim of the spouse will not be deductible as a debt for inheritance tax purposes.
3. Other specific clauses in favor of the surviving spouse in the marriage contract
Spouses married under the legal regime can transfer the complete community of acquisitions to the surviving spouse with a specific clause in their marriage contract. The surviving spouse recognizes an indebtedness towards the children, corresponding to the value the surviving spouse received above half of the community. The debt is only claimable upon demise of the surviving spouse. Upon demise of the first spouse, the children are taxed on the value of the claim. The surviving spouse is not taxed. Upon demise of the surviving spouse, the debt towards the children is deductible. Only in the first estate is inheritance tax paid by the children.
Due to the amendment of the Flemish Tax Code, the debt of the surviving spouse will no longer be deductible in the first estate. The surviving spouse will be taxed on the assets above half of the community. Upon demise of the surviving spouse, no deduction will be accepted (once again). This means that inheritance tax will be due twice.
4. Inconsistency with draft law on new matrimonial property regime
The punishment of the Flemish legislator is inconsistent with the proposal of the federal Minister for Justice Koen Geens to introduce a fourth matrimonial property regime in Belgian law of separation of assets with settlement of acquisitions.
This fourth standard matrimonial property regime will entitle the surviving spouse to half of the assets acquired by the couple during marriage. It is unfair to tax the surviving spouse if his (or her) entitlement does not exceed half of the acquisitions.
The bill of the Flemish government has been sent to the Council of State for observation.
In principle, the bill will enter into force ten days after publication in the Belgian Official Gazette, presumably in January 2018.
6. Review of planning in marriage contract or will
Spouses with a settlement clause need their contract to be reviewed and checked for alternatives. Spouses with a similar specific clause also need to review their planning.
The Flemish Tax Administration tries to reject certain debts in favor of the surviving spouse. We advise to review wills with specific clauses in favor of the surviving spouse.
A planning can be reassessed. Different possibilities in favor of the surviving spouse can be inserted in the contract and / or will. There are alternatives to the marriage contract and the will to secure the position of the surviving spouse.
Tax free or low taxed gifts between spouses are an alternative. However, children have a legitimate portion or ‘forced heirship’-rights. The bill concerning new law of inheritance reduces the ‘forced heirship’-rights of the children to half of the estate. The surviving spouse can be gifted with the other half of the estate. We refer to our newsletter of 27 July 2017 with the main features of the new law of inheritance.