Include a charity in your will and your heirs will benefit too

1. Issue

Suppose you have one nephew, and you want to leave your nephew some €500,000 of movable assets. He will have to pay €305,000 of inheritance tax on this bequest, and will be left with only €195,000 net. The rates in Flanders for bequests to nephews and nieces are 45% on the first €75,000, 55% on all amounts between €75,001 and €125,000 and 65% on any portion above €125,000. In other words, your nephew will pay 61% inheritance tax on this bequest!

2. Solution: Include a charity in your will

The mechanism known as the "dual legacy" basically consists of including a charity in your will and leaving this charity a specified portion of your estate. For the charity, this bequest comes with a catch: the charity has to pay your heirs’ inheritance tax. In our example, the charity will therefore pay the inheritance tax which, in principle, would be payable by your nephew.

Imagine that, like us, you want to support Arnoud Raskin’s Mobile School project. You can specify in your will that out of the total movable assets of €500,000, €250,000 should go to Mobile School. That charity would then have to pay your nephew’s inheritance tax as well as its own tax on this bequest, and the remainder of the bequest can be freely used for its projects.

3. How would this dual legacy situation be taxed?

In our example, the nephew’s inheritance tax would be paid by Mobile School. Your nephew would therefore receive the net amount of his bequest. Mobile School would have to pay 8.5% on the full bequest of €250,000. Secondly, Mobile School would also have to take care of the inheritance tax on the nephew’s bequest (also €250,000).

Bequest                                     €250,000
Mobile School’s tax (8.5%)     - €21,250
Nephew’s inheritance tax     - €142,500
Balance                                     €86,250

We can thus see that Mobile School is left with €86,250 from this bequest. On the other hand, the nephew receives a net bequest of €250,000. In other words, he is left with €55,000 more than if there had been no dual legacy.

The reason for this is that the charity paid the nephew’s inheritance tax; the mechanism does not create an additional bequest. This does not apply to other taxes that may be imposed; it is thus an exception.

4. Does it also work for heirs other than nephew or nieces?

The benefit is greatest for bequests to nephews, nieces and third parties, because these are taxed in the highest bracket (up to 65% in Flanders). However, it is possible to apply the dual legacy mechanism in other situations. It could also be advantageous for bequests to siblings and even to children. It depends on the size and composition of your estate and the number of children.

5. What should you watch out for?

You have to write a will in which you bequeath a portion of your estate to a charity on the condition that the charity pays the inheritance tax of one or more heirs. It is preferable to indicate a monetary amount, rather than making a specific bequest.

Since you don’t know exactly how your estate will look at the time of your death, it is also recommended that you specify a percentage of your estate to be given to the charity, rather than a fixed amount.

In any case, the aim is to ensure that the charity is left with enough of the bequest to avoid the dual legacy being perceived as a means of tax avoidance, with no intention of leaving anything to the charity.

We can help you calculate how much of your estate you should allocate to the charity.

6. Conclusion

By including a charity in your will using the dual legacy mechanism, you can give a portion of your estate to a charity that’s close to your heart, and at the same time your heirs will be able to keep more of their share of the inheritance. The advantage of the dual legacy mechanism is greatest when used for heirs subject to a high tax rate (nephews, nieces or other third parties). However, it’s also possible to apply the mechanism for bequests to siblings and even your children.

Authors: Jan Devos and Bert Lutin

Also the unequal treatment gets reviewed
Benefit in kind for housing: how to anticipate the higher or lower scenario?
Discrimination as regards the benefit in kind for housing has been highlighted on several occasions. Specifically, it relates to the unequal treatment of the same benefits, whether in terms of provision by a sole trader or provision by a legal person. In the most common cases, the benefit arising from being a limited company is almost four times more expensive taxation-wise than the benefit arisin
To reduce the financial burden
Start-up reduction on social security contributions for self-employed persons
The start-up reduction was part of the 'Summer agreement' and took effect on 1 April 2018. With this initiative, the government intends to reduce the financial burden of self-employed persons in start-ups, who often have low incomes at the start of their activity, thereby stimulating entrepreneurship.  Which self-employed persons are eligible?  The reduction measure applies to all se
A full overview
Your mortgage in the personal income tax return assessment year 2018
The new tax return form for personal income for tax assessment year 2018 has recently been published, so it is high time to examine how you can correctly fill in your mortgage in your personal income tax return. The biggest change in 2017 occurred in the housing taxation system of the Brussels-Capital Region. The other regions have all maintained a status quo compared to last year. A full overview
The labyrinthine of the personal income tax return made more user-friendly
Personal income tax return: changes to the form for assessment year 2018
On 6 April 2018, the model for the personal income tax return form relating to assessment year 2018 was published.
we will analyse the guidelines related to this reform
After the new inheritance law comes the ‘drastic’ reduction in inheritance tax… or not yet?
Further to the inheritance tax reform and the changes planned in the matrimonial property law, the Flemish government has also announced a change to inheritance tax. The aim was not only to simplify, relax and reduce this grief-related tax, making it more in tune with the new inheritance law, but also to create more alignment with new family relationships. There was talk of a ‘drastic’ change
Revolutionary decree
Belgian Tax Administration rebuffed: exit “subject-to-tax clause”?
On 25 January 2018, the Court of Cassation reached a remarkable decision in the context of allocation of taxing rights for professional income earned within an international context. The dispute In concreto, the case pertained to professional income earned by a professional cyclist. During the period 2007-2009, said cyclist was engaged by a Belgian employer and participated in numerous races a
Modernisation of the VAT system
Europe announces biggest VAT reform: first amendments to take effect as from 1 January 2019
Based on the knowledge that the current VAT system is no longer adapted to the rapidly-evolving digital and mobile economy, the European Commission has been striving for years for profound modernisation of the VAT system. A thorough study and investigation into the way in which this should be done specifically resulted in a proposal from the Commission, in December 2016, giving priority to simplif
The consequences for companies
VAT on your own construction work: an explanation of the amended law
On 29 November 2017 amendments were made to several points in the VAT Code. This amended law was explained by the administration on 12 February (in the Circular 2018/C/20). In this article we aim to consider the consequences of the amended law for companies constructing their own company building or carrying out their own repair/maintenance or cleaning work. Former situation Whenever a VAT-reg
Breaking news
Possibility to subject leasing to VAT from 1 October 2018
Minister Van Overtveldt's Cabinet has announced that the VAT rules with regard to the leasing of immovable property will be changed from 1 October 2018. 
Setting up a plegde on moveable assets will be easier
The new Pledge Act: introduction of a non-possessory pledge and extension of the retention of title
The new property law came into force as from 1 January 2018 (the act of 25 December 2016 establishing the amendment of various provisions with regard to the collateral on moveable assets, Belgian Official Journal 30 December 2016). This makes it easier to set up a pledge on moveable assets thanks to the introduction of a Pledge Register and it extends the effect of retention of title. Non-posse

Subscribe to our newsletter