Camille Van Vyve
01 Dec 2022
How to make a financial donation to your children?
You have sold a property and you want to give the money to your children? You want to hand over a stock portfolio to them? Donating is the official way to do this. In Belgium, donation is subject to payment of reduced duties – significantly lower than inheritance taxes. If the donation is made in a direct line, from parents to children for example, it is not always necessary to get it notarized.
Give to his children during his lifetime
You have already structured your wealth to live comfortably at the pension, which you fully benefit from. But here is another step to take: leaving the family home that has become too big. None of your children want to take it back? What if you gave the proceeds of the sale to your children during your lifetime? This will give them a good “boost” and save them from having to pay significant inheritance tax later.
Donation with registration
To release the parties completely and directly from inheritance tax on the amounts donated, the donation must be registered with the tax authorities and the donation tax must be paid. The difference is significant: in Belgium, depending on the Regions, inheritance tax in the direct line (direct ascendants or descendants) can go up to 30%, while donation tax of the same order is between 3 and 3, 3% depending on the Regions.
Donation without registration
You also have the freedom to give sums of money to your children simply by bank transfer, without registering the donation or being liable for fees. But in the event of the death of the donor within three to five years following the donation (the period varies according to the Regions), the recipients will be liable for inheritance tax on the amounts received. It is therefore useful to keep proof of the date of the donation.
With or without a joint agreement
If you wish to add certain conditions to this donation, on the administration or use of the funds for example, you can draft a “side agreement”, dated and signed by the parties. You will find the details of this option and an agreement model in a previous blog devoted to this question. The side agreement can supplement any donation, whether or not it is registered with the tax authorities. This private deed will also constitute proof of the date and validity of this donation.
Do I have to notarize a financial donation?
Tax law does not require a notarial deed for donations. The donor can register a financial donation directly with the tax authorities, with or without a side agreement. The notarial deed is however required for real estate donations, and strongly recommended for indirect donations (because other legal heirs could oppose it) or for "in extremis" donations (when the donor is about to die). In this case, the donation can be recognized for tax purposes as soon as the deed is signed by the notary and this saves the donor from having to register the donation with the tax authorities.
Pay attention to the “reserved share”
In Belgium, certain heirs are said to be “reserved”: the surviving spouse, the children and the parents of the deceased. Whatever we do, they will be entitled to a part of the estate called the “reserved share”. Be careful: if it turns out that a donation deprives an heir of his share, it may be brought back into the estate, regardless of when it was made.
Invest a financial donation
For those who receive a financial donation, the question obviously arises of what to do with the sums received, which are sometimes significant. With high inflation, letting them sleep in a savings account is strongly discouraged, as this money will lose its value over time. Investing a financial donation in a diversified basket of global equities and European bonds through trackers is a rational decision: it will offer the return of the market in addition to the serenity of knowing that the market is unbeatable in the long-term!