3 questions on inheritance in Luxembourg

In an interview with Femmes Magazine, Stefania Bidoli and Anne-Lise Grandjean, Tax & Estate Planners at Banque de Luxembourg, discuss the issue of inheritance and donations in the Grand Duchy of Luxembourg.

Can the legal distribution of an estate be modified?

S.B. This is permissible under the Civil Code but care must always be taken to safeguard the ‘reserved portion’. This is the minimum share of the inheritance that must go to the reserved heirs (in Luxembourg, reserved heirs are the children of the deceased) as defined by Luxembourg law. If there is one child, this reserved portion corresponds to half the deceased's estate. Where there are two children, it is two-thirds of the estate, each child being entitled to one third. From three children upwards, it is three-quarters of the estate. 
Once this reserved portion has been awarded to the heirs, there remains what is known as the ‘available portion’. You are free to distribute this part of your estate as you wish. It is therefore possible, for example, to give a greater benefit to individual heirs (whether or not they are in the direct line), or to a third party, or to donate to a charity.

A-L. G. Any such modification of the ‘legal devolution’ must be stated in your will. If you are married, it is also possible to leave more than the portion provided for by law to your surviving spouse, for example by giving them their full share of the estate as well as the usufruct of the entire estate, defined in your will or your marriage contract.

What is the advantage of a gift in this case? What should you look out for when making a gift?

A-L. G. Life expectancy is increasing. We are living longer and longer. Our heirs therefore tend to inherit later and later, at a time in their lives when they may not really need it. A gift can help them earlier, when they are at a pivotal stage in their life for example, or contemplating buying their first property. 
Gift tax is lower than inheritance tax. And for manual gifts, given by hand or by bank transfer, the gift does not necessarily have to be registered with a notary. There is no tax to pay if the donor survives for a year after the gift is made. If the heirs move abroad, it may also be worth gifting part of the estate before they leave, to save them having to pay tax on it in their country of residence. In some countries, additional fees may apply, even if the donor is resident in Luxembourg.

S.B. A gift made to an heir is automatically considered as an advance on the estate. At the time of death, assets that have been received as a gift will be revalued in order to restore equality between the heirs. If you wish to give a greater benefit to particular individuals by means of a gift, you must specify this in the donation. Here too, even if you make a gift during your lifetime, the reserved portion must be taken into account. If an heir who is entitled to the reserve is wronged, they can take legal action and ask the person who received their share of the reserve to return it. Finally, it is important to remember that ‘when you give, you give’. You are depriving yourself to some extent. You must therefore be careful that any gifts you make are of an appropriate scale and ensure that you keep enough assets to live comfortably until your death.

Why is it important to get specialist advice for estate planning?

S.B. It is important to discuss and anticipate the subject of passing on your assets to ensure you prepare as well as possible for the future and to limit potential high costs for your heirs when they inherit. 

A-L. G. At Banque de Luxembourg, we make sure that our clients are aware of the advantages of estate planning. And we help them define and implement solutions that are adapted to their personal situation, their family and their needs.