3 minExpertise in international and cross-border frameworks remains one of Luxembourg’s strengths
Anne-Lise Grandjean & Claude Medernach Succession is a major concern for the majority of wealthy families. At a time where legacies are more international than ever before, due to the increasing mobility of people and assets, it is vital to consult experts who are familiar with the various civil and tax frameworks relevant to the individual client’s situation.
This article is an excerpt from a report published in Paperjam’s Private Banking supplement in May 2024
Apart from changes to family situations in general, why are successions more complex today than it used to be?
Estates are also more complex and international, due to the increasing mobility of people and goods, and they are made up of a wide variety of assets. In addition to securities portfolios, they include real estate, sometimes in different countries, life insurance policies and private equity investments, as well as artworks, jewellery and collections. In many cases, the heirs have also moved abroad. The laws applying to succession can vary from one situation to another, so it is important to consider all the international components as part of the estate planning process. This makes it possible to find solutions that match the client’s objectives and to adapt to the evolution of the family and its assets over time.
With this in mind, how do you support your clients?
The first step is to build a comprehensive inventory of their assets, evaluate them and consider their geographical footprint. Family circumstances must be taken into account, along with the customer's needs and preferences. Our clients often have accounts with multiple banks and do not always have a precise grasp of the extent of their assets. If required, we can help them to consolidate their financial and non-financial assets, in order to offer them the best guidance on their investment strategy and on the applicable legal and tax solutions.
How does the location of assets impact inheritance tax?
For a Luxembourg family whose assets are in Luxembourg, the tax situation is quite straightforward. The Grand Duchy is known for exempting direct heirs from inheritance tax, although this only applies to movable assets, regardless of their location, and to real estate located in Luxembourg. However, if the heirs live in a country that taxes beneficiaries, such as France or Germany, inheritance tax will be due in that country. An unequal distribution among all children may also have tax consequences in Luxembourg. And furthermore, each individual situation must be considered on a case-by-case basis to assess the tax and legal implications of the inheritance.
In the case of real estate located in France, inheritance tax will apply to the value of the property. Luxembourg has signed several agreements to avoid double taxation, but these only concern direct taxation. Luxembourg has not signed any double taxation agreement on inheritance tax or gift tax. Clients need to be aware of this.
In some cases a gift may be a more attractive option.
This may be true for part of the estate, depending on the situation. In the case of real estate in France, a living gift may be more attractive than a posthumous transfer. Our role with regard to succession planning is to provide specialist knowledge of the relevant legal and tax frameworks for the client’s situation, to give them a clearer picture of the future. This expertise in international and cross-border frameworks is an enduring strength of Luxembourg and of our expert in-house wealth engineers.
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