Estate planning: marital status is crucial
We drill down into the details of Luxembourg inheritance law to give you a clearer idea of how to plan.
In Luxembourg, the actual content of your estate depends on your marital status. If you are married, the composition of your estate will depend on your matrimonial regime. There are three separate regimes: matrimonial regime of community property, separation of property regime and universal community of property regime.
The matrimonial regime of community property applies automatically when the spouses choose not to sign a prenuptial agreement. A distinction is made between two types of assets: assets owned by each spouse (all assets acquired prior to marriage and those acquired as inheritance or gifts) and their shared assets. The latter include each spouse’s income from work, the benefits and income from their personal assets and assets purchased by the spouses during their marriage.
If no other choice is made at the time of the marriage, the regime of community property shall apply.
In principle, there are no jointly owned assets under the separation of property regime. This does not mean that spouses under this regime cannot both own something (for example, if they each pay half for an item). Such property is considered indivisible. If the marriage ends, assets that cannot be established as belonging exclusively to either spouse are deemed to belong to both spouses in equal proportion. The same applies to deposits in joint accounts. Each spouse retains sole liability for their debts, except as regards those taken on for household expenses or the children’s education, for which both spouses remain liable. In the event of divorce or death, spouses must only divide these jointly owned assets. Individually owned items do not have to be shared.
Under the universal community of property regime, the personal estate is limited to the spouses’ personal belongings and rights, such as clothes and professional equipment, etc. All the rest is shared, including debts. If the marriage ends, then in theory, each party should receive half of each item included in the shared assets. In the event of death, the surviving spouse inherits the entire estate, as if this regime had been accompanied by a “survival clause” assigning the surviving spouse with all of the communal property.
Reviewing your financial position
Anyone hoping to get their estate in order should carry out a wealth assessment as soon as possible and update it regularly. In order to do so, a detailed inventory is required. You are therefore encouraged to put together a file containing all your important documents: marriage contract, divorce ruling, family record book, property deeds and co-ownership agreements, certificates for valuable belongings and debits, details of the key individuals to contact in the event of death, etc.
A detailed inventory is required to carry out a wealth assessment.
The most reliable way to settle inheritance matters is and will be to draw up a will. This is a unilateral document used by individuals to bequeath their assets to designated people. Certain legal restrictions must be respected, however, particularly as regards legitimate heirs.
Anyone can draw up a will, provided that they are of sound mind, capable of expressing their wishes freely and legitimately, and are over 16 years of age. A minor of between 16 and 18 years of age can only distribute half of the assets that an adult may legally distribute.
The will is a formal act which must be made in writing to be valid. There are three types: Notarised wills, which must be executed before either a notary and two witnesses or two notaries, be signed by the person making the will and have been drafted by the notary. Handwritten wills, which must be entirely handwritten by the testator, dated and signed.
Finally, there is the mystic will, or secret will. This is a written act, signed and hand-delivered by the testator in a closed and sealed envelope to a notary in the presence of two witnesses. The notary then draws up an authentic endorsement act which must be signed by the testator, the notary and both witnesses.
While handwritten wills are the easiest and cheapest to make, having a notary draft an authentic will has the advantage of precluding any formal or substantive flaws that could invalidate your last wishes.
If no will has been written, the deceased’s estate will be shared among their close relatives. The beneficiaries of your estate and the share of your estate that will go to each of your heirs is defined by civil law.
Like in many countries, in Luxembourg, there are rules concerning the reserved share, which prevents children from being fully disinherited and defines the minimum share of the estate to which children are entitled upon the death of their parents.
An only child will receive at least 50% of the estate, two children will receive at least 67% and three children or more will receive at least 75%.
The following is exempt: everything that has been received or acquired in a direct descending line, that is to say from parents or grandparents to children, grandchildren, etc. or ascending line, from children or grandchildren to their parents or grandparents.
The exemption is however limited to the legal share of the inheritance.
Your wishes count
Whichever solution is chosen, everyone has the right to change or revoke their will at any time, in accordance with statutory provisions. However, it is important to be aware that an authentic will may only be revoked by a new authentic will.
Do not store your will in a safe deposit box with your bank, as it will be inaccessible when the box is sealed. Moreover, following the inventory of the safe deposit box and the discovery of the will, the notary must put the entire contents of the safe deposit box, including the will, back inside, at which point the box will be sealed again. This means that only the notary will be able to read the will.
In the case of estate planning, inheritance is subject to two types of tax : inheritance tax and transfer duty.
Inheritance tax is payable if the deceased lived in Luxembourg. It is calculated based on all movable assets (located in Luxembourg and abroad) and immovable property (only that located in Luxembourg) that belonged to the deceased, less any debt and funeral costs. The amount varies according to the degree of kinship between the deceased and the heir, but also according to the value of the estate assets.
There are two different rates, one that applies to assets constituting the reserved share and one for those that do not. These rates are between 0 and 15%. The base rate is then gradually increased according to the net taxable amount of the portion received, if it exceeds €10,000. However, no inheritance tax is payable in Luxembourg in the following cases:
- assets inherited by direct ancestors/descendants (parents, grandparents and children, except on the unreserved share in the case of the latter);
- assets belonging to spouses or partners (bound by a declaration of partnership registered for at least three years) that have children;
- properties located abroad;
- inheritance not exceeding €1,250.
Transfer duties are payable if the deceased’s last address was not in Luxembourg. They are calculated only on immovable property located in Luxembourg (held in full ownership or usufruct by the deceased). The tax regime for transfer duties is the same as for inheritance tax.
Gifting assets during your lifetime can limit the burden of inheritance tax.
A wise solution for inter-vivos transfers
It may be wise to gift assets during your lifetime in order to reduce the amount of inheritance tax payable or to circumvent the rules on the reserved share, while remaining within the law. However, this depends on the ability to relinquish ownership and use of the assets. The authorities are also very attentive to measures aimed solely at reducing the tax burden and insist on the fact that a donor cannot retain the advantages associated with an asset that has been gifted. In Luxembourg, gifts made during an individual’s lifetime are subject to tax, but the amount is generally lower than that due in respect of inheritance tax.