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January 19, 2022

Inheritance issues in blended families

  Compiled by myLIFE team myWEALTH November 18, 2021 15

Arranging your inheritance is always a tricky issue, but it is even more complicated with a blended family. There are specific inheritance rules for each spouse, child and stepchild, and each household has its own concerns. myLIFE provides a few pointers on how to best safeguard everyone’s interests.

Being part of a blended family is no longer so unusual. But are you aware of the impact of your family’s composition on your estate when you die? How can you protect your surviving spouse, your children from a previous union or those of your new family? In order to avoid any conflict, it’s best to ensure that the distribution provided for under law is in line with your expectations and, if need be, take measures to organise your inheritance in the best possible way.

Let take the example of Marie here. She divorced her first husband and remarried Richard. She has a daughter from her first marriage, and two boys with Richard, who also has a son from a previous marriage. She would like to know how her estate will be split upon her death.

What does the law stipulate for the surviving spouse?

If Marie doesn’t make any specific provisions (a will or matrimonial agreement), her assets will be split between her close family members in accordance with the rules of inheritance law. The law will determine who her beneficiaries are, and the proportion of her estate that each will receive based on their status at the time of her death (married or single, with children or not, etc.).

As Marie is married and has children, her surviving spouse can choose between inheriting a child’s share (i.e. at least a quarter of the estate) in full ownership, or the usufruct of the family home and its furnishings (providing that Marie is the sole owner, or joint owner together with her spouse).

NB: granting the usufruct to the spouse and the bare ownership to the children may lead to conflict, particularly if the children and stepparents do not get on, or if the surviving spouse is much younger than the deceased spouse.

→ Useful info: if the surviving spouse has chosen the usufruct of the main residence and remarries, the children from the marriage with the deceased party can demand that this usufruct is lifted and transformed into capital.

If Marie was in a civil partnership or living together with Richard, he would not be considered as her legal heir. Only the couple’s children and Marie’s children from any previous union would be beneficiaries.

Finally, if Marie had remarried, but had no children, Richard would inherit her full estate in full ownership.

In Luxembourg, it is possible to change the split of the estate provided for under law and grant additional rights to the surviving spouse, or restrict those rights.

How to optimise the rules on the split of the estate for the spouse

In Luxembourg, it is possible to change the split of the estate provided for under law and grant additional rights to the surviving spouse, or restrict those rights.

Marriage contract

The matrimonial regime of a couple has an influence on inheritance and can be used as an estate planning tool. Depending on the regime chosen and whether or not there are children, certain clauses can be included in favour of the surviving spouse. For example, it is possible to bequeath a jointly held asset to the spouse in full or in part.

A will

The split provided for under law can also be amended by a will, provided that the size of the discretionary portion (i.e. the share of assets that the deceased can distribute freely) is respected if there are children. Marie can use a will to grant full ownership of the discretionary portion of her assets and the usufruct of the reserved portion to Richard.

This is also a way of transferring a share of the estate to a partner who would not otherwise be entitled to it.

Inheritance tax is payable at between 0% and 48% of the share of the estate received. The rate payable varies depending upon the relationship with the deceased and the value of the estate. However, the rate is lower if the spouse, children or a family member are the heirs.

→ Useful info: outside of marriage, death duties must be paid by the surviving partner, unless the partnership was registered more than three years before the death.

In Luxembourg, it is possible to exclude the spouse from inheriting any share of the estate via a will. For example, Marie could take this approach if she wished to leave a greater share of her estate to her children.

Gifts

Another way of providing greater protection for the surviving spouse is to make a lifetime gift. Gifts may cover property, furniture or the right to bare ownership or usufruct.

In Luxembourg, although gifts must be notarised, certain gifts do not require registration (valuable objects, financial and liquid assets, etc.) under the law. These manual or indirect gifts (from account to account) must respect the rules on the indefeasible portion and are exempt duties provided that the donor lives for at least one year after making the gift.

On the other hand, if the gift is registered (movable property or real estate), the following duties are payable by the recipient: registration duties (1.8% to 14.4% of the value of the gift, depending upon the relationship of the donor to the recipient), notary or transfer fees (for real estate). However, the amounts payable are less than inheritance duties.

In Luxembourg, the indefeasible portion defines the minimum share of the estate to which children are entitled upon the death of a parent, and means that children cannot be fully disinherited.

What does the law stipulate for children?

In Luxembourg, the indefeasible portion defines the minimum share of the estate to which children are entitled upon the death of a parent, and means that children cannot be fully disinherited.

Even if Marie wishes to leave more to her spouse, the share reserved for her children cannot be below the minimum amount defined under law: at least 50% of the estate for one child, 67% if there are two children, and 75% if there are three children or more.

For a blended family, only biological (legitimate, natural and illegitimate) children and adopted children qualify as heirs, and they are entitled to equal shares of the assets (subject to the share provided for the surviving spouse).

On the other hand, stepchildren (i.e. children of the surviving spouse from a previous relationship) are not entitled to a share of the estate. So the son Richard had with his first wife will inherit nothing, even if he was close to Marie.

→ Useful info: when the surviving spouse dies, the share inherited from the predeceased spouse will pass to the surviving spouse’s own children and the couple’s joint children. Stepchildren will not be beneficiaries.

How to optimise the rules on the split of the estate for children

It is possible to extend the rights of some children or treat stepchildren more fairly by changing the split of the estate provided for under law, whilst respecting the indefeasible portion.

If Marie wishes, she can favour her children or some of them, by allocating them a greater share of the estate than provided for under law, and she can also grant a share of the estate to her stepson. To do this she can make a will governing how the discretionary portion of the estate is split, or she can make a lifetime gift. However, there will be some estate duties and, depending on the nature of the gift, some fees.

She can also adopt her stepson if she wants him to be treated in the same way as her own children. In this case, he will have the same rights to the estate as her own children, and the estate will be split between all of them.

→ Useful info: in the case of a simple adoption (where the child’s ties with their original family remain), stepchildren must pay inheritance duties, which is not the case with a full adoption.

Estate planning requires a precise assessment of your estate and your objectives. An expert can help you with this complex issue, contact your notary, lawyer, wealth manager or banking adviser. They can help you to safeguard your interests and those of the loved ones you wish to protect, particularly in the case of a blended family.

And don’t forget to talk about inheritance issues with your loved ones. Even if this is a sensitive issue, it will help avoid misunderstandings and future conflicts.

 This article deals with inheritance issues in Luxembourg (residents and assets located in Luxembourg). For cross-border inheritance issues, there are other variables to take into account.