Planning your estate: what to look out for

Estate planning is a sensitive topic which inevitably concerns you. It’s about protecting those you love, and preserving the work of a lifetime.

Marriage, birth, buying a house, taking out life insurance: the milestones in your life almost always affect your situation in matters of estate planning, often without you realising. Over time, your situation changes, your desires evolve, your wealth grows and your relationships with your partner and children develop. The time has come to make proper plans for your estate, or to review certain provisions made in the past. After all, your peace of mind and that of your loved ones is at stake. Without forgetting the chance to pre-empt tax issues. Here is a brief overview of the most important points to consider.

What is an “estate”?

Your “estate” comes into existence only at the time of your death. On that date, in principle it simply comprises your assets minus your debts. The actual content of your estate depends first and foremost on your marital status. If you’re married, the composition of your estate also depends on your matrimonial regime.

The “assets to be divided” or “assets of the estate” therefore comprise the existing assets at the time of death minus debts plus, under certain conditions, the donations made by the deceased. If you do not make a will, your estate will be divided among your close relatives, pursuant to the statutory rules governing the devolution of estates.

These specify not just the beneficiaries of your estate, but also the share of your estate that goes to each of your legal heirs.

How to plan your estate?

Perform an asset review

To perform an asset review, an accurate picture of your situation is needed. Start by assembling a file with all the important documents: marriage contract, divorce ruling, family record book, property deeds and co-ownership agreements, movable assets and debts, details of the key persons to contact in the event of death, etc.

Once your file is complete, carry out or have carried out your asset review by a specialised adviser, your banker or your insurer. This review should list all your assets (financial, property, professional, etc.) including your debts, and analyse your financial position (family composition, matrimonial regime, professional and tax situation, personal objectives, etc.).

Make any necessary changes to your financial position

Now that you have a clear picture of your situation, you may wish to make changes, including for tax optimisation purposes. On the latter point, Luxembourg offers two especially attractive options: donations and life insurance.

Luxembourg offers two especially attractive options for tax optimization purposes: donations and life insurance.

Life insurance

Besides protecting your family in the event of accident or death, life insurance and death insurance also carry valuable tax benefits to help you build retirement savings or capital to leave to the beneficiaries of your choice (an attractive solution for beneficiaries who are not your relatives). Not only are the premiums tax-deductible, but the capital received when the policy expires also offers the advantage of being tax-neutral if the policyholder is also the beneficiary. Tax deductions are subject to conditions and may change with the legislation. If you live outside Luxembourg, you will be taxed only in your country of residence.

Donations

A donation involves giving, while still alive, one or more assets to an individual or legal entity. In Luxembourg, it should in theory involve a notarial deed, but case law accepts certain donations (e.g. gifts, disguised gifts) that do not meet this condition. In actual fact, many donations of movable assets (e.g. cash, securities portfolio) are made under private agreement.

Regarding expenses, in addition to any notary fees which are based on the value of the gifted asset, a donation is subject to registration duties which depend on the family relationship with the beneficiaries (from 1.8% to 14.4%). The only exceptions are donations to foundations and university or public school bursaries, which are exempt from registration duties.

Note that for property donations, transaction duties (1% of the market value of the property) and a Luxembourg City communal surcharge (50% of applicable registration duties) are payable in principle. Registration fees are halved for donations included in a marriage contract or in anticipation of a marriage.

Donating legal ownership of a property asset allows you to transfer part of your estate at a reduced cost while continuing to benefit from the asset. Registration duties then only apply to a share of the market value of the asset; this share depends on the age of the usufructuary at the time of the donation.

Make a will

The will is a document which, subject to certain legal constraints, enables you to divide your estate among the individuals or legal entities of your choice. While making a formal will (before a notary) is not strictly necessary, this is the most reliable option since it cannot be challenged. Depending on your marital status, including in the case of a civil partnership, this document can be especially important for ensuring that a share of your estate goes to your partner.

While making a formal will (before a notary) is not strictly necessary, this is the most reliable option since it cannot be challenged.

Alongside the will, the “living will” is another important document to consider. This document specifies your wishes regarding medical treatment at the end of your life. It ensures that your wishes and beliefs will be respected, even if you are not capable of expressing them. Discuss this with your general practitioner, hand over a copy to one or more persons you trust and inform the family members of your choice.

After completing these three steps, you will no doubt enjoy greater peace of mind. That being said, because we wish you as long and happy a life as possible, we invite you to regularly review these arrangements as your circumstances change. And now, take some time to look after and enjoy yourself. Life is good.

This article is a part of the folder Special feature: “Transferring a business”