What role does a notary play in estate planning?

When a person passes away, the deceased’s family generally call on a notary to help them navigate the inheritance process. Other than taking care of essential administrative formalities, the notary also acts as a valued adviser to the family.

Maud has just lost her husband of 30 years, Pascal. She and her three adult children will have to take care of all the administrative formalities relating to his death. To help them through this difficult process, they decide to enlist the services of a notary.

The notary plays a key role in managing the inheritance process. The notary draws up a report of the deceased’s assets (as detailed as possible), and drafts the declaration of inheritance or transfer upon death and, as part of the second phase, the division between heirs. They also provide families with advice and protect their interests.

Useful info: a notary is not required if there are no death duties to pay and no will has been drawn up. In all others cases, a notary is required.

We met with Maître Kolbach, a notary in Junglinster, to ask him about his role in the inheritance process.

Preliminary research

The notary must identify the exact beneficiaries of the estate and determine the total estate to be divided up between them – i.e. the assets that form part of the estate – as well as any outstanding debts to be paid. To do so, they must carry out specific research on the deceased and their assets, by making enquiries with the family and a whole range of organisations: National registry of natural persons (Registre national des personnes physiques – RNPP), Register of Wills and Testaments, Luxembourg mortgage registration office, land registry, banks, etc.

> Matrimonial property regime

“If the deceased was married”, explains Maître Kolbach, “the first step is the settlement of the matrimonial property regime (unless the deceased was married under the separation of property regime). This involves drawing up a list of assets to be divided, by identifying what belongs to each spouse and what property was jointly owned.”

There are three separate regimes:

• • Statutory community of property regime (equal division of property): the total estate comprises the deceased’s assets and half of the jointly owned assets.
  • Separation of property regime: under this regime, there are no shared assets. However, there may be joint assets held in undivided ownership. The estate consists of all of the assets owned by the deceased.
  • Universal community regime: all assets form part of the “community” of assets. The estate comprises half of the jointly owned assets.

“In the case of universal community of assets, with allocation to the surviving spouse, everything goes to the spouse, provided of course that the universal community regime can be applied (i.e. there are no children from a previous civil union or marriage). Under other systems, joint assets are separated from personal assets, which are then divided according to the matrimonial regime.

You also need to check whether any compensation is owed,”stated Maître Kolbach“For example, if the house belonged to the husband, but the wife financed the repair of the roof, compensation must be paid to her. Another example is when a building is constructed on land belonging to one of the spouses, but the build is financed by joint funds.”

In Luxembourg, the surviving spouse is considered as a privileged heir, but not a statutorily entitled heir. This means that they can be excluded from the estate (or conferred preferential treatment) by way of a will.

> Will

If there is no will, the legal heirs are determined by the law according to the rules of devolution to the heirs: children and the surviving spouse, parents, brothers, sisters, etc.

Useful info: “It’s important to distinguish between marriage and partnerships”, Maître Kolbach explained: With marriage, the surviving spouse is considered a legal heir, which is not the case for a civil union (PACS). The surviving partner must be mentioned in the will in order to inherit, otherwise the deceased’s family (parents, brothers and sisters, etc.) will receive the estate.

If there is a will, the assets are allocated in accordance with the deceased’s wishes. However, the inheritance reserve must be complied with, which defines the minimum share of the estate that children must receive upon the passing of their parent (50% if there is one child, 67% if there are two children, and 75% if there are three or more children). The remaining share of the estate (called the discretionary portion) can be freely allocated.

Remember: in Luxembourg, the surviving spouse is considered as a privileged heir, but not a statutorily entitled heir. This means that they can be excluded from the estate (or conferred preferential treatment) by way of a will.

“The reserve can sometimes pose a problem if, for example, the deceased was married several times and 75% of the inheritance is reserved for the children. It is possible to include a clause in a will or marriage contract stating that the special discretionary portion between spouses go to the surviving spouse,” stated Maître Kolbach. It provides that the surviving spouse may receive: either a standard share and the usufruct of the rest of the estate, or the entirety of the estate in usufruct.”

> Children

If there are no children, the whole estate goes to the surviving spouse in full ownership (unless provided otherwise in the will).

If there are children, the surviving spouse may opt either for a full share of the children’s estate (at least ¼ of the estate), or for the usufruct of the residence shared by the spouses. The children inherit the bare ownership of the property, as well as full ownership of the remainder of the estate. This second option is only possible if the property was owned by the deceased alone or jointly with the surviving spouse.

“Note that, if the property is held through a company, it belongs to the company and not to the deceased. The surviving spouse will therefore not be able to opt for usufruct of the property. They will automatically receive a child’s share.”

The surviving spouse must make their claim before the division and no later than 3 months and 40 days after the start of the inheritance process. Once this period has lapsed, or if the surviving spouse has not made a choice, the law considers that they have opted for usufruct.

Useful info: “Here again, there’s a difference with a PACS. If there are children, the surviving partner cannot choose between a share in the children’s estate or the usufruct of the property, and the special discretionary portion between spouses does not apply to civil union partners. Everything must be provided for in a will, but taking care not to interfere with the children’s reserve.”

“If there are statutorily entitled heirs, gifts made during the lifetime of the deceased must be included in the estate and then revalued (…).”

> Gifts

“Where there are statutorily entitled heirs, gifts made during the lifetime of the deceased must be included in the estate and then revalued, based on their condition on the date of the gift and on the value on the day of the inheritance (or even of the division, if there is a subsequent division). The goal is to ensure that the statutory reserved portion of the estate has been upheld. If the gift was made to a child, it’s important to check whether it was an advance on the child’s inheritance or an additional payment, and to ensure that the division is balanced between the different heirs. If a third party received the gift, there must still be enough property to meet the children’s entitlement. Otherwise, the gift must be paid back. This readjustment isn’t always known in advance,” noted Maître Kolbach, “and this can lead to disputes within the family. That’s why, whenever possible, we should opt for a division of inheritance rather than a gift.”

> Information from banks and other organisations

The notary will also need to contact banks and organisations to gather all relevant information about the deceased’s assets and debts.

“Banks let us know about any existing bank accounts, outstanding loans or even a safe-deposit box. This last detail is important, because before the estate can be settled, the safe-deposit box must be opened to make an inventory and add its contents to the total estate. We also check for debts: if the deceased was a business owner, for example, there may be tax debts or VAT owed to the Centre commun de la sécurité sociale (CCSS), etc. Everything needs to be looked over.”

Useful info: The heirs are not obliged to approve the inheritance as it stands. There are a number of options available: accept the estate as it stands, accept it with the right to an inventory (for example, when they don’t know whether there are any debts), renounce it or contest it. If the heirs are minors, the inheritance can only be accepted with an inventory.

Fortunately, Maud and her late husband planned ahead and prepared their estate in advance with their notary. The notary helped them draw up their wills and provided them with information on all the supporting documents they needed to compile to make the inheritance process easier. The recommendations the couple got also helped ensure that, should something happen to either of them, the surviving spouse would be protected and the family assets divided up fairly.

“The notary should be contacted within one month of the person’s passing, to ensure that the six-month time limit is complied with (…)”.

Declaration of inheritance

With all the relevant information in hand, the notary can now prepare an exhaustive report of the deceased’s assets and draft the declaration of inheritance. This will be used as the basis for determining the amount of death duties to be paid to the state. This report is mandatory – even if duties are waived – and must be submitted to the AED (Administration de l’enregistrement, des domaines et de la TVA) within six months of the death so that real estate properties can be transferred. Next, if the estate is tax liable, the duties must be paid within six weeks’ notice from the AED.

“The notary should be contacted within one month of the person’s passing, to ensure that the 6-month time limit is complied with,” explained Maître Kolbach. Some situations might call for additional steps: an heir who is a minor, a bequest to an association, cross-border inheritance, etc.

Sometimes, a property might need to be sold to free up the cash needed to pay inheritance duties – and in this case, you’ll need to be careful about any capital gains tax you may have to pay. This should all be planned well in advance so that you’re in a position to pay on time and without incurring late payment interest.”

Depending on the specific situation, the notary will also need to draw up official documents: affidavit, exemption certificate, European certificate of succession, etc.

Sharing of the estate

Once the duties have been paid to AED, it’s time for the last step in the inheritance process: division. This is when the heirs decide whether to remain in joint ownership of the assets or to divide them up between them. To do this, the notary acts as a valuable adviser in organising a fair division in the interests of each beneficiary.

“Even if the estate isn’t tax liable, families needs to be careful when dividing it up,” Kolbach warned. “For example, heirs tend to start by collecting inheritance money from the bank, and then they divide property up between them. But this can give rise to certain fees, depending on the situation. You’ve got to be careful how you go about it.”

Useful info: not every estate transfer requires a division. If there is an only child and the surviving spouse has received the usufruct, there is no need. However, if there are several children or several legatees, the assets must be divided up.

A trusted adviser

The notary’s role in the inheritance process isn’t limited to administrative formalities. Their in-depth understanding of the law and comprehensive insight into their clients’ personal and financial situations make them invaluable trusted advisers. Whether before or after someone’s death, they guide families and inform them of their rights and obligations, as well as the taxes to be paid and consequences of certain decisions.

“Ideally, you should pay a visit to your notary before you fall ill or are too old to start planning your estate. This way, they can provide all the required information and offer personalised advice in order to protect everyone’s interests and anticipate any potential conflicts,” said Maître Kolbach.

Their expertise and recommendations are also invaluable when it comes to a complex estate: children born outside marriage, step families with children from previous partnerships, no direct heirs, sizeable fortune, multiple real estate properties, a company or debts owed, beneficiaries or assets located abroad, wills registered abroad, conflicts within the family, etc.

It’s a great idea to follow Maud and Pascal’s lead in planning your estate and making arrangements as early as possible. Also think about speaking with your loved ones in order to make sure everything is clear and to avoid misunderstandings.

This article is not intended to provide detailed and comprehensive information on estate planning and inheritance. Certain topics will require more detailed research and expert advice: complex estate planning, cross-border, etc.

* Division of inheritance implies that all children will be given assets of the same value that will not be revalued upon death.