Current account in the estate: risk of double taxation
October 2022 – In the event of the death of a parent, most families do not really share the estate. This allows the surviving partner to get on with his or her life, without feeling that he or she has lost not only his or her partner but also half of his or her estate. This is good, but double taxation threatens.
Standard succession
Let us imagine a family consisting of two parents and two children, in which no special arrangements have been made. On the death of the first parent, the surviving parent receives half of the joint estate in full ownership and the other half in usufruct. The bare ownership of this second half goes to the children.
If this property consists of real estate, the situation is clear: the surviving partner continues to live in the home, partly as full owner and partly as usufructuary. But what about bank assets? For example, a savings account or an investment portfolio?
In practice, this money is simply left in the account and the joint account is converted into an account in the name of the surviving partner. The money is not divided.
Risk of double taxation
A financial problem arises, however, when the surviving partner dies, since the children will then actually divide the estate. The amount in the savings account or investment portfolio will then automatically be included in the estate, whereas the children already owned half of it in bare ownership. In principle, the amount in question should no longer be subject to inheritance tax.
Vlabel and the Federal Tax Administration have always accepted that the heirs can prove that the sums in question no longer form part of the estate.
The problem, however, is that the sums to be excluded from the estate have in the meantime been confused with the surviving partner's own funds and are still difficult to identify.
This is the case with current accounts, for example. The amount originally in the account fluctuates over the years depending on the income paid into it and the expenses incurred.
The same applies to savings accounts, where withdrawals and payments are made.
It is therefore not easy to prove that this is an amount to be excluded from the estate.
Jurisprudence puts Vlabel under pressure
In a specific case before the Ghent Court of First Instance and subsequently the Ghent Court of Appeal, the judges held in each case that in the event of the death of the surviving parent, the children had a personal right to that estate, to the extent of the sums on which they had paid inheritance tax at the time of the first death.
They could deduct this personal right (or claim) from the estate as a debt, which effectively reduced the tax base.
In addition to this case law, there is now also a new book on property law in our Civil Code.
New property law
Already under the old law of property, a distinction was made between so-called personal rights and real rights:
- a real right relates to a specific thing. I give you property X, and you must return property X to me;
- A personal right means that I ask you to do something.
In the case of money, a real right is possible, but not if there is a question of confusion, because the specific thing can no longer be traced. In that case, one must fall back on the personal right.
The new property law maintains this distinction. However, an exception is made for rights in rem: if a right in rem relates to things of a kind (i.e. money or interchangeable things), it is still possible to bring an action in rem.
Vlabel makes concessions
The ruling of the Ghent Court of Appeal and the entry into force of the new Civil Code led Vlabel to adjust its position in 2021. If the second death occurs after 1 September 2021 (i.e. the date on which the new property law in the Civil Code comes into force), the heirs have a real right to the assets of the survivor. This means that the assets in question are simply not included in the estate, nor do they have to be declared.
However, Vlabel does set a condition, namely that the assets must still be sufficiently traceable. An example is an amount that was in the savings account and has increased in the meantime.
However, if there is not enough money available, the heirs have a personal right, which can be included in the liabilities of the estate.
To put it more concretely: let's imagine that at the death of the first parent there was 200,000 euros in a savings account. Half of this amount - in other words, 100,000 euros - was included in the declaration of the first estate.
When the second parent dies, there is 120,000 euros in the account.
On the basis of Vlabel's new view, it seems that the heirs only have to include the sum of 20,000 euros in the inheritance tax return, since they have a real right to the 100,000 euros.
Let us imagine that only 60,000 euros remain in the savings account. In this case, the right in rem can no longer be exercised in full and the heirs still have a personal right to the estate of 40,000 euros. This sum can be deducted from the value of the other elements of the estate (e.g. the value of the house), provided there are any.
