Abolition of the duo legacy in Flanders
January 2022 – The Flemish Government has abolished the duo bequest as from 1 July 2021. If you had previously amended your will in order to arrange such a duo bequest, it is advisable to look again at this will and to seek alternative solutions, if necessary.
Donation at the expense of the tax authorities
The duo bequest involves you making literally two bequests. One to a non-market organisation and one to your heirs. The bequest to the organisation is subject to inheritance tax at a reduced rate (8.5% in Flanders). The bequest to the people you want to name as beneficiaries (family members or third parties) is taxed at the 'normal' rates which depend on the family relationship and the amount. In Flanders these rates can be as high as 55%, in Wallonia and Brussels they can rise to 80%.
But with a duo bequest, you can make substantial tax savings. How can you do this? By making the bequest to the non-profit organisation conditional on the organisation paying the inheritance tax due on the other bequest.
Example
Let's say your estate consists of a building worth 250 000 euros and 200 000 euros in the bank. You leave everything to your brother. In Flanders, your brother has to pay 227 000 euros in 'erfbelasting' on this estate. Your brother therefore receives a net amount of 223 000 euros.
If you give the 200 000 euros to the bank to a non-profit organisation, which will pay tax on what your brother inherits, the calculation is as follows
the non-profit organisation receives 200 000 euros, minus the erfbelasting it owes (17 000 euros) and minus the tax your brother owes on the property (117 000 euros). The non-market organisation therefore receives a net amount of 66 000 euros;
your brother receives 250,000 euros, which is more than he would receive if he had received the entire inheritance.
It is obvious that if the organisation has to pay more tax than it will receive, it will refuse the bequest.
Suppression of the duo bequest in Flanders
"Abolition' is probably a big word: you can still make a duo bequest, but the Flemish Government has abolished the associated tax advantage. Since 1 July, the amount that the non-market organisation must use to pay the "erfbelasting" owed by the other legatees is taken into account for the determination of the taxable amount for family members or third parties. This other legatee therefore gains nothing from the duo bequest. The following example was given to Parliament.
Example
The nephew of the deceased receives a bequest of 280 000 euros by means of a duo bequest. A non-profit organisation receives a bequest of 220 000 euros, which is to be paid to the nephew for erfbelasting. An amount of 139 500 euros in erfbelasting is due on the bequest of 280 000 euros. The marginal tax rate on this legacy is 55%.
Under the old rules, the nephew would receive 280 000 euros. The 139 000 euros of "erfbelasting" must be paid by the organisation.
Under the new rules, the tax base of the nephew is increased by the lower of the following two amounts
310 000 euros: the gross amount of erfbelasting, i.e. 139 500 euros/(1-0.55) ;
the amount of the bequest to the good cause, in this example 220 000 euros.
In other words: the nephew's estate will have a taxable value of 500 000 euros, i.e. the total value of the estate.
The duo bequest in the will still stipulates that the non-profit organisation must pay the nephew's "erfbelasting", but this amount is no longer 139 500 euros, but 260 500 euros. It follows that the market organisation has to pay more than it receives, so it will refuse the legacy.
What about bequests to a good cause?
The duo bequest was certainly an important source of income for many non-market organisations. With the benefit removed, there is a risk that these organisations will hardly receive any more legacies. To avoid this, donations and bequests to good causes have been exempt from schenkbelasting and erfbelasting in the Flemish Region since 1 July.
The exemption does not apply to private foundations, even if they pursue a disinterested goal. The former rates of 5.5% schenkbelasting and 8.5% erfbelasting continue to apply normally to foundations.
Home
One thing you should bear in mind is that the abolition of the tax advantage of the duo bequest only concerns the Flemish Region. In the other two Regions, the technique is still possible. It is therefore important to know which regulations apply to you. The applicable regulations do not depend on where your will was drawn up or where you were living at the time. It is determined on the basis of your domicile. If you move during the last five years before your death, the Region where the deceased resided the longest during these five years is competent.
Content of your will
A legacy can only be arranged by will. If you planned a joint legacy under the old regulations, you will have to re-examine this will. The abolition of the duo bequest in the Flemish Region has been pending for some time, so your will may already have been adapted. But if not, you risk not only that the non-profit organisation will refuse the bequest, but also that a large part of your estate will go to the tax authorities.
