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Claude Medernach, Legal Counsel for Family Office Services at Banque de Luxembourg airs her thoughts in online magazine Paperjam's feature on inheritance planning.

Protecting your loved ones from life's ups and downs is a concern which involves anticipating the handover of your estate. It is a good idea to abide by certain inheritance rules to avoid future conflicts between heirs and ensure a peaceful and lasting transfer of your assets.


Inheritance rules to be respected

The rules for the division of property between the heirs of the deceased are legally defined in Luxembourg's Civil Code. These rules are identical for both business and family assets.

Traditionally, direct-line heirs (usually descendants, i.e. the children) and the surviving spouse will inherit. For childless couples, the surviving spouse is generally deemed to be the sole heir. Where there is no spouse or child, the inheritance generally passes to the deceased's parents (the ascendants) and brothers and sisters, and nephews and nieces (secondary heirs).

"The only inheritances that are exempt from death duties are those received by direct line and by the surviving spouse, whether or not there are children in common."

 

Exceptions can be made to these rules, especially through the creation of a will. In this case, you only have to comply with the statutory apportionments. Descendants (heirs with entitlement under Luxembourg law) must receive a certain proportion of their parents' inheritance. This is determined by law according to the number of children who are heirs. This statutory portion is shared equally between all the deceased's children.

From a tax perspective, only the inheritance received under the provisions of the Civil Code by direct line and by the surviving spouse, whether or not there are children in common, is exempt from inheritance duties whereas all other cases are taxable in principle.

 

Handover of business assets vs family assets

From a legal point of view, the inheritance rules are identical, irrespective of whether business or family assets are concerned. However, tensions or even discord can emerge among the beneficiaries due to the nature of the object being handed over.

"Anticipating the handover and putting inheritance planning in place will help avoid some of the tensions between heirs."



It can often be easier to divide an estate composed of movable and immovable property into separate, fairly equal batches to make for easier distribution among the heirs. These heirs will then have the possibility of managing and disposing of the assets they inherit, individually and independently, without having to collaborate with the other heirs.

On the other hand, a family business forming a solid unit is harder to divide up between the different heirs especially when – as is often the case – owners keep all their wealth, personal and business, within the family company. If all the assets are held in the business, it is not possible to compensate the heirs entitled to the statutory portion who will not benefit from acquiring the business.

In this case, the heirs can all find themselves in the same boat, even if their personalities and aspirations are not necessarily heading for the same destination as the family business.

Find out more about our inheritance planning services

 

Some inheritance planning options

Where a family business is concerned, business owners are always strongly advised – if circumstances allow, of course – to establish personal assets alongside their business assets. On death, it will then be much easier to reconcile the intentions of the deceased with the needs and aspirations of the heirs.

"Each case has to be analysed personally and individually."




Sometimes, this raises issues about valuing the family business or other assets in the family estate. To avoid any dispute on death, a "parental partition" can be made during the business owner's lifetime, in the form of an inter-vivos distribution or testamentary distribution. The values of the different assets are determined to avoid future disputes.

Obviously each case has to be analysed personally and individually, depending on the nature of the asset transferred and in light of the needs and aspirations of the different protagonists.

Find out more about our asset planning services

 

Click here to read the full Paperjam article on inheritance planning.

 

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