Using a gift as an inheritance tax planning tool

In its simplest form, a gift is a legal act without consideration – the donor gives the donee a benefit or property of pecuniary value without any compensation from the donee.

Nevertheless, gifts can be classified into different categories according to their type. This includes, for example, advancements, which may be given to direct descendants. Advancements can influence the amount of legal shares and shares of inheritance. There are also gifts equivalent to wills and so-called favour gifts. In the context of the succession, life annuities, i.e. a system in which someone who sells property keeps the right to live on it for the rest of their life or similar pension-like arrangements, may also include gifts. Donations due to death are prohibited, and therefore all legal transactions relating to death can only be made by testament.

If sufficient consideration is paid for the property, the transfer is not necessarily defined as a gift. An intermediate form between a gift and a sale may be considered to be an interest-free loan.

Things to consider when planning a donation

When planning a donation, you need to be aware of all the legislation relating to donations. The provisions of, for example, the Marriage Act can therefore have a significant impact on gifts.

When making a donation, different provisions may also be made regarding the nature of the gift, for example in the case of an advancement. A provision in a deed of gift may also restrict the right of the spouse of the donee to the donated property. However, in order to be valid, the restriction excluding the matrimonial right must be in the strict form required by law.

Knowledge of the legislation closely related to donations helps to ensure that the donor’s intentions are fulfilled even after the donor’s death. In case of uncertainty, it is always advisable to consult an expert, and it is also possible to obtain advance rulings on gift tax from the Tax Administration for a fee.

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