What does the new inheritance law mean for SME owners?

On 20 July 2017, the federal Parliament definitively approved the bill amending the inheritance law. As a result, most of the rules of the inheritance law – which date back to 1804 – have been modernised and adapted to current social needs. These new rules – which will apply to all estates that devolve as of 1 September 2018 – will have a major impact for entrepreneurs on estate plans that have already been performed and those yet to be implemented.

Greater freedom to dispose

One of the primary objectives of the new inheritance law is to give the deceased greater freedom in order to dispose of his assets by way of donation or will. For this purpose, the rules regarding the reserve and the available share are being modified.

Under the current arrangement, the “forced heirship”-rights varies depending on the number of children that the deceased has, with a maximum of ¾ths of the estate if the deceased has three or more children. The new arrangement limits the ”forced heirship”-rights of the children to 50% of the hereditary mass, regardless of the number of children that come into the inheritance.

Concretely this means that you will be able to freely dispose of one-half of your future estate. This offers broader opportunities to (for example) give the shares of a company to the child who wishes to continue the company.

Valuation of donations – old arrangement

In order to be able to determine the size of the hereditary reserve, the assets of the deceased have to be recomposed, whereby account is taken of the donations that were made during life. Under the current arrangement, the donated goods are valued in accordance with their value on the date of death. However, an exception is provided for the valuation of shares from family companies that exercise a real economic activity. These shares are valued on the date of donation. In this way one wishes to avoid that the added value which is realised by the donee who carries on the company would benefit the other heirs.

In practice, this often gives rise to inequitable situations and family disputes. If the shares of a family company are donated to one child and the other child receives an immovable property of equal value, then at the moment of the donator’s death these goods must be valued at different points in time. The added value that the immovable good received in the meantime benefits all of the heirs, while the added value of the family company does not have to be taken into account.

Valuation of donations – new arrangement

In order to avoid such situations, the new law provides that all donations (of both movable and immovable goods) are valued at the time of donation and are indexed until the date of death (on the basis of the consumer price index).

Inheritance agreement

Furthermore, the law provides for the possibility of concluding an inheritance agreement with your children. In this way you can establish in a global inheritance agreement with all of your children just how the inheritance – and in particular the shares of the family company – must be devolved. In addition, you have the possibility of establishing agreements with several of the heirs with regard to a specific action (for example, the value of donated shares to be retained).

Impact on estate planning and entry into force

The new rules have a far-reaching impact on estate planning.

For estate plans that have already been done, it is important to have your planning reviewed within the short term:

• after all, the new rules concerning the “forced heirship” and the possibility of concluding an inheritance agreement offer new prospects for refining or further optimising your existing planning; and
• you have the possibility until 1 September 2018 of making a declaration before a Notary Public, whereby it can be indicated that the current rules concerning contribution and abatement continue to apply in full. If no declaration is done, all donations made (including those from before the law’s entry into effect) shall, at the time of death, be subject in full to the new contribution and abatement rules.

If you haven’t done any estate planning yet, the new rules offer broader possibilities for transferring your company to the next generation.

Frank De Langhe –  Nicolas Lauwers

Published in VOKA – “Ondernemers West-Vlaanderen”, edition 14, 22 September 2017.
You can find the article here.