4 minThe tontine clause: an attractive estate planning tool
Bernard Goffaux & Christophe Delanghe The tontine clause (or clause d’accroissement) is an effective estate planning tool for partners (married or cohabiting) that enables the transfer of certain assets without inheritance tax.
The information contained within this article is aimed at Belgian residents
The tontine clause is a planning mechanism that allows partners (married or cohabiting) to transfer specific assets between them while benefiting from advantageous tax treatment. This arrangement allows the surviving partner to receive certain assets (whether jointly owned or individually owned by each partner) without paying inheritance or gift tax2, subject to specific conditions.
Here’s how the tontine clause works in practice: One person (referred to as the “transferor”) agrees to transfer either an individually-owned asset or their share in a jointly-owned asset to their partner1 (the “transferee”), on the condition that the transferor predeceases the transferee. In return, the transferee agrees to transfer an individually-owned asset of equivalent value, or their share in the jointly-owned asset, should the transferee predecease the transferor.
Each partner’s transfer is made in exchange for the other’s, rendering the tontine clause “aleatory and reciprocal”, meaning that both parties commit to a transfer contingent upon an uncertain future event, such as the death of one partner.
The objective is for the surviving partner to become the sole owner of the shared asset or exchanged assets.
The consideration aspect in a tontine clause is assessed by considering the life expectancy of each party and the value of the assets being transferred. The underlying principle is that both parties should have an equivalent likelihood of gain or loss when entering into the agreement. Favourable tax treatment has been confirmed for residents of Flanders through various rulings, and for Wallonia and the Brussels-Capital Region via a 2007 ruling and a response from the Minister of Finance in Parliament.
What are the basic rules to follow?
Meticulous drafting of a tontine clause is crucial to demonstrate that it constitutes a contract for consideration, with equivalent contributions and a comparable probability of survival for each partner. At the time of drafting the clause, it may be advisable to obtain a medical certificate confirming the health status of each party, as well as documentation justifying the value of the assets contributed or transferred by each party to the contract.
It is important to note that, provided that it does not represent a “gratuitous” transfer, this clause will not be taken into account when determining the children’s reserved portion upon the death of the first contracting party. As a result, the children of partners who have implemented a tontine clause for a specific asset will have no legal grounds to contest the clause.
The tontine clause offers a robust and enduring planning tool for partners. Unlike a will or a spousal gift, it cannot be unilaterally revoked.
Practical recommendations for tontine clauses applied to securities accounts
Since a tontine clause can only be revoked by mutual agreement, it is essential to ensure that the parties act jointly for any transactions (e.g. withdrawals or transfers) involving the relevant securities account. This requirement can be formalised within the tontine clause agreement by including a prohibition on alienation 3(except with the mutual consent of both parties).
We recommend maintaining clear and comprehensive documentation of all assets subject to the tontine clause. In this context, it may also be advisable to incorporate a subrogation clause to avoid any potential mixing with assets not subject to the tontine clause.
When the tontine clause is established through a private agreement, it can also be beneficial to assign a definitive date to the clause by voluntarily submitting it for registration4.
Finally, the agreement should clearly outline the various non-tax-related reasons for implementing the tontine clause to mitigate the risk of anti-abuse measures being applied by tax authorities.
Conclusion
The tontine clause is a powerful estate planning tool for partners (whether married or cohabiting). It allows for the transfer of specific assets without inheritance tax and provides long-term mutual protection between the partners.
1A tontine clause cannot be applied to assets held within the couple’s community property.
2When the tontine clause pertains to real estate, transfer to the surviving partner will be subject to transfer tax.
3It is worth noting that investment decisions concerning individual securities within a portfolio account can still be made independently by each party. This does not contravene the prohibition on alienation, as this restriction applies to the portfolio as a whole (i.e., the securities account) rather than its individual components.
4Upon registration, the agreement will be subject to a general fixed duty of EUR 50.
