2 minA “fideicommis de residuo” clause in donations
A fideicommis de residuo (life estate followed by a remainder) clause allows a donor to determine the ultimate destination of donated assets, even after the death of the initial beneficiary, while optimising the tax implications at each stage of the donation.
The information contained within this article is aimed at Belgian residents
A donation enables the transfer of part of one’s estate during one’s lifetime.Some donors may wish to specify the destination of the donated assets after the death of the initial beneficiary. For example, a father might want assets donated to his two children to pass, after the death of one child without descendants, to the surviving child. Alternatively, he might want to ensure that, upon the death of the beneficiary, the beneficiary’s spouse cannot exercise any inheritance rights over the donated assets.
Such situations can be planned for by including a fideicommis de residuo clause in the deed of donation. This clause, also referred to as a life estate followed by a remainder, allows for a two-step donation: first to the initial beneficiary (the “tenant for life”) and, upon their death, to the secondary beneficiary (the “remainderman”) for the residual assets.
A tax-efficient arrangement
This clause also offers a tax benefit. The donation to the initial beneficiary is subject to donation tax calculated based on their relationship with the donor.If any assets remain upon the death of the initial beneficiary, they are transferred to the secondary beneficiary, who is again subject to donation tax based on their relationship with the original donor (and not to inheritance tax, which is less favourable).It is important to note that the first beneficiary may fully consume the donated assets, in which case no remainder will pass to the secondary beneficiary.
Practical recommendations:
A clause of this kind requires particular attention when drafting the deed.Among other things, the following should be provided for:
- a clause ensuring the assets donated can be fully traced;
- a substitution clause to account for reinvestment of the donated assets;
- a clause specifying the treatment of income generated by the donated assets;
- a clause prohibiting any gratuitous transfer of the donated assets (except to the donor’s descendants).
Conclusion:
Incorporating a fideicommis clause into a donation deed allows donors to specify the destination of their assets beyond the initial beneficiary, while achieving tax savings on inheritance tax.
