Kevin Begon -

What’s the best way to make a gift to your children?

A majority of Belgians – especially those over 60 – would like to know more about how to support their children or grandchildren. This is one of the conclusions from a survey we commissioned from the Profacts research bureau to respond to our customers’ concerns more effectively.

There are many good reasons to make a gift to your children and grandchildren. What could be a better present than a sum of money when they really need it, for example to buy their own home? Making a gift during your lifetime also means that your heirs will pay less inheritance tax when you pass away.

Some simple steps   

“Giving a sum of money is very simple,” says Philipp Bollen, Director of Estate Planning at BNP Paribas Fortis. “All you need to do is transfer the amount into your child's account. You don't need to go to a notary or pay gift tax. However, you do need to draw up a deed of gift as proof of the transaction.” Because if the donor dies within three years of making the gift, the amount will be taken into account when calculating inheritance tax. And for large amounts, inheritance tax is higher than gift tax.

“Another point to bear in mind is the reserved portion of your estate,” Philipp Bollen notes. “Together, your children are legally entitled to half of your estate. So you need to make sure you never give more than half to your grandchildren, unless you reach an agreement with all the parties involved during your lifetime and have it recorded by a notary in an inheritance agreement.”

Lifetime gifts are cheaper than bequests

To formalise the gift and avoid inheritance tax in the event that you die within three years of making it, you have several options. Either you register the deed of gift with the tax authorities and pay inheritance tax, or you go to a notary. But in the latter case, in addition to gift tax, you’ll also have to pay the notary's fees.

Gift tax is levied on a regional basis. Flanders and the Brussels-Capital region apply a fixed rate of 3% to movable property (money, shares, jewellery) for gifts made in a direct line and between spouses and cohabitants, while the rate for other gifts is 7%. In Wallonia, you pay 3.3% for gifts in a direct line, 5.5% for gifts between brothers and sisters, and between uncles or aunts and nephews or nieces, and 7.7% for gifts between all other individuals.

You can also take out a death benefit policy. In that case, the amount the insurance company pays out will cover any inheritance tax if the donor dies within three years of making the gift.

Keeping control 

As a parent or grandparent, you sometimes worry about what your children or grandchildren will do with the money they receive. “It is entirely possible to apply certain conditions to the gift,” Philipp Bollen explains. “For example, you can specify that your child or grandchild can only use the money to buy a home.”

You also want to make sure you have enough money yourself so that you can continue living comfortably. Giving some or all of your investment portfolio while retaining a life interest can be a solution: the recipient acquires the remainder interest while you continue to receive the dividends and interest from the portfolio. Another option is to make a gift subject to conditions: you can specify that the gift is subject to a particular obligation, for example to pay you a regular sum as an annuity.

Life insurance to cover your expenses 

“In practice, a gift can also be made through a life insurance policy,” Philipp Bollen adds. “With a savings or investment insurance policy, you can specify conditions allowing you to receive an annual income of up to 2.5% of the gifted amount. This is not compulsory, but you might want to do it if your medical expenses are increasing, for example. When you pass away, the insured amount will be paid out to the beneficiary.”

Ask Your Bank 

BNP Paribas Fortis wants to help you see things more clearly when it comes to managing your money. That's why we asked over 1,000 Belgians about any questions and concerns they had. With our Ask Your Bank series, we address those questions and concerns in a fully transparent way.