Skipping a generation: leaving your assets to your grandchildren
As people’s life expectancies rise every year, so does the age at which your children will inherit your assets. When the time comes to deal with your inheritance, they may have settled down years previously. So perhaps your grandchildren could make better use of your money? This is where the solution known as “skipping a generation” comes into play.
“Skipping a generation means passing on your inheritance to the next-but-one generation,” explains Philipp Bollen, Director of Estate Planning at BNP Paribas Fortis. “This has two purposes. Not only do your assets end up in your grandchildren’s hands more quickly, but you avoid paying two lots of inheritance taxes, i.e. once when your children inherit and again when their own children inherit following their death.”
In practice, there are various ways of skipping a generation.
The most drastic: waiving your inheritance
If you want to ensure that your children inherit your entire share of your parents’ estate when your parents die, you can waive your inheritance. This means that you don’t inherit anything and your share goes straight to your children.
Partial skipping
This method – currently available only in Flanders – allows you to give away part of an inheritance on which you have already paid inheritance tax to someone else, tax-free. There are two conditions: the gift must take place within a year of the testator’s death, and you must make the gift through a deed formally recorded by a notary.
Direct bequests to grandchildren
Forward-thinking grandparents who want to help their grandchildren can also include them in their will. There are many benefits to this: you can determine what each grandchild will receive and you can divide your estate between a larger number of beneficiaries. This means that each of them will pay less inheritance tax, since the rate of inheritance tax rises according to the size of the bequest.
Small bequests
In Flanders, bequests of less than €50,000 attract less tax, and no inheritance tax at all is levied on bequests of €12,500 or less. Grandparents who want to help their grandchildren financially and also want their heirs to pay as little inheritance tax as possible could therefore consider leaving each grandchild a maximum of €12,500 each in their will.
Lifetime gift
With this method, your grandchildren don’t need to wait until you die before receiving your assets. The big advantage of this is that gifts to your direct descendants attract gift tax of only 3%. In addition, if you feel that you’re in good health and will live at least another three years, you may even consider not registering the gift, in which case there is no gift tax to pay. For more information, read our article about gifts.
It’s good to talk
To avoid any misunderstandings among your loved ones, take the time to think carefully about all aspects of your inheritance. It’s also a good idea to ask for advice from a solicitor and to discuss the matter with your children. They may want you to skip a generation themselves.