What’s the best way to give money to your children or grandchildren?

... and there are a number of solutions;

There are plenty of good reasons to give money to your children and grandchildren. What better gift could there be than a lump sum when they really need it, for example when they’re buying a home? By giving away money while you’re still alive, you also ensure that your heirs pay less inheritance tax after you’re gone.

A few simple steps

“It’s very easy to make a gift of money,” explains Philipp Bollen, Director of Estate Planning at BNP Paribas Fortis. “You simply transfer the money into your child or grandchild’s account. You don’t have to go through a solicitor or pay gift tax. However, you should draw up a document acknowledging the transfer.” That’s because if you die within three years of making the gift, the amount will be taken into account when calculating inheritance tax, which is higher than gift tax for large amounts.

“Another thing to take into account is your heirs’ minimum share of your estate,” Philipp says. “Together, your children are legally entitled to half of your estate, so you must be careful not to give more than half away to your grandchildren. One way around this is to form binding agreements, while you are alive, with all those concerned and register them with a solicitor as part of an inheritance agreement.”

Gifts are cheaper than bequests

To make a gift official, and so avoid inheritance tax if you die within three years, you have several options. You can have the document acknowledging the transfer registered with the tax authorities and pay the inheritance tax, or you can go via a solicitor. But if you do the latter, you’ll have to pay the solicitor’s fees as well as the gift tax.

In Belgium, gift tax is levied by the regional authorities. In Flanders and the Brussels-Capital region, a tax of 3% is applied to gifts of moveable assets (money, shares, jewellery) made to your direct descendants, or between spouses and cohabitees. Gifts to other people are taxed at 7%. In Wallonia, the rates are 3.3% and 5.5% respectively.

You can also take out a death benefit insurance policy. With this kind of policy, the insurance company will pay out a sum that will cover any inheritance tax payable if you die within three years of making the gift.

Stay in control

As a parent or grandparent, you may be worried about what your children or grandchildren will do with the money they receive. “It’s perfectly possible to attach conditions to the gift,” Philipp says. “For example, you can say that your child or grandchild can only use the money to buy a home.”

Obviously, you want to ensure that you have enough money to continue living comfortably. Giving away a remainder interest in some or all of your investment portfolio while retaining the life interest could be a solution: this means that you continue to receive dividends and interest from the portfolio until you die, at which point the recipient gains full ownership of it.

Ensure that you can cover your living expenses with life insurance

“A life insurance policy is a practical way of making a gift,” adds Philipp Bollen. “With this kind of savings or investment-based policy, you can include a clause entitling you to an income of up to 2.5% of the gift amount every year. You don’t have to take that income, but you can choose to do so, for example if your medical expenses increase. When you die, the insured amount will be paid to the beneficiary.”

About Ask Your Bank

At BNP Paribas Fortis, we want to help you gain a greater understanding of money matters, which is why we asked more than 1,000 Belgians what their main money-related questions and concerns are. With the Ask Your Bank series, we aim to make your life easier by addressing those matters in a fully transparent way: another example of Positive Banking.