One inheritance at multiple times: contingent legacies

You probably already knew you can leave your estate to multiple beneficiaries. Did you also know that with a reversionary legacy, you can prioritise one beneficiary during their lifetime and still have another beneficiary inherit after that? This blog post explores when that can be an interesting option.

What exactly is a reversionary legacy?

You have built up assets and are thinking about the best way to transfer them after your death. A reversionary legacy is a specific clause you can add to your will.

Basically, you leave a certain asset or amount of money to one person first. Anything left on this primary beneficiary’s death automatically passes to the next beneficiary in line.

In practical terms, you are designating two beneficiaries at once:

• The first beneficiary: your assets go to this person on your death
• The second beneficiary: this person receives whatever remains after the death of the first beneficiary

A few examples

Having trouble picturing how this would work? Possible scenarios in which a reversionary legacy could be useful:

• You want to financially protect your spouse, but also pass something down to your children.
• You do not have any children yourself, but you wish to divide your assets between a good friend and your godchild.
• You want to avoid your inheritance ultimately passing from your child to their ex-partner, and instead have it go to your own grandchild or a sibling.
• You want to donate a portion of your assets to a charity, but only after a family member has had use of them.
• You have a blended family and want to ensure that your children from a previous relationship ultimately receive something as well.
• You are childless and want to protect your partner, but also leave something to your own relations.
• You want to support someone with a disability financially and also designate another beneficiary afterward.

What are the advantages of a reversionary legacy?

Such a structure offers a number of options that won’t be as easy to achieve with a ‘traditional’ inheritance. For example, a reversionary legacy allows you to:

• Apply your succession planning to multiple generations
• Pass on your estate in a more well-thought-out way
• Benefit from tax advantages for the second beneficiary, as they will be taxed as if they were inheriting directly from you, possibly resulting in a lower rate (see below).

Things to watch out for

Although a revisionary legacy offers great opportunities, there are several matters you should consider carefully beforehand.

In principle, the first beneficiary is free to do whatever they want with this inheritance. That means the second beneficiary could be left empty-handed after all. You can include certain conditions or restrictions in the clause to prevent this.

To ensure a legally sound inheritance, you have to tie up all the loose ends. That means you need to make your will sufficiently detailed and to implement the necessary safeguards so everything will proceed smoothly after your death, precisely as you intended. For example, you could set up a separate account to ensure clarity on how much remains on the first beneficiary’s death.

What about the tax implications?

We already briefly pointed out the tax implications of a reversionary legacy structure. In case of a reversionary legacy, inheritance tax is levied in two stages:

• The first beneficiary pays inheritance tax on the entire amount or property received
• The second beneficiary pays inheritance tax on the remaining portion later, at the same rate that would be applicable if they were inheriting directly from you.

In concrete terms, this means that if the second beneficiary is your brother or sister, they will pay the applicable rate for siblings. If the beneficiary is your son, for example, the lower rate between parents and children applies. These tax rules vary from region to region. Different rates apply in Flanders, Brussels and Wallonia.

A few more tips if you are considering a reversionary legacy

• Get adequate advice: discuss your plans with a notary or estate planning specialist
• Ensure clear communication with all affected beneficiaries to avoid misunderstanding
• Ensure proper documentation of the remaining assets to make matters easier for the second beneficiary
• Use a reversionary legacy for the right reasons: it shouldn’t be a way to cling to control, but it will allow your wishes to be honoured for longer

In summary, a reversionary legacy is a legal opportunity that offers both a lot of flexibility and a great deal of control. By thinking carefully about to whom you want to leave what, and in which order, you can ensure a more considered transfer of assets. The tax benefits can be a nice bonus, but a reversionary legacy’s greatest strength lies in the ability to personalise how you arrange your inheritance.

Want to know more about donation and inheritance?

Finally, would you like more information about the legal, financial and administrative aspects of donation or inheritance? Stay up to date with our blog page!

Discover more donation and inheritance tips

**Please note that Keytrade Bank does not offer tax-related or other advice.