Movable asset donations in Belgium: How life insurance protects your wealth from tax risks

By Corentin Minne, Co-founder, Pareto

Transferring assets during one’s lifetime is a cornerstone of estate planning. However, in all three Belgian regions, the survival period following an unregistered donation has now been extended from three to five years. If the donor dies during this so-called “suspect period”, the beneficiary becomes liable for inheritance tax, which can reach up to 30%.

To mitigate this risk without immediately paying gift tax (3% or 3.3% in the direct line), temporary life insurance emerges as the most rational solution.

1. The principle of the un-registered donation

A bank donation allows the transfer of cash without immediate taxation, as it is executed under private deed. While this is fiscally attractive, it comes with a sword of Damocles: the risk of the donor’s premature death. Should the donor die before the end of the statutory period, the tax authorities will reintegrate the donation into the estate and apply progressive inheritance tax rates, often reaching 30% for higher brackets.

2. The A-B-A structure: legal efficiency

To ensure that the insurance payout itself is not taxed, a specific structure is essential.

The beneficiary of the donation (A) is both the policyholder and the beneficiary of the insurance contract. The insured person (B) is the donor. By funding the premium with a portion of the donated funds, the donee insures against the donor’s death during the five-year period.

In the event of a claim, the payout is tax-exempt and fully covers the inheritance tax due, without eroding the transferred wealth.

This structure does, however, require the beneficiary to demonstrate that the premiums were paid using their own funds. This is generally easy to establish in a parent-child relationship, but may prove more complex when the parties are married under a community property regime.

3. What type of coverage? 

Life insurance policies can differ significantly in their characteristics. In this context, it is important to distinguish between comprehensive “death from all causes” coverage and more limited policies, such as “accidental death plus ten sudden illnesses”.

All-cause coverage offers maximum protection, but typically comes with higher premiums, age- or health-related exclusions, and lengthy, complex medical underwriting.

Our recommendation is to opt for coverage limited to a defined set of scenarios. Such policies are not offered by all insurers and often require the involvement of a broker specialising in estate planning, such as a family office. In practice, if a serious illness occurs, it remains possible to register the donation even several years later. Deaths that can be anticipated therefore do not need to be insured. This type of policy allows for attractive premiums without the burden of extensive medical examinations, which is particularly advantageous for senior donors.

4. Comparative analysis based on real cases

In a first case, a 54-year-old woman wishes to transfer €3.5 million to her spouse. If she were to die within five years, the tax risk would amount to €1.05 million. Immediate registration of the donation would cost €115,500. A temporary life insurance policy covering the five-year period, by contrast, requires a single premium of €7,545, generating an immediate saving of €107,955 for the family.

In a second case, a 77-year-old mother donates €1.42 million to her daughter. The tax risk amounts to €426,000, compared with a registration cost of €42,600. A three-year limited life insurance policy covers this risk for €17,550, resulting in an immediate saving of €25,050.

Finally, a 76-year-old donor transfers €800,000 to his four children. The tax risk is €240,000, while registration would cost €26,400. A five-year temporary life insurance policy costs €4,410 in total, or €2,205 per child, generating a saving of €21,990.

“An unregistered donation comes with a sword of Damocles: the risk of the donor’s premature death.”

5. Summary table: Insurance as the rational choice

Conclusion

From a financial perspective, the trade-off is consistently in favour of “sudden death + 10 causes” life insurance. This solution makes it possible to preserve a significantly larger share of family wealth by avoiding immediate taxation, while ensuring that heirs remain solvent in the face of inheritance taxes which, in the event of a premature death within the five-year period, can very quickly reach substantial amounts.

This mechanism is even more compelling where inheritance tax rates are high, notably in situations where the deceased leaves no heirs in the direct line (children or parents).