Wealth Management, Corporate and Personal Taxation: Strategies for Wealth Transfer and Optimization

CHAPTER 1: DONATIONS

Managing donations is much more than a simple act of generosity. It is part of a framework where legal, fiscal and emotional dimensions intersect. The verb to give evokes "the idea of a gift, an act of kindness, but also the image of the flexibility needed to adapt to changing circumstances without breaking. This duality reflects the complexity of the situations and intentions that accompany each act of giving.

This complexity is reflected in the laws that govern these transfers, not to restrict donations, but to ensure that they respect the donor's wishes while protecting the rights of the beneficiaries. Every step of the way must respect the expectations of the parties involved, as well as legal and tax obligations.

Approaching gift-giving from just one angle - be it fiscal, legal or emotional - can lead to errors of judgment. Effective management therefore requires a global vision, taking into account all possible perspectives. Although donations are not often associated with urgency or contestation, they remain complex to manage. Every decision must be carefully considered, as the repercussions can be long-lasting for both donor and beneficiary. This calls for rigorous preparation and execution, to ensure that the act of generosity becomes a harmonious and balanced process.

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What is a donation?

A gift is a voluntary legal act by which the donor, i.e. the person who gives a good or right, irrevocably disposes of it to the benefit of a donee, the person who receives and accepts it without consideration. This transfer of ownership is at the heart of the process: the asset leaves the donor's patrimony to enter that of the donee, with the full passage of the rights relating to the asset, whether of use, enjoyment or disposition. This movement marks a clear break between the past, when the donor exercised all rights over the property, and the future, when the donee becomes the rightful owner.

The donor's liberal intention is essential: the gesture must be motivated by generosity, with no quest for a quid pro quo or hidden advantage. This willingness to give without expecting anything in return distinguishes the gift from other forms of property transfer, such as sale. For a gift to be effective, the donee's acceptance is essential. This may be explicit or tacit, but must always be expressed within a legal framework. Without this acceptance, the donation is not effective.

Once accepted, the gift becomes irrevocable, offering the donee complete legal certainty: the donor cannot reverse his or her decision. This irrevocability guarantees the stability of the donee's assets.

Although gifting is often perceived as a selfless act, it can also serve strategic objectives, particularly in terms of tax optimization. Transferring certain assets from a living can reduce the inheritance tax payable by heirs. Although this practice is legal, it must be carried out with care, to ensure that liberal intent remains the primary motivation, and to avoid any recharacterization by the tax authorities.

Each element of the gift - the legal framework, the transfer of ownership, the liberal intention, the acceptance - contributes to a complex but balanced process. The aim is to respect the donor's wishes while guaranteeing the donee full and unrestricted enjoyment of the property transferred, in complete security and without ambiguity.

Distinction between civil law and tax law

Managing donations requires a mastery of both civil law and tax law, two fields which, although often linked, have their own distinct characteristics. Each obeys its own rules, and a thorough understanding of how they interact will help you avoid mistakes. These differences can be confusing, especially when you're trying to reconcile the requirements of these two regimes in your estate planning.

Tax and civil law govern the transfer of gifts, and the principles involved are sometimes divergent. While civil law focuses on the validity of the deeds, the obligations of the parties and the protection of heirs, tax law is concerned with the financial consequences of the transfer, in particular taxes and allowances. Switching from one framework to the other requires knowledge of the rules specific to each, since an operation carried out under civil law will have significant tax repercussions, influencing the costs or benefits associated with the gift.

The omnipresent interplay between civil and tax law often complicates matters, especially for the uninitiated. A transfer that appears to comply with civil requirements may trigger unexpected tax obligations. Take, for example, the question of taxes: an asset donated in compliance with civil law may trigger specific tax obligations, such as tax rates or exemptions that depend on the terms of the gift.

One of the major challenges is the general public's perception of these rules. Because the laws are complex, it's easy to get them wrong. A common misconception is that a gift that remains uncontested for more than three years becomes intangible, with no possibility of reversal. This reasoning stems from a confusion between civil law prescription periods and tax declaration rules. A donation may be legal under civil law, but if it has not been correctly declared for tax purposes, it may still lead to sanctions or readjustments.

This confusion is exacerbated by the tendency to place too much emphasis on the tax aspects of donations, to the detriment of civil issues. All too often, gifts are seen as mere tax optimization tools. However, focusing solely on reducing inheritance tax can lead to neglecting the rights of heirs or the donor's legal capacity to dispose of certain assets. This one-sided approach can lead to unforeseen consequences, particularly in the case of disputed estates.

To counter abuses that exploit donations for purely tax purposes, legislation has been introduced, such as the Program Law of March 29, 2012. These measures aim to regulate suspicious transactions, such as split purchases preceded by donations. These practices, which can be perceived as attempts to circumvent tax law, are now framed to ensure that they comply with both civil and tax requirements.

Let's take a concrete example: an elderly widow in Brussels decides to sell a property and then give the proceeds to her children via a bank transfer. The registration of this gift at a reduced rate, carried out by the banker without the intervention of a notary, might seem advantageous from a tax point of view. Nevertheless, this transaction could ignore important civil obligations, notably the donor's rights to the property originally sold. This type of transaction, without a proper assessment of civil rights, can easily be requalified, leading to serious legal consequences if it is perceived as a maneuver to circumvent inheritance tax.

Distinguishing between form and substance in donations

The distinction between substance and form in donations enables us to understand the different components of the deed and guarantee its legal validity. While substance defines the very essence of the transaction, form guarantees its procedural regularity. These two dimensions, though distinct, intertwine to give the gift its full legal force.

The substance of a gift concerns the essential elements of the deed. These are the capacity of the parties to contract, their mutual consent, the purpose of the gift, the cause of the gift and the terms of its execution. Without these fundamental elements, the gift cannot legally exist. It is the substance that gives the deed its meaning, by clarifying the intentions and obligations of the parties. The donor must be in full possession of his or her means, and genuinely wish to divest himself or herself of an asset for the benefit of the donee, who freely accepts.

Form refers to the legal framework in which the gift is made. In Belgium, article 931 of the Civil Code requires that the gift be formalized by a notarial deed. This requirement guarantees the authenticity of the deed and its compliance with current legislation. The form also includes procedural elements such as the presence of witnesses or the use of powers of attorney, and takes into account linguistic aspects depending on the situation. These formal elements are necessary to validate the donation from a legal point of view, and for it to be recognized by the relevant institutions.

There are, however, exceptions to the strict rules of form, particularly for movable property. For example, a manual gift allows an asset to be handed over without the need for a notarial deed. However, this type of gift poses problems of proof, especially in the case of high-value assets such as works of art, where disputes may arise if proof of the transfer is not well documented. Indirect gifts, on the other hand, can be made by means such as a bank transfer or debt forgiveness, thus allowing a degree of flexibility in the procedure. Finally, a disguised donation is a sale at a symbolic or unpaid price, where the real intention is to give.

However, if the legal formalities are not respected, the gift may be rendered null and void. Private donations, for example, are more vulnerable to challenges or problems of validity, particularly when the formal requirements are not met. This underlines the importance of complying with legal requirements to avoid any subsequent challenge to the validity of the deed.

When it comes to proof, form is of unprecedented importance. An authentic deed, although costly in terms of notarial fees, offers greater legal certainty. In the event of a dispute, this deed constitutes solid proof of the transfer of ownership, unlike manual or private donations, which can be more difficult to prove.

In an international context, the distinction between form and substance becomes even more delicate. Legal rules vary considerably from one country to another, and dealing with donations involving foreign elements requires a thorough understanding of the legal systems involved. The laws in force in the jurisdiction of origin and in the jurisdiction where the assets or beneficiaries are located may conflict, making the interpretation of deeds of gift even more complex.

An illustrative example can be found in article 948 of the Belgian Civil Code, which requires an estimated statement for certain donations. This type of provision highlights the importance of proper documentation and formalities in the context of a donation. Similarly, decisions handed down in Switzerland by the Cour de cassation have considered whether certain aspects of donations should be judged from the point of view of substance or form, once again highlighting the complexity inherent in these distinctions in different legal contexts.

Foreign elements and private international law

In the context of cross-border donations, the presence of foreign elements calls for the intervention of private international law. This field determines both the competent jurisdictions and the laws applicable to donations involving parties, assets or transactions located in several countries. The foreign element adds considerable complexity to the process of transferring assets internationally, and a detailed analysis is required to ensure the legality of the operation.

Private international law governs relations between the legal systems of different nations. When it comes to donations, several aspects can introduce foreign elements, such as the nationality of the parties or the location of the property. These elements make it essential to understand the rules that ensure that the rights of donors and donees are respected, regardless of their origin or the location of the property.

In today's globalized world, it is becoming increasingly common to come across donations involving people or assets spread over several countries. Whether because of international family ties or the geographical dispersal of assets, these situations call for recourse to the tools of private international law to manage the diversity of national legislations.

Another vital step in cross-border donations is identifying the competent court and the applicable law. These choices depend on the conflict-of-laws rules specific to each country, as well as the international agreements that apply. Thus, the first question to be resolved is often which country is in a position to judge a possible dispute, and which legislation should apply to the donation contract.

In Belgium, the Code of Private International Law (Codip), introduced by the law of July 16, 2004, sets out guidelines for handling situations involving foreign components. This legal framework provides rules for choosing the applicable law and ensuring consistency in the management of international gifts. Codip aims to offer a degree of legal predictability to those involved in cross-border donations.

The European Inheritance Regulation, in force since August 17, 2015, harmonizes the rules applicable to inheritance within the European Union. Nevertheless, this regulation does not apply directly to donations. A clear distinction must therefore be made between the rules on successions and those on donations, even though the two can sometimes intersect, particularly in the context of complex wealth planning.

In international donations, the question of the applicable law is divided between the substance and the form of the deed. As regards substance, the principle of party autonomy allows the parties to choose the law that will govern the substance of the gift, provided that the choice is relevant to the case and respects legal constraints. As regards form, the traditional rule of locus regit actum applies: the deed of gift must comply with the legal formalities of the place where it is signed, giving it formal validity.

Cross-border donations are more than just transfers of assets; they can also have inheritance consequences. Inheritance rules, and in particular the rights of heirs, can be influenced by the way in which donations have been made, particularly when the laws involved differ. The phenomenon of mobile conflicts, where the residences of donors or donees change countries, further complicates these issues.

Articles 77 to 80 of the Belgian Code of Private International Law provide a specific framework for donations with implications for matrimonial property regimes and inheritance. This framework provides guidelines for resolving conflicts of law and helping parties to choose the most appropriate legislation to manage their gifts, while taking into account any inheritance issues.

An example of these complexities is a gift in an Anglo-Saxon country, where revocation between spouses may be permitted but prohibited elsewhere. These differences must therefore be taken into account to ensure that deeds comply with the law and the intentions of the parties.

Capacity and cause in the context of gifts and matrimonial regimes

Donation capacity

Legal capacity to make gifts is a pillar of civil law that determines who can legally give or receive gifts. This capacity is strictly regulated, particularly for vulnerable groups such as minors, people under court administration or those with special mandates. These restrictions are designed to protect individuals and ensure that donations respect the rights and interests of all parties involved.

In the case of minors, their capacity to give is limited by law. Article 935, paragraph 3 of the Civil Code specifies that, although minors are generally incapable of giving without the assistance of their legal representative, they are authorized to receive donations. Nevertheless, restrictions are applied to ensure that donated funds are used appropriately. For example, money or property given to a minor may be placed under management until the minor reaches the age of majority. A donor may wish the details of the gift to remain confidential until the minor reaches a certain maturity, requiring special arrangements to protect this confidentiality.

Because of their incapacity to manage their own affairs, people placed under court administration are subject to specific rules governing donations. Under article 905 of the French Civil Code, they can only make donations after obtaining prior judicial authorization. This measure is designed to prevent abuse and protect these vulnerable people. In certain cases, article 499/7, § 4 allows such individuals to make donations through a legal representative, again under judicial supervision. The aim of this system is to ensure that donations are made in accordance with the wishes of the administered persons, while respecting their legal protection.

People who have anticipated a future incapacity can draw up an out-of-court power of attorney that stipulates how their assets are to be managed in the event of incapacity. These mandates can include specific provisions authorizing the mandatary to make gifts on behalf of the mandator, in accordance with articles 489 to 490/2 of the Civil Code. This enables proactive, anticipated management of assets, offering additional protection for potential donors.

Powers of attorney, on the other hand, enable a person to act on his or her own behalf, including giving or receiving donations. Powers of attorney must be precisely drafted, clearly distinguishing whether they are general or special, and whether they include the capacity to give or receive gifts. The state of health of the principal at the time of signing the power of attorney is not insignificant: he or she must be capable of understanding the scope and consequences of the act for it to be legally valid.

Finally, certain people may be legally incapable of receiving gifts because of their profession or position, in order to avoid conflicts of interest. Article 909 of the Civil Code, for example, imposes restrictions on private bankers to protect them from situations of breach of trust or manipulation. These rules are designed to preserve the integrity of transactions and avoid situations where donations could be perceived as being influenced by personal or financial interests.

Cause in the context of donations

At the heart of civil law, the cause of a gift marks the boundary between a gratuitous transfer and an onerous transaction. It represents the legitimate motivations behind the transfer of a property or right, making it a determining factor in the validity and durability of the act. In continental legal systems, its legality and conformity with moral principles are sine qua non conditions for the contract to be recognized by the courts. In the case of gifts, it legitimizes the gratuitous nature of the transfer, differentiating between purely altruistic gestures and those with strategic aims, such as tax optimization.

Although a donation is by its very nature an act of liberality, the donor's motivations can be manifold. Some donors act out of pure generosity, offering an asset or a right with no expectation of return. Others, however, see a gift as a way of optimizing their tax situation. By transferring assets before their death, they can lighten the future tax burden of their heirs. This distinction between gift and tax instrument reflects the importance of the motive behind the act of donation.

The cause of a donation can sometimes be specified in the deed itself, according to the donor's wishes. However, not all motivations are necessarily acceptable or valid. For example, a donor may wish to bypass the rights of heirs reservataires, i.e. those legally entitled to a minimum share of the inheritance, such as children. While this may be legal in some cases, it can be socially unpopular. When the motives are unclear, they can raise doubts about the legitimacy of the donation if it is contested.

When the cause of a gift disappears or becomes defective after the deed has been concluded, this can have significant consequences, including the invalidation or lapse of the gift. This means that the absence or loss of the original cause can call into question the validity of the transfer, and potentially lead to its annulment.

Case law on gifts clearly illustrates the importance of cause. The Cour de cassation ruling of November 16, 1989 is a striking example, where the gift of bare ownership was annulled after the divorce of the donees. In this case, the continuity of the donees' marriage was the underlying cause of the gift, and the breakdown of the marriage led to the disappearance of this cause, thus invalidating the deed. This type of situation demonstrates that the validity of a gift depends on future circumstances that the donor had envisaged at the time of the deed.

Another relevant example comes from bequests. The decision of the French Supreme Court (Cour de cassation) of January 21, 2000, nicknamed de Thibaut de B, shows that the cause of a legacy can also disappear before the testator's will has been carried out. In this case, the cause justifying the legacy no longer existed at the time of the testator's death, resulting in the annulment of the deed. These rulings underline the importance of continuity of cause until the deed of gift or bequest is completed.

Representation in the context of donations

Representation in the context of donations is a mechanism for carrying out acts of transfer of property when one of the parties is unable to be present or prefers to delegate his or her powers. This process relies primarily on the use of powers of attorney, which must be carefully drafted to respect both the legality and the intent of the parties involved in the donation.

Power of attorney enables one person, the mandatary, to act on behalf of another, the principal. The mandate given to the agent carries with it a significant responsibility, as accountability is required to ensure total transparency in the actions taken. The mandatary must report all transactions carried out on behalf of the principal, ensuring that all operations respect the donor's initial wishes.

There is a requirement for parallelism of forms, meaning that the form of the power of attorney must correspond to the nature