The "mortuary clause" is free of inheritance tax

Spotlights - maart 2011
The "mortuary clause" is free of inheritance tax
In its decision of 10 December 2010, the Court of Cassation has taken a position in favour of the so-called
"mortuary clause" ("sterfhuisclausule"/"clause dite de la mortuaire"). This judgment removes uncertainty,
declaring that article 2 of the Inheritance Tax Code is not applicable to such a clause. As a consequence, the
"mortuary clause" is now completely free of inheritance tax.
The mortuary clause
The "mortuary clause" is a clause that can be included in the marital agreement of couples who are married under the
regime of joint matrimonial property ("stelsel van gemeenschap van goederen"/"régime de la communauté des biens"). It
provides for the allocation of the matrimonial community of property ("huwgemeenschap"/"communauté") to one of the
two spouses (designated by name), irrespective of how the matrimonial community of property is dissolved.
In other words, the mortuary clause operates in such a manner that, in any event, the entire matrimonial community of
property is allocated to one predetermined spouse, even if that spouse is the first one to die.
This indicates that the mortuary clause must be used with great caution. In practice, this clause is only advised and used
when one of the spouses is terminally ill, so that it is almost certain or at the least very likely that he/she will die before the
spouse named as the beneficiary in the mortuary clause.
This, of course, explains the name given to this technique of succession planning in extremis, which originated in legal
practice in Flanders.
Tax effect
Besides the fact that the mortuary clause addresses a civil concern of many spouses, namely the allocation of the entire
matrimonial community of property to the presumed surviving spouse, this clause also offers the fiscal advantage that it
eludes the scope of article 5 of the Inheritance Tax Code ("Wetboek van successierechten"/"Code des droits de
succession"). Indeed, this is what distinguishes it from the clause allocating full ownership of the matrimonial community of
property to the surviving spouse ("verblijvingsbeding"/"clause d'attribution totale"), since the latter is stipulated under the
express condition that one of the spouses lives longer than the other. Such a condition, however, is banned in the mortuary
clause.
A traditional "survivor gets all" clause is fiscally advised against because of the double taxation in the inheritance taxes
(the share held by the predeceasing spouse in the matrimonial community of property is taxed once when he/she dies and
then a second time when the surviving spouse passes away).
Nevertheless, until recently, some fiscal uncertainty remained. Indeed, the question arose as to whether the mortuary
clause would also be free of inheritance tax if the predeceasing spouse had brought goods of his/her own (i.e. goods
acquired before the marriage, or goods acquired during the marriage by means of a donation, inheritance or will) into the
matrimonial community of property.
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According to article 1464 of the Civil Code, the portion that exceeds half of the goods that were brought into the
matrimonial community of property (known as the "surplus") and that are attributed to the surviving spouse by means of a
clause in the marital agreement is considered to be a donation. This rule constitutes a protection mechanism in favour of
the heirs who are entitled to a legally reserved portion ("reservataire erfgenamen"/"héritiers réservataires"). Indeed, those
heirs risk seeing their legally reserved portion ("wettelijk voorbehouden erfdeel"/"réserve") affected by excessively
favourable treatment of the surviving spouse.
In the case which led to the judgment of 10 December 2010, the Treasury was of the opinion that the civil characterisation
of the attribution of the surplus as a donation should be extended to the fiscal approach, so that this attribution would
constitute "contractual institution of an heir" ("contractuele erfstelling"/"institution contractuelle d'héritier"). This is a
donation of (future) goods that will be part of the legacy, which is subject to inheritance taxes pursuant to article 2 of the
Inheritance Tax Code.
This point of view was held by some legal scholars, as well as by the Court of First Instance of Hasselt, which came to this
conclusion in its judgment of 18 October 2002. However, the Court of Appeal of Antwerp overturned that judgment in a
decision rendered on 24 June 2008. The Court of Appeal considered that the attribution of the surplus does not constitute a
contractual institution of an heir, because the goods that are passed on to the surviving spouse are not part of the
inheritance of the predeceased spouse but only part of the joint matrimonial property. Furthermore, the Court considered
that the attribution of the surplus does not constitute a donation as such either, since it is only deemed to be a donation
pursuant to a legal fiction which aims at protecting the rights of the heirs who are entitled to a legally reserved portion.
Consequently, in the opinion of the Antwerp Court of Appeal, article 2 of the Inheritance Tax Code fails to provide a legal
basis for taxation.
This decision received significant support from many legal scholars, but a degree of uncertainty remained.
The judgment of the Court of Cassation rendered on 10 December 2010 has removed this legal uncertainty, confirming the
position taken by the Antwerp Court of Appeal.
Thus, the entire matrimonial community of property, including personal property of the terminally ill spouse that he/she
brought in can be attributed to the other spouse, via the mortuary clause, free from inheritance tax.
Some points to note
First, it should be pointed out that the fiscally favourable regime applicable in the case of a mortuary clause does not affect
the civil characterisation of the attribution of the surplus as a donation.
Thus, the children of the predeceased spouse who see their legally reserved portion affected by the attribution to the
surviving spouse can submit a claim for reduction of gifts ("vordering tot inkorting"/"demande en réduction").
If stepchildren are involved, the surplus is even larger, and the possibility for uncontested attribution to the surviving
spouse is thus smaller. Where there are stepchildren, the surplus covers the goods belonging to the predeceased spouse
that were brought into the joint matrimonial property, as well as half of the gains (article 1465 Civil Code). The reason is
simple: the idea that those children are entitled to a postponed right of inheritance does not apply, since they will not
inherit from the surviving stepparent. Everything which was originally the exclusive property of the predeceased parent
must immediately qualify for the protected inheritance rights of those children.
A second point to keep in mind is that, although the mortuary clause is fiscally beneficial between the spouses themselves,
it can turn out to be more expensive for the children when the surviving parent subsequently passes away. Indeed, at that
moment the children will inherit everything at once (instead of in two stages), which might result in higher tax rates being
applicable.
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In short, broader succession planning (e.g. by means of donations) involving the estate of the surviving spouse is necessary
in order to keep the inheritance tax as reasonable as possible.
Finally, it cannot be excluded that the legislator may put an end to the present situation, since it does not serve the
Treasury's best interests. In other words, we will have to wait and see whether the present possibility to achieve a fiscally
beneficial arrangement via the mortuary clause will enjoy a long life.
Sibylle Taillieu
Inge Bens
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