Planning an estate without drafting a will

Anyone can plan their estate as they wish. This means determining, in advance, who is to receive the assets existing at the time of death, and in which proportions.

Beyond a potential specific tax structure and/or the creation of a foundation, for example, there are 2 main options for planning an estate from the outset – namely:

  • drafting a will: in this case, the estate is liquidated in accordance with the stipulations of the deceased's will;
  • in the absence of a will, the estate will be settled in accordance with the legal order.

In both cases, a declaration of inheritance must be made and any inheritance taxes must be paid.

A gift allows an estate to be planned and distributed even before the date of death.

A gift may not exceed half of the assets of the disposing party, if they are survived by one child; one third if they are survived by 2 children; or one quarter if they are survived by 3 or more children.

In other words, the donor, just like the person drafting a will, must respect the legal reserve when there are children involved. In the absence of descendants, inter vivos gifts may exhaust the entirety of the assets.

Who is concerned

Capacity as an heir is determined at the date of death. In theory, only relatives of the deceased may be heirs.

Prerequisites

If a person dies without leaving a will, the legal order of succession will be applied.

If the spouses signed a full communal-property marriage contract allocating the entirety of the communal property to the surviving spouse (survival clause), all of the assets of the deceased shall be allocated to the surviving spouse and indeed the estate will not pass until the surviving spouse dies.

How to proceed

Order of heirs and potential scenarios

If there is no will, the estate will be settled according to the legal provisions.

Generally, the order of succession is as follows:

  • descendants (children, grandchildren);
  • surviving spouse;
  • father and mother, along with brothers and sisters of the deceased and their descendants;
  • ascendants other than parents (grandparents, great-grandparents, etc.);
  • indirect descendants other than sibling (uncles, aunts, nephews, nieces, etc.);
  • the Government.

Within this hierarchy of heirs, several scenarios may arise:

Scenario 1: the deceased has a surviving spouse and children (or grandchildren)

When the law speaks of a surviving spouse, it is referring to a non-divorced spouse with no legal separation judgement against them.

The inheritance is divided equally between the deceased's children in proportion to their number, without affecting the rights of the surviving spouse.

Example:

If the deceased is survived by one child, that child will, subject to the rights of the surviving spouse, inherit the entire estate.

If the deceased is survived by 2 children, still without prejudice to the rights of the surviving spouse, these 2 children share the estate of the deceased.

In this scenario, the surviving spouse may choose one option, between:

  • a beneficial interest (usufruct) – i.e. the right to live free of charge, as a life tenant, in the home where the spouses lived together (and which belonged to them jointly, or belonged solely to the deceased), in which case the usufruct is also extended to the fixtures and fittings of that building; or
  • a child's share, which may not be less than one quarter of the estate.

The surviving spouse has a period of 3 months and 40 days from the date of death to exercise the option by making a declaration to the clerk of the district court in the jurisdiction where the estate passed. If a choice is not made within the allotted time-frame, the surviving spouse is deemed to have chosen the usufruct.

If the surviving spouse opts for the child's share, said shares will be reduced proportionately to the extent needed to establish the share of the surviving spouse.

The following must be attached to the declaration of option:

  • an ID document;
  • a death certificate, expressly noting the last domicile of the deceased;
  • the family booklet.
What happens if one of the children of the deceased dies before the latter, but is survived by their own children?

In this case, we speak of 'representation' in the sense that the children of the predeceased child (in other words, the deceased's grandchildren) then share their father and/or mother's reserved share.

In other words, they jointly receive the share that the latter would have obtained if they had survived the deceased.

For example: The deceased had 2 children, one of whom predeceased them but was, in turn, survived by 2 children. The 2 grandchildren of the deceased will each receive one quarter of the estate.

What happens if the surviving spouse who has opted for the usufruct of the shared residence remarries?

In this case, the children have the right to demand that the usufruct be converted to a capital payment.

This capital payment must correspond to the value of the usufruct, which is a function of the age of the usufructuary.

This conversion must be requested in court within 6 months of remarriage of the surviving spouse and be claimed by all children (or by the grandchildren if one of the children predeceases them).

If the children do not all agree to request conversion to a capital payment, it is optional for the court.

Scenario 2: the deceased does not have any children but does have a surviving spouse

If the deceased is not survived by children or descendants thereof, the surviving spouse takes precedence over all other relatives of their deceased spouse, and consequently collects the entire estate of the deceased, regardless of whether the surviving spouse subsequently remarries.

Important note: the surviving spouse is nevertheless not a forced heir of their spouse. Therefore, unlike the deceased's children, they do not have an inalienable entitlement to a legal reserve. In other words, the surviving spouse, in the absence of a child of the deceased, could theoretically be excluded from the estate of their spouse, either through a gift or through a will.

Scenario 3: the deceased is not survived by a child or spouse, but is survived by brothers and sisters (or nephews and nieces)

In this case, a distinction must be drawn depending on whether the parents of the deceased are still alive.

If the deceased's parents are still alive, the father and mother each collect one quarter of the estate, or half in all.

Siblings or their descendants share the other half.

If only the father and mother survive the deceased, they receive one quarter of the estate, while the siblings or their descendants are allocated the other three quarters of the estate.

The children of the brothers and sisters (in other words the nephews and/or nieces of the deceased), in the event their parents predecease them, share by 'representation' the reserve share of their father or mother who died before the deceased.

Therefore, together they receive the share that their father and/or mother would have obtained if they had survived the deceased.

Scenario 4: the deceased is not survived by children, a spouse, brothers and sisters, nor nephews and nieces, but the parents of the deceased are still alive

In this case, the entire estate reverts to the father and mother of the deceased, who each receive half.

If only the father or mother is surviving, they inherit the entire estate of their predeceased child.

Scenario 5: the deceased is not survived by children, a spouse, brothers and sisters, nor nephews and nieces, and the parents of the deceased are dead.

In this case, the uncles and/or aunts of the deceased, the great uncles and/or great aunts, cousins and their descendants are to be considered heirs.

The estate is divided into two lines – the paternal line and the maternal line, each receiving half of the estate.

Any heir who is beyond a grandchild of a cousin cannot inherit, regardless of whether they are on the maternal or paternal lines.

In this case, the estate goes to the Government and is considered an unclaimed estate.

Declaration of inheritance and inheritance taxes

The heirs to an estate are joint heirs and consequently must share the assets of the estate.

Either of the following options may be taken: either the estate is divided amicably or through a notary chosen by the heirs, or it is divided through legal recourse. Indeed, should the heirs disagree amongst themselves, the only possible outcome is legal recourse.

The district court of the place where the estate passed, namely the place where the deceased was last domiciled, has authority.

The procedure requires using a barrister, and the timeframes for obtaining a judgement are 6 months to one year, unless appealed.

Declaration of inheritance

Within a period of generally 6 months (longer if the death occurred abroad) after the death of the testator, each heir or legatee must file a declaration of inheritance with the Indirect Tax Authority (Administration de l'enregistrement et des domaines – AED).

There is no form for drafting declarations of inheritance. The declaration is admissible regardless of how it is drafted, provided it contains all of the legally prescribed information (name of heirs or legatees and degree of relation between them, the portion collected or acquired by each, etc.). For further information on the writing of the declaration, heirs or legatees are advised to contact a registration office or seek assistance from a notary.

In this document, in addition to the debts comprising the liabilities of the estate, the nature and value of the assets in the estate or bequest must be noted in detail and an estimated value given.

The descendants of the deceased merely need to list the buildings without estimating their value. Assets based on personal property do not need to be declared.

If an estimate made in the declaration is not accepted by the Administration, the latter may request an expert assessment in order to determine the value of the property covered in the declaration of inheritance.

Inheritance taxes

The Declaration of inheritance, which is mandatory, is used as the basis for inheritance taxes and for the deed of property. The inheritance rights vary depending on the degree of relation and the amount of the assets collected. The taxes are calculated for the net share collected – in other words, the share of the estate declared, less funeral expenses and the existing debts (including the interest relating thereto) and the taxes payable on the date of the testator's death.

Note that from the standpoint of inheritance rights, partners in the sense of the law on civil partnerships are treated the same as spouses, provided they are bound by a declaration of civil partnership having been established for at least 3 years by the time the inheritance procedure is commenced.

Estate taxes should not be confused with transfer taxes. These transfer taxes are payable for the value of the real property located in Luxembourg, which is collected or acquired in ownership or as a usufruct due to the death of someone who was not resident in the Grand Duchy.

Who to contact

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