If a married person dies, it often happens in practice that bank accounts are not distributed but remain in the name of the surviving partner by mutual agreement between the heirs (e.g. the surviving partner and the children). However, this practice can lead to the heirs unknowingly and unjustly paying inheritance tax twice to the Flemish Tax Administration (VLABEL). The Court of Appeal in Ghent recently put a stop to this practice and stated that Vlabel must change its position and avoid double taxation in the future, something which has since been confirmed by Vlabel.
For couples who are married, there are usually one or more bank accounts that are in the name of both spouses and therefore belong to both spouses. In the situation where one of those spouses dies, the bank account is divided into two halves, with one half belonging to the surviving spouse and the other half falling into the deceased spouse's estate. Unless otherwise stipulated (e.g., will, marriage contract, ed.), the surviving spouse acquires this half in full usufruct while the children acquire bare ownership. Each heir will owe inheritance tax on the value he inherits.
In principle, the bank account should also be distributed in this way when the estate is liquidated. The practical effect of this differs from bank to bank. For example, two bank accounts can be opened, with the bare ownership money in one account and the usufruct income in the other, or one can open an account for the usufruct and bare ownership in the name of the usufructuary and bare owners together.
In practice, the division often does not occur and the bank account remains entirely in the name of the surviving spouse. Upon the death of the surviving spouse, failure to distribute the bank account can result in it once again accruing in full to the estate and being subject to inheritance tax in full. The heirs are therefore taxed on the full amount, regardless of the fact that this amount was already partly taxed at the time of the death of the first deceased. Consequently, the children pay double inheritance tax on part of the estate.
An example: Stefan and Sophie have a joint bank account of 100 EUR. If no arrangement is made, half of the bank account (50 EUR) will fall into the estate upon Stefaan's death and will go to Sofie for the usufruct and to the children for the bare ownership. Sofie and the children will pay inheritance tax on what they each receive. If Sofie and the children do not proceed to a division of the bank account, but the entire bank account (100 EUR) is placed at Sofie's disposal, then at her death the children will owe inheritance tax on the entire amount and thus also on the half of Stefaan that was already taxed at his death.
After being ruled against by the Ghent Court of Appeal, VLABEL confirms that in such situations there is no longer any need for double inheritance tax, provided certain conditions are met. Children who realise today that they have paid too much inheritance tax on the death of the surviving parent can apply for a refund if less than five years have passed since the death of the surviving parent and if they can provide the necessary proof. Attention: it is always up to the heirs to provide the evidence.
To avoid discussion, it is best to divide up the bank accounts so that it is clear which part has already been subjected to inheritance tax. If the heirs decide not to divide the bank account, they must be able to prove that it has not yet been divided. It is therefore very important to keep the account statements so that they can be traced upon the death of the surviving spouse.