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The international effectiveness of adult representation mandates

The Hague Convention of 13 January 2000 on the International Protection of Adults (the “Convention”) was recently ratified by Belgium and entered into force on 1 January 2021. The Convention applies to the protection in international situations of adults who, by reason of an impairment in or insufficiency of their personal faculties, are not able to protect their own interests. The provisions of the Convention apply to powers of representation agreed after that date. They slightly modify the legal principles governing them to ensure their effectiveness across borders.

Until 31 December 2020, the effectiveness of such a power of representation depended on the recognition a particular state gave to this type of mandate. The Convention ensures that a “power of attorney”, “mandat de protection future” or similar instrument has the force of law in another Contracting State, even where that State does not have an analogous instrument in its domestic law. This provides the adult with the assurance that arrangements previously made for the management of his or her affairs will be respected in other Contracting States. A power of representation aims to anticipate possible incapacity by designating, without the intervention of a judge, one or more persons who will manage all or part of the principal’s assets and will be responsible for carrying out the principal’s personal choices or final wishes.

Since 1 January 2021, the law applicable to the existence, extent, modification and termination of such a power of representation are found in the provisions of the Convention. The Convention allows the parties to designate, in a limited but explicit way and in writing, the law of one of the following states:

• The state of which the adult is a national;
• The state of the adult’s previous habitual residence; or
• The state where the adult’s property is located with regard to such property.

It is therefore possible to apply to the management of an asset the law of the State where the asset is located.

In the absence of a choice of law, the existence, extent, modification and termination of the power of representation are governed by the law of the state where the adult has his habitual residence at the time the agreement or unilateral legal act was entered into.

The effect is that, if a power of attorney is drawn up in Belgium by an Italian residing in Belgium, in which he designates his daughter as his representative, the acts of management which the latter will perform in respect of property belonging to her father in Tuscany will be recognized in Italy because Italy has ratified the Convention. If, on the other hand, the father owns a property in Madrid, his daughter’s representative powers would be subject to the Spanish rules of private international law, since, curiously enough, Spain is not (yet) a Contracting Party to the Convention.

Split-purchase: position reversal of the General Administration of Taxes

On July 7, 2020, the federal Administration of Taxes was obliged (once again) to reconsider its position regarding the so-called “split purchases” in the Walloon and Brussels Regions, following the opinion issued by the Council of State on June 18, 2018.

It should be recalled that “split-purchase” is an estate planning technique that consists in purchasing (im)movable property in a dismembered form: the parent purchases the usufruct of the property and the child buys the bare ownership. Therefore, on the death of the parent, the usufruct is extinguished and the property becomes fully owned by the child, in principle without taxation.

Nevertheless, from a tax point of view, a legal fiction has been created (i.e. art. 9 of the Inheritance Tax Code and art. 2.7.1.0.7 of the Flemish Tax Code) according to which the property in its entirety will be presumed to form part of the usufructuary’s estate, except where it can be proved that it is a hidden gift. Thus, in order to reverse this presumption and avoid the application of the tax provisions, it is common practice for the parent to make available, prior to the purchase and via a (registrable) donation, the funds necessary to acquire the property.

Previously, the federal tax authorities allowed the presumption to be reversed, provided that (i) either the previous donation of the funds had been registered (necessarily implying the levying of the 3% gift tax in the Flemish and Brussels Regions and 3.3% in the Walloon Region for direct line donations) prior to the acquisition of the property, or (ii) the taxpayer could demonstrate the absence of a link between the donation and the (im)movable purchase. This position has been taken over by the tax administration of the Flemish Region (VLABEL) and extended, in 2016, to split transfers of (portfolio-) securities and cash investments.

However, on 12 June 2018, the Council of State called VLABEL to order, pointing out that it is irrelevant as to how the purchaser of bare ownership had obtained the funds intended for its acquisition. The question of whether or not the gift had been registered in advance was therefore irrelevant. VLABEL therefore had to revise its position.

In this respect, the federal tax authorities asserted on July 7 that in order to provide proof to the contrary, it was sufficient for the bare owner to demonstrate that the donation took place prior to the signature of the purchase deed, no more and no less. Minor precision in the Brussels and Walloon Regions: if the sale agreement provides for the payment of a sum (deposit, guarantee, etc.), it is necessary to provide evidence that the donation was made before the date of the sale agreement, even if the acquisition was made under a suspensive condition. This proof can be brought by any legal means, to the exclusion of any proof originating from the parties themselves, such as the oath or the claims of the parties (thus an “attached pact” does not seem sufficient).

However, in the Flemish Region, this latter condition does not seem to be required, so that it would be sufficient for the donation to take place before the notarial act of sale is signed.

The new position of the federal tax administration applies to all split purchases made after 1 August 2020.

Royal Decree No. 15 regarding the temporary suspension of enforcement measures and other measures in favour of companies during the COVID-19 crisis

Many companies are facing a cash shortfall as a result of the COVID-19 crisis. How to protect their business’s continuity?

The judicial reorganisation procedure and the payment obligation suspension that it provides for (Book XX Code of Economic Law – CEL) is currently not regarded by the authorities to be an appropriate rescue measure because, firstly, it would overload the Companies Court during this period of crisis and, secondly, because the suspension applies only to ”old” debts that existed prior to the initiation of the procedure.

Consequently, the government has temporarily organised a moratorium, (or a ’ceasefire’) in order to protect any company in debt as a result of the Covid-19 crisis, which is in need of liquidity, against either precautionary or executory attachment proceedings, and against any bankruptcy or judicial settlement.

Royal Decree No 15 foresees four temporary suspension measures covering the period from 24 April 2020 to 17 May 2020 (subject to possible extension):

1. Impossibility of initiating or pursuing enforcement measures as well as precautionary or executory attachment measures

EXCEPTION: precautionary and enforceable attachment of real property (as well as precautionary attachment of seagoing and inland waterway vessels) remain possible.

2. No bankruptcy filing on summons or judicial resolution is possible

EXCEPTION: Possibility of filing a bankruptcy petition or an admission of bankruptcy on the claim by the Public Prosecutor’s Office or of a provisional administrator.

3. Extension of payment terms within the framework of a previously approved reorganization plan
4. Prohibition of unilateral or judicial termination of agreements concluded before 24 April 2020 for failure to pay a due and payable debt

EXCEPTION: employment contracts.

It is worth pointing out that such a system of legal suspension does not in any way affect the obligation as regards the payment of one’s debts, whether regarding principal, interest or indemnities. It is therefore in the interest of each company to respect the payments as far as possible, because following the moratorium, interest and damages can be claimed by the creditor.

To prevent certain companies from benefiting unduly from such protection, the creditor is given the possibility of summoning the debtor before the president of the Companies Court to request the withdrawal of this suspension. The President of the Companies Court, ruling as in summary proceedings, will assess whether the debtor has truly been affected by the Covid-19 crisis and subsequent measures, also taking into account the impact of the suspension with respect to the creditor’s interests so as to avoid a cascading (or ‘domino’) effect.

Furthermore, there is also a temporary suspension of the obligation to file a bankruptcy petition, if the conditions are met because of the COVID-19 pandemic and its consequences.

Lastly, the legislator intends to stimulate granting of credit, whether by a bank or by a supplier by, on the one hand, protecting new credits and, on the other hand, by lightening the potential liability of those who provide such credits. A renegotiated credit is not regarded as a new credit.

How to keep a gift as a gift… or how to prevent it from being reclassified as an endowment ?

The difference between a gift and an endowment (donation) is often questioned. Although these notions might seem semantically very close, they are nonetheless quite different, at least in terms of taxation or even regarding certain civil aspects.

In fact, when a donation is recorded, it is subject to payment of fees varying from 3 to 7% in Brussels and in Flemish Region and from 3.30% to 7.70% in Walloon Region, taking into account the family link between the donor and the beneficiary. Donations that have not been registered are not subject to any taxation provided that the donor does not pass away within 3 years of the donation.

Moreover, from a civil point of view, the donation is not without consequences either, since, in principle and unless otherwise provided for, it will be deemed, on behalf of the donor’s children, as an advance upon their share, which will be deducted from what will be due to them at the time of the death of the donor.

Therefore, this gesture is not trivial.

As for customary gifts, they are not taken into account from a civil point of view at the time of the death of the ‘offeror’ nor are they taxed at the time they are given, or later, unless they are subject to re-qualification by the tax authorities… In addition, unlike the gift between spouses, which is revocable at any time with no necessary justification, a customary gift remains irrevocable.

While there is no absolute legal rule to differentiate gifts from donations, the following are some practical elements which should help you to avoid such re-qualification:

• In order for a ‘gift’ to be considered as such, it should only represent a  modest and proportionate diminution of the gift-giver’s wealth. Hence, it is generally considered acceptable to give up to 1% of one’s assets as a gift annually. Beyond that, it could be perceived as a donation.
• The gift might be an object, a work of art, an envelope, a bank transfer… provided that it is related to an event justifying such a reward (a birthday, a child birth, a wedding, a graduation, a Christmas present, etc.). Finally, in case of money and bank transfer, it must be clearly stated that it is a gift, for instance by mentioning “congratulations on your wedding”, or by sending a letter expressing this particular intention.

Should you still have any doubts about the rewards you intend to grant, do not hesitate of taking some advice from FLINN in view of avoiding any possible misinterpretation.

Rhyming estate planning with confinement

FLINN can help you make good resolutions – Estate Planning seminar 11/02 at 6 pm

FLINN is pleased to invite you, on February 11th, to a seminar on some estate planning tools, taking into account the latest reforms in inheritance law.

To say that Belgium and its regions sometimes impose high inheritance taxes is no secret for anyone, but to anticipate them, so as to reduce, neutralize or extinguish them, is something that is within everyone’s reach. Working on such arrangements need not be very complicated and sometimes doing nothing is best … but forewarned is forearmed.

At the beginning of the year 2020, to help you make (and achieve!) your good resolutions, we offer you some estate planning tools to use between family members, partners, friends and acquaintances … We will try to familiarize you with certain techniques that you may already know but which the legislator has modified or adapted and with certain new tools, such as the global agreement on succession which, during the lifetime of the future deceased (!), aims to stabilise what he or she has achieved throughout his or her life, restore harmony to families or, potentially, to keep his or her promises and wishes alive.
If you are interested in attending this seminar, please register using our REGISTRATION FORM