Tax-efficient asset transfer to the next generation, also known as estate planning, involves strategically planning the transfer of assets during lifetime or after death, with the aim of minimizing inheritance tax or gift tax. This planning involves utilizing exemptions and spreading the transfer over time.

There are several ways to transfer wealth in a tax-efficient way:

• Using annual exemptions and/or the low 10% tax rate

The easiest way to save tax is to take advantage of the annual gift tax exemptions. By donating an amount within the exemption limit each year, the total wealth ultimately inherited is significantly reduced, without incurring gift tax. For larger assets, it can be advantageous to use the lowest tax bracket for gifts to children.

• Business Succession tax exemption

For entrepreneurs, the BOR/DSR (Business Succession tax exemption is the most powerful tool. This arrangement offers a (partial) exemption from inheritance or gift tax when transferring a business to the next generation. The condition is that the business is actually continued by the successor as the beneficiary of all profits, not necessarily as a director.

• ‘Gift on paper’ (gift by acknowledgment of debt)

A commonly used method is the “gift on paper.” In this method, a sum is donated, but this amount remains with the donor as a loan. The donor pays  annual interest to the children. This is advantageous from a tax perspective, because the assets and interest payments are legally transferred to the children in advance, resulting in lower inheritance tax payments in the future.

• Will design

Even after death, a well-drafted will can save tax. Through clever clauses, the surviving partner can defer or optimize the tax burden, depending on the financial positions of the heirs.

Tax-based wealth transfer requires a tailored approach. Changes in legislation and regulations, such as recent adjustments to gift tax exemptions or discussions surrounding business succession tax law, make expert advice from a notary, tax advisor, or estate planner essential. Starting planning early offers the most flexibility and the greatest chance of maximum tax optimization.