The choice clause: a must for flexible estate planning
As tax laws are constantly changing, the need for flexible ways to do estate planning is growing. What is the choice clause and how can it meet this sigh?
The genesis of the choice clause
The choice clause grew out of the practice of the residence clause, also known by the adage "longest lived, already has".
This technique was mainly used in a community of property system. Because of the residence clause, upon the death of the first dying person, the entire community property automatically accrued to the surviving person in full ownership.
The choice clause provided for a broader protection than what the surviving partner is normally entitled to under the statutory law of succession. However, this technique was fiscally less favorable since the surviving partner had to pay inheritance tax on everything he or she obtained in excess of half of the estate.
Reason why people have been looking for alternative ways to provide maximum protection for the surviving spouse. The choice clause is the result of this search.
The operation of the choice clause
So what makes the choice clause so attractive compared to the residence clause? The choice clause offers spouses much more flexibility as it provides for an option for the surviving partner. This is because at the time of the death of the first deceased, he or she can decide which assets he or she will claim and which assets will already accrue to the estate. Everything is really still possible at the date of death of the first deceased.
The surviving spouse can therefore a tailored decision take into account the currently applicable tax laws, the age of the children, the financial situation and so on. Moreover, there are innumerable choices that can be made. For example, the surviving spouse can decide to take full ownership or usufruct of certain assets. For example, if the children are still minors, it may be interesting to exercise the choice clause in full ownership.
However, the aforementioned technique is not only interesting in the context of a community of property. It can also be used in a system of separation of assets. Indeed, it is possible to link to the pure separation of goods a limited community of property, called a "Added Internal Common Equity". The difference with a community system is that the spouses choose which assets will be part of this so they retain control over the degree of solidarity.
In short, by inserting an elective clause in your prenuptial agreement, you provide sufficient flexibility and protection for the surviving partner, making it an appropriate way to engage in estate planning.
If you have further questions related to arranging maximum protection for your surviving partner, please do not hesitate to contact us or leave a message on our website. Our attorneys will provide you with nuanced and clear advice with their expertise.
