Preliminary observation
The text below relates to inheritance tax duties in the Flemish region. However, given the fact that the underlying legal principles (limitations on distributions made by a foundation and the “dead hand” concept) and the phrasing of the applicable legal texts (article inheritance tax code in the Walloon and Brussels Regions) are identical, the analmysis presented below should in my view also be applicable for persons residing in the Walloon and Brussels areas.
Captatio benevolentiae
This text contains the transcript of the presentation delivered during the Die Keure webinar: Private stichting en successieplanning: (on)mogelijkheden (Private Foundation and Estate Planning – (Im)possibilities), held in June 2025 alongside Dr. Bram Van Baelen, who addressed the legal aspects of associations.
The presentation can be downloaded via the Die Keure website.
The conclusion formulated in this contribution prompted some reactions, because it had been reported in the newspaper De TIJD that several Flemish families have used the technique of the private foundation in a creative manner.
It seems to me that their approach should be assessed against the analysis and conclusions developed in this contribution. And that the positions taken by the Flemish Tax services (referred to as the Vlabel), which serve as guiding principles, are correct. I assume that each structure was set up with sufficient care and expertise, such that the boundaries outlined here were likely respected or the opportunities presented were properly utilized.
Use of a Private Foundation in a Family Context for Estate Planning
Using a private foundation in a family context for estate planning raises various fiscal questions.
Although the foundation may prove useful in certain very specific situations, there are important limitations and considerations that must not be ignored.
Limitations on Distributions and Allocations
Distributions and allocations by a private foundation to beneficiaries are only permitted within the framework of a suitable and acceptable purpose. Classic examples include care for family members with special needs. Other purposes, such as financing lifelong learning for family members or supporting the family household, are generally not acceptable. These imply a direct or indirect personal benefit to the founder (who would otherwise bear these costs) or do not fit within a strict interpretation of a “disinterested purpose.”
A second key principle is the well-known concept of the “dead hand.” Assets owned by a nonprofit entity are permanently “destined” to remain within the nonprofit sphere. Upon dissolution and liquidation of the entity, these assets are transferred to another nonprofit entity (the so-called liquidation beneficiary) with a similar purpose or objective.
Need for “Extraction Techniques”
The combination of the above mentioned key features of the so-called “distribution prohibition” and the “dead hand, leads in nearly all cases to the requirement to incorporate techniques that allow to preserve the usability of family assets within the family and to avoid having family wealth permanently removed from the family due to the use of the foundation.
Of course, there may in rather exceptional cases also be situations where the intention is precisely to ensure that parts of the family wealth permanently enter the nonprofit sphere. Setting up a foundation to preserve and manage a special art collection is one such example.
Conceptually, two approaches are possible: on the one hand, techniques allowing for the recovery of the assets; on the other, techniques where the beneficiary(ies) is (are) granted the right to obtain the attribution to him (them) over the full residual assets.
Recovery of Assets
In this case, the transfer of assets to the foundation is structured in such a way that the ownership or possession by the foundation is “reversible.”
The classic example is “certification”: ownership of assets is transferred to the foundation in exchange for a (conditional) claim against the foundation to recover the assets or their equivalent value. Regarding shares, the Companies Code provides a legal framework for issuing share certificates. Provided the foundation is obliged to immediately transfer all dividends (in practice within 14 days), full fiscal transparency applies.
In practice, many other situations exist where contributed assets have been “certified”, so where the initial transfer is effected in a framework that leads to the creation of a right to recover the assets. These techniques have in practice been use, i.a., in relation to art collections and other assets. Actually, whichever asset that can be owned, in respect ofr which legal title can be held and transferred, can be “certified,” meaning that the ownership is held “on behalf of” a third party, the certificate holder, who has a personal right to claim the (re-)transfer of the asset to him from the entity that in the mean time is holding legal title “for his account”.
A key point in retaining such a (conditional or unconditional) recovery right is that this right itself has economic value and as such forms part of the estate of the original transferor.
To avoid inheritance tax, this claim must then be transferred (donated/gifted) to the next generation. This is precisely what typically happens when using a foundation-administration office (generally referred to as a STAK) as the owner of certified shares. This structure aims to regulate control over the underlying companies. The actual avoidance of inheritance tax is caused, not by the use of the foundation as holder of the legal title as such, but by the subsequent donation of the share certificates to the next generation.
Full Allocation
In this case, the entitlement of beneficiaries to the foundation’s assets is defined in such a way that at a certain point, the foundation is obliged to allocate the entire remaining assets to one or more beneficiaries. At that moment, a claim arises for the beneficiary, reducing the foundation’s net assets to zero.
Stipulation for the Benefit of Third Parties (beding ten behoeve van derden/stipulation pour autrui)
From a fiscal perspective, the concept of “stipulation for the benefit of third parties” is central to both approaches. Such a stipulation leads to the imposition of inheritance tax on assets that third partiesy (most of the time the actual inheritants) are entitled to receive from someone other than the deceased.
A stipulation for the benefit of third parties is based on a principal contract entered into, with a co-contracting party, such as a trustee or an insurance company. The co-contractor commits to transferring value to third parties who receive the benefit in their own right — not as heirs. The acquisition occurs precisely because the co-contractor has made that commitment. The third party must be sufficiently identifiable, and the remittance must be due upon death or within five years prior to death. This concerns distributions of sums, annuities, or assets (such as securities). Other types of transfers, such as the delivery of goods in kind (gold, diamonds, art, real estate), fall outside the scope of Article 2.7.1.0.6 VCF, which subjects such acquisitions to inheritance tax.
The classic example is, of course, life insurance, where the insurance company commits upon the death of the policyholder to transferring the accumulated amount to a beneficiary — usually, but not necessarily, the descendants.
Fiduciary Relationships
In fiduciary relationships, where a third party holds assets for the benefit of beneficiaries, the application of this regime can be somewhat complex.
In 2017, the Flemish Tax Administration (Vlabel) issued a position in of the use of trusts: both discretionary and non-discretionary trusts lead to the levy of the inheritance tax in application of Article 2.7.1.0.6 §1 VCF.
In the framework of non-discretionary trusts, the beneficiary has an actual claim that the trustee must honor, so that inheritance tax is immediately due upon the death of the settlor.
In the framework of discretionary trusts, taxation only occurs upon the actual distribution, because the right to obtain the payment only becomes effective and final at that point in time. Until then, the beneficiary is merely listed as a potential recipient, but a trustee decision is required before this situation leads to a real right and the imposition of inheritance tax.
This Vlabel decision seems correct to me, especially considering the legal structure of a trust. The trustee is the “legal owner” but not the full owner, as the beneficiaries are the “equitable owners” from day one. In other words, there is never truly a possibility that full legal title to the assets would remain permanently with the trustee, who only holds legal ownership.
Distributions by the Private Foundation
When distributions by a private foundations occur validly within the boundaries of the distribution prohibition and the disinterested purpose, they are, according to Vlabel (no. 17040), not subject to inheritance or gift tax, provided the board makes a discretionary decision. This appears to be a correct interpretation, especially when compared to trusts, where the legal and economic ownership of assets remains separated. Indeed, the full legal personality of the foundation entails that it can hold full ownership to assets for an indefinite period in time, including the transfer to an other nonprofit organization upon its liquidation.
However, the seemingly simple conditions for this approach to apply are, in practice, far from straightforward. The boundaries set by the distribution prohibition and the disinterested purpose are extremely strict. As stated: covering the costs of education and upbringing of family members, and more generally the payment of private expenses for relatives, can actually not be considered distributions within the framework of a disinterested purpose. These are rather distributions to close relatives, meaning either that the wording reveals that the foundation essentially holds the assets for the benefit of the family (which raises issues under the principle of donner et retenir ne vaut[1]), or that the foundation is making unlawful distributions.
A telling example in this regard is Vlabel’s explicit decision (VB 24028) concerning a Liechtenstein family foundation. It was ruled that distributions to beneficiaries—even within the foundation’s stated purpose, but according to a framework established by the founders (such as a “letter of wishes”)—are indeed subject to inheritance tax. The fundamental distinction lies in the discretionary nature of the distribution: if the board truly decides autonomously, there is no taxable right. But if the founder/contributor dominates the board and effectively decides on distributions, then although there is no stipulation for the benefit of third parties, the principle of donner et retenir ne vaut is violated. In that case, the entire foundation’s assets fall into the estate.
Distributions as a Technique Against the “Dead Hand”
Since the distribution prohibition limits the use of the foundation’s assets, alternative techniques are often devised in practice—as previously mentioned—to prevent the disappearance of family wealth. One example is granting rights to the residual assets to beneficiaries. This creates a claim on the foundation’s assets, making beneficiaries quasi-owners. This goes beyond a mere distribution and approaches the use of the foundation as a trustee without full or final proprietary entitlement. Fiscally, this situation would fall under Vlabel’s decision regarding trusts (see above).
In such cases, there is effectively a contribution under the condition of full eventual transfer, which corresponds to a stipulation for the benefit of third parties. General family-related rights such as education costs or household expenses cannot legally be distributed within the pursuit of the dis-interested objective of the private foundation.
Right of Reversion as a Solution?
A fixed claim to recover assets from the foundation is an economically valuable asset that falls into the estate. Just as in case of the certification of shares or other assets, this claim must be donated to the next generation via a notarial deed, subject to 3% gift tax in the case of a donation in direct line, in order to avoid inheritance tax.
Even a conditional claim, under a suspensive condition of exercise, has a nearly certain economic value and also falls into the estate. The application of the fiscal anti-abuse provision is also lurking here.
Conclusion
The private foundation can be useful in a very limited number of very specific cases, such as for a family member with special needs or as a control instrument provided the right of reversion, of whichever nature it would be, is then subject of a separate donation subject to gift tax. In essence, this is comparable to the concept of certification or an administrative office (administratiekantoor), and must be applied with great caution.
For standard estate planning, the private foundation, in our view, is not a viable alternative on its own (and without a parallel donation).
The distribution prohibition and the “dead hand” are critical obstacles.
Attempts to circumvent them usually lead to inheritance tax.
The boundary of appropriate use is vague, and although some clear applications may exist, dealing with the issue of residual assets (which are normally permanently removed from the family) remain a grey area.
Consequently, why would one push legal and fiscal boundaries and take risks with creative uses of a private foundation—outside of situations involving a needy child—when various formulas exist that are simple to apply and offer fiscal and legal certainty?
[1] “To transfer and to hold does not work”: which expresses the general rule that in order to have the consequences of a gift or a transfer to a foundation respected, such transfer must be full, final and irrevocable. Situations where the transferor fully decides the use of the funds for uses which would otherwise cause him to support the costs, are clearly in violation of this principle.