What is a Liferent Trust?
These types of trust give the “liferenter” the right to benefit from property – usually by enjoying the use and/or income of the property – without them being the outright owner. A common example of this is where a house is transferred into a liferent trust by the “truster” for the benefit of their spouse or partner to enable them to live in the property rent free, while ensuring the ultimate ownership of the house passes to specified beneficiaries, perhaps their children.
Types of Liferent Trusts
These trusts can be created both during a truster’s lifetime or on their death by the provisions of their Will. These each have their own advantages.
Created in Lifetime
A lifetime liferent trust could be used where potential legal rights claim on the truster’s death is a concern.
They could also be used to protect assets for a vulnerable person, for someone that may be at risk of future bankruptcy, or for a disabled person who may otherwise risk losing means tested support.
Inheritance Tax planning may also result in the creation of a lifetime liferent trust.
Created in a Will
Liferent trusts created on death are more common. There, the trust provisions are worded into the will and have a number of potential benefits.
Where a couple have children with previous partners, a liferent trust could be created by their wills to give their partner the right to continue living in their shared home while ensuring their share of their home passes to their own children at the end of the day.
Where a couple own a home together, and are concerned about the cost of potential future care, it may be advantageous to make use of a liferent trust in their wills to protect their share of their home. This could offer protection over the assets held in trust if the surviving partner requires care after the first death.
Things to Consider
The trustees are a vital part of the trust; they are the ones responsible for the ongoing management and administration of the trust.
HMRC now require the registration of all trust with their Trust Registration Service. While the system is designed to be easy to use, professional assistance may be required.
While there may be tax advantages to a liferent trust, there may also be adverse tax consequences. Depending on the arrangement, the liferent could attract inheritance tax, income tax and/or capital gains tax.
If you are considering creating a liferent trust, either during your lifetime or in your will, please contact Blackadders for more information and advice tailored to your personal circumstances.
For any advice on Liferent Trusts please contact a member of the Blackaders Private Client Team working in Aberdeen, Dundee, Edinburgh, Glasgow, Perth and across Scotland for help and advice.
Charlie Fletcher, Trainee Solicitor
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