Without a will, your estate is distributed according to the intestacy laws of the relevant country.

For example, in Scotland, there is a strict order determining what passes to a spouse and heirs, and in what sequence. The rules in England and Wales are similar, although not identical to those in Scotland. 

The challenge of passing on property

When planning how to distribute your free estate (meaning what remains after debts, taxes and expenses), one of the most significant assets for many people is their home. Property can be difficult to divide between beneficiaries, and it is often essential that a surviving spouse or partner can continue living there.

This is where a liferent provision becomes particularly useful.

Liferent trust Scotland

In simple terms, if there is a liferent provision in someone’s will, it means the surviving partner, the’ liferenter’, is entitled to continue living in, or benefiting from, the property for the rest of their life. However, the deceased’s share of the property is held in trust for the ultimate beneficiary, often children, and will pass to them when the surviving partner dies or after a specified time or condition is met, as detailed in the will.

This arrangement ensures that the surviving partner is provided for during their lifetime, while preserving the deceased’s share of the asset for their chosen beneficiaries.

Key advantages of a liferent provision

A liferent provision offers several important benefits:

• The surviving spouse or partner is not forced to move and can continue living in the home they shared with their loved one
• Part of the property’s value is protected, which can be relevant if the surviving partner later requires residential care, as only their individual share may be taken into account
• By reducing the value of the surviving partner’s estate, there may be a lower inheritance tax liability on their death
• The deceased still retains control over who ultimately inherits their share of the property

Protecting family assets

This final point above is particularly important in more complex family situations.

For example, couples may disagree about how assets should be distributed among children, especially following family disputes. In second marriages or blended families, each partner may have children from previous relationships.

In these cases, a liferent provision allows the deceased to ringfence their share of the property for their own chosen beneficiaries or family member while still allowing the surviving spouse to remain in the property. Without such a provision, the surviving partner could choose to sell the property, spend part of its value, or redistribute the proceeds in a way that does not reflect the deceased’s wishes.

Should I set up a trust before I die?

It is possible to place property into a trust while both parties are alive. However, this approach is often complex, time consuming and will more than likely have tax implications. 

A liferent provision, by contrast, is typically simpler to implement within a will and is usually a good choice for families with straightforward assets.

A liferent trust only comes into effect on the death of one partner, but a properly drafted will ensures it will be established.

Property ownership structure matters

For a liferent provision to work properly, it is essential to consider how the property is owned when both parties are still alive.

Property titles are generally held in one of two ways:

• Survivorship - where the deceased’s share automatically transfers to the surviving owner, regardless of the will
• Pro indiviso ownership - where each owner holds a distinct share that can be left to someone else in a will

A liferent arrangement requires pro indiviso ownership. If a survivorship clause is in place, it will override the will and prevent the liferent from operating as intended. Therefore, anyone intending to draft a will and include a liferent provision must do so after checking the way in which they own the property and making the necessary changes.

Practical issue around liferent provision

There are several practical issues to consider when including a liferent provision in a will:

• Maintenance and upkeep -  the property must be properly maintained to preserve its value
• Insurances and other costs - decisions should be made about who pays for insurance and ongoing expenses
• Moving home - the will should address what happens if the surviving partner wishes to move, and whether the liferent applies to a new property
• Changes in value, consideration should be given to how any increase or decrease in property value is treated
• Trustees - who should be appointed?

The trustees named in the will become the legal owners of the asset and are responsible for administering the trust. This is often the surviving spouse and the ultimate beneficiaries but can be others if, for example, surviving children are not old enough to take on this role. It is not normally advisable to solely appoint the liferenter, in order to ensure the trust functions properly and keeps the interests of the ultimate beneficiaries in mind. One of the trustee’s roles is to liaise with the liferenter on the matters above, as well as handle tax, legal and administrative obligations.

Liferent provision for other assets

Although liferent provisions are most commonly used for property, they can also apply to other assets. In such cases, the liferenter typically receives any income generated, while the underlying capital is preserved for the ultimate beneficiary.

Final thoughts

Liferent provisions are becoming increasingly common, particularly as blended families seek to balance the needs of surviving partners with the interests of children from different relationships.

By clearly setting out your wishes in your will, you can reduce uncertainty, avoid potential disputes, and make things significantly easier for your family during an already difficult time.