Liferent Will: What are the benefits and why do you need one
When it comes to estate planning a Liferent Will is a different way to protect your assets and secure your family’s future. This powerful document allows you to keep control of your property during your lifetime and have it pass to your chosen beneficiaries when you’re gone. Once you know the benefits of a Liferent Will you can make informed decisions about your estate and look after your loved ones best.
In this article we’ll look at the basics of Liferent Wills and how they can protect your assets. You’ll find out about the estate planning strategies that use these special wills, especially in Scotland where they’re most popular. We’ll also cover inheritance tax planning, protecting your family home and blended families. By the end you’ll know why a Liferent Will might be for you.
What is a Liferent Will in Scotland?
A Liferent Will is an estate planning tool that allows you to provide for your loved ones and keep control of your assets. It’s a clause in your Will, usually used by couples to protect their property and have it pass to the right people. With a Liferent Will you can create a trust that gives a beneficiary the right to benefit from an asset for their lifetime without giving them ownership. This is known as a liferent interest.
What are the key elements of a Liferent Will?
The key elements of a Liferent Will are:
The Liferenter: The person who benefits from the asset during their lifetime. For example, a parent may leave their interest in a property in liferent to their spouse or civil partner.
The Fiar: The person who inherits the asset.
The Asset: This is usually a property but can be any asset that generates income or provides benefits.
The Trust: The Liferent Will creates a trust to hold the asset until it passes to the beneficiaries.
Legal Requirements
To have a valid Liferent Will you need to:
- Include the liferent trust in your Will.
- Name the liferenter and the ultimate beneficiaries (fiars).
- Define the terms of the liferent including any conditions or limitations.
- Consider changing the title deeds of the property if necessary. If the title contains a ‘survivorship destination’, this needs to be changed to allow the liferent to work.
- After your death legal title to the liferent assets will be held in trust for the ultimate beneficiaries.
Remember Liferent Wills are very beneficial. However, they can have Inheritance Tax and Capital Gains Tax implications. Please seek professional legal advice if you’re considering this as an estate planning option. A Liferent Will is a way to manage your succession. It gives you peace of mind that your inheritance is protected for those you want to inherit it.
Liferent Wills to Protect Assets
Care Home Fees
As you plan for your future you need to consider the impact of care home fees on your estate. Care home costs in Scotland range from £1,500 to £3,000 per week so these expenses can quickly deplete your assets. A Liferent Will can be a useful tool to protect your property and savings from being used to fund long term care.
Under current legislation, if you have over £23,250 of capital, you will need to pay your own care fees. But by including a Liferent Will in your estate planning you can protect a significant amount of your assets. Your estate will only include one half of the value of your house. On your death, your spouse or partner would enjoy a liferent interest in your half of the house whilst owning their own half. That means only their share in the house can be assessed for care costs.
Family Wealth
A Liferent Will is useful for preserving family wealth across generations. It allows you to balance the needs of your surviving spouse or partner with your desire to pass on assets to future generations. By placing assets in a Liferent trust, you ensure they remain intact for your beneficiaries to inherit after the liferenter (usually your spouse or partner) dies. This safeguardes the ultimate inheritance for the next generation.
This is especially useful for blended families. It allows couples with children from previous relationships to ensure all their children are treated fairly. The Liferent provisions set in stone who will inherit your estate after the surviving spouse or partner dies. That means there can be no change that could exclude your own children from their inheritance.
Beneficiary Security
Liferent Wills give your beneficiaries flexibility and security. You can tailor the trust to your individual circumstances and needs and accommodate changing family dynamics over time. For example if your spouse needs to go into residential care your children as trustees of the Liferent would have the power to deal with your share of the house. They could rent or sell the property and use the proceeds to top up care home fees and provide a better quality of care for the surviving spouse.
Please note Liferent Wills are not suitable for everyone. Single, divorced or widowed individuals who own their own home may find alternative arrangements like lifetime family trusts more suitable. Always seek professional advice when considering these complex estate planning strategies to make sure they fit your individual circumstances and goals.
Estate Planning Strategies with Liferent Wills
Tax Efficiency
Liferent Wills are tax efficient in estate planning. When you set up a liferent trust in your Will it doesn’t use up the nil rate band or Inheritance Tax (IHT) allowance of the first spouse or civil partner to die. This means that up to two nil rate bands are available on the death of the second spouse or partner so potentially reducing the overall IHT liability. For married couples and civil partners this is especially beneficial as it allows the IHT allowance to be preserved.
Inheritance planning
Liferent Wills are useful for blended families with children from different relationships. You can plan to leave property to children from different relationships. It ensures your spouse or partner can live in the house rent free, with the deceased’s interest in the property passing to the ultimate beneficiaries after their death. This provides security for your surviving spouse and protection for your children or other beneficiaries.
Flexibility for Changing Circumstances
One of the big advantages of Liferent Wills is their flexibility. Trustees often have the power to make advances out of the fund or assets which can be especially helpful if the liferenter has insufficient income or capital of their own. This flexibility allows for changes to be made as family dynamics or financial situations change over time.
And if you have created a liferent over a share in a house it can be carried forward to a future property. This portability means the surviving partner isn’t tied to a specific property and can move to a house that better suits their needs in terms of location or size. Additionally, liferent trusts can facilitate the transfer ownership of assets to children instead of a spouse or partner, providing further flexibility in estate planning.
Summary
Liferent Wills are a powerful way to protect your assets and provide for your loved ones. By giving lifelong benefits without transferring ownership these legal tools protect family wealth, care home costs and blended families. They also have a tax planning benefit potentially reducing inheritance tax liabilities and preserving allowances for future use.
In summary, Liferent Wills are a flexible and secure approach to estate planning. They allow you to balance the needs of your surviving spouse whilst passing assets to future generations. While they are beneficial you must seek professional advice to make sure they fit your individual circumstances.
Specialist Wills Solicitors, Rutherglen, Glasgow and Lanarkshire
If you would like to find out more about liferent Wills or making a Will, we recommend our article setting out where you start.
The solicitors in our firm have years of experience helping and advising clients on drawing up their Wills. Making a Will is one of the most important things you can ever do.
If you would like to start off the process, lease get in touch with us today.
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