How can inheritance tax on ‘maintained usufruct’ be avoided?

A gift with reservation of usufruct is a popular inheritance planning tool. It allows the giver to retain control of and income from the gifted assets while ensuring that the capital value is transferred to the next generation.

Until recently, this usufruct expired on the death of the giver and was reattached to the bare ownership of the assets, so that the beneficiary obtained full ownership without further inheritance tax being due.

The new inheritance law states that the surviving spouse obtains a legally assigned usufruct of the joint assets known as the ‘legally maintained usufruct’. However, the surviving spouse will be liable for inheritance tax on this legally maintained usufruct.

This raises the question of whether and how this fiscally disadvantageous situation can be prevented. This depends on whether the giver wishes the usufruct to be maintained or not:

Maintenance of usufruct not wanted

1. The giver can exclude this ‘legally maintained usufruct’ in his or her will;
2. The spouse can intervene in the deed of gift and renounce the rights to the legally maintained usufruct (note here the formal requirements regarding a one-off inheritance agreement);
3. The spouse can also renounce the legally maintained usufruct in a one-off inheritance agreement at a later time (note here the  formal requirements regarding a one-off inheritance agreement);
4. The giver can renounce his or her own usufruct during his or her lifetime, ruling out the possibility of legally maintained usufruct after his or her death;

Maintenance of usufruct wanted

1. If a joint asset is gifted by both spouses together, it can be stipulated in the deed of gift that usufruct will revert tax-free to the surviving spouse. Legally maintained usufruct will then be irrelevant. If the asset to be gifted belongs to just one of the spouses, it is worth considering bringing it into a marital property community beforehand. However, note the anti-abuse provisions regarding property.

1. If the giver gifts an asset that belongs to him or her alone, it can be stipulated in the deed of gift that the usufruct reserved by the giver must accrue after his or her death to the surviving spouse after (a usufruct reversion clause). Only gift tax will be due on this reversion of usufruct.

You should therefore make preparations to forestall the tax effect of legally maintained usufruct.