Differences Between Proprietary Will and Usufruct Legacy
In Finland the title i.e. the right of ownership can be legally separate from usufruct, also known as the right of possession. In such a case the holder of the title may be a separate person from the person actually in possession of the property or asset. A will, which grants usufruct on property, is grouped with other similar testamentary instruments granting access and usage rights to a certain property. The beneficiary of the will is granted rights to manage property under the will as well as entitled to receive any revenue or interest from the property.
For example, if the beneficiary is granted access and usage rights to a forested land, they may cut down timber amounting to the annual growth of the trees. They also may use the land and spend time there as if they were the holder of title.
The heir who benefits from bequeathed usufruct can also avoid paying inheritance tax, since inheritance tax is paid only by the successor in title. The owners, however, may deduct the value of the right of possession. Thus, granting a right of possession reduces the tax the owners must pay. Property under the right of possession may not be sold, gifted or destroyed. If the usufructruary has been granted usufruct over monetary assets, the capital may not be used, only the interest. However, the usufructuary is allowed to invest the assets and receive any interest, dividend or similar thereof.
The Difference Between Full and Limited Ownership Will
A will granting full ownership is a will, which grants unlimited right to title, including selling or gifting property. The inheritor gaining full ownership is entitled to redistribute property via a will of their own.
A will granting limited ownership on the other hand forbids the beneficiary to redistribute the property by bequeathing, since a will granting limited ownership includes a clause, which defines the following beneficiary when the first inheritor’s right has ceased (so called secondary clause). Limited ownership allows sale and similar distribution of property.
When to bequeath usufruct instead of title?
A will granting title is well suited to inheritance tax planning. If the inheritor receives less than 20,000 euros in inheritance they avoid inheritance tax due to taxation being applied only to an inheritance of more than 20,000 euros. In other words, by bequeathing property of less than 20,000 euros to each member of the family all family members can avoid paying taxes.
A will granting usufruct is well suited to minimize the tax. For example a couple can utilize a testament granting the right of possession to ensure the subsistence of the widow after their spouse dies.
The widow doesn’t have to pay inheritance tax on their usufruct. This way it possible to gain tax benefits, especially in situations when there are multiple probates over a short period of time.
The Beneficiary Must Acknowledge the Wishes of the Testator!
As the beneficiary receives property under a testament they must acknowledge the wishes of the testator or risk tort/delict liability.
Among other things, the principle of trust makes the trustee who receives the usufruct obliged to ensure that the property does not diminish and take appropriate actions to ensure the property retains its value if faced by a threat, say a flood or electrical problems.
As per net principle the person having the right of possession must pay any expenses arising from the property by any revenue received from it.
The holder of usufruct is liable to compensate any damage caused to the owner of the property unless the damage was caused in petty negligence. On the other hand, the owner must acknowledge the interests of the holder of the right of possession by asking for their consent when the property is being sold.
The beneficiary, therefore, may not infringe the rights of another rightholder, but they must honor the testator’s will.
Refusing Bequest of Usufruct is Always for the Benefit of the Owner
The beneficiary may refuse the bequest only in benefit of the owner. Thus, usufruct may not be transferred to anyone else but the owner of the property.
If the usufruct is given up before its duration has ended (temporary with a set date or until the usufructuary’s death) and the possession of the asset is returned to the owner, the owner must pay gift tax since they received something with a monetary value from the person refusing the bequest.
English translation by Lasse Jelekäinen