Grin and Bare It: Usufruct and Naked Ownership Structures in the United States

March 7, 2023Tax Notes

Planning strategies that divide a property into a usufruct and bare ownership interest are ubiquitous in civil law jurisdictions, where such planning achieves a variety of tax and nontax goals. However, such property divisions can be problematic in common law jurisdictions, especially when it comes to determining the tax consequences. When no common law equivalent exists, authorities are often left to reason by analogy to common law structures. Is the division more like a present gift of a future interest, a bequest effective only on the death of the usufruct holder, a foreign trust, or a joint tenancy with rights of survivorship? Often, even after a deep dive into the civil law rules, there is no clear answer.

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