How to Protect Family Wealth with Bare Ownership

Protecting family wealth is a growing concern across Europe, and Spain’s legal framework offers powerful tools for those who plan ahead. Bare ownership (nuda propiedad) has established itself as one of the most effective legal instruments for preserving and transferring assets between generations, with significant tax advantages.

This guide analyses the main wealth protection strategies based on bare ownership, their tax benefits, and the legal aspects you need to understand.

Why Bare Ownership Is So Effective for Estate Planning

Bare ownership allows you to separate ownership from use, creating a structure with multiple advantages:

1. Early transfer: parents can transfer property to children during their lifetime, significantly reducing inheritance tax.
2. Protected use: the life usufruct guarantees that parents can continue living in their home.
3. Tax savings: transferring bare ownership has a lower tax base than transferring full ownership.
4. Creditor protection: the property gains a degree of protection from children’s potential creditors.
5. Flexibility: adaptable to different family situations.

Key Strategies

Strategy 1: Donating Bare Ownership with Usufruct Reservation

The most common approach. Parents donate the bare ownership of their home to their children while retaining the life usufruct.

How it works:

1. Parents execute a public deed donating the bare ownership.
2. They retain the life usufruct over the property.
3. The children become bare owners.
4. The parents continue living in their home as usufructuaries.
5. Upon the parents’ death, the children automatically consolidate full ownership.

Tax advantages:

• The donation tax base is calculated on the bare ownership value (not full ownership), significantly reducing the tax.
• When full ownership is consolidated by death, no additional tax event is triggered under Inheritance Tax.
• Many Spanish regions offer 95–99% relief on Gift Tax for parent-to-child transfers.

Practical example:

Concept	Full ownership	Bare ownership (usufructuary aged 70)
Property value	€400,000	€400,000
Donation tax base	€400,000	€324,000 (81% of value)
Tax base saving	—	€76,000

Important considerations:

• The donation is irrevocable (except in legally specified exceptional cases).
• Children must expressly accept the donation.
• Include protective clauses: prohibition on sale without usufructuary consent, reversion in case of the donee’s prior death, etc.

Strategy 2: Sale of Bare Ownership Between Family Members

In certain cases, a sale is more tax-efficient than a donation:

• When the region does not offer significant donation relief.
• When parents need liquidity (the price provides them with income).
• When you want to avoid collation (the sale is not counted as an advance on inheritance).

Strategy 3: Bare Ownership in a Will

Parents can distribute bare ownership and usufruct among different heirs in their will:

• The surviving spouse receives the life usufruct of the family home.
• The children receive bare ownership in equal shares.
• Upon the surviving spouse’s death, the children consolidate full ownership.

This is the default structure under the Spanish Civil Code for the surviving spouse’s statutory share (Articles 834–840), but it can be customised through a will.

Strategy 4: Cross Bare Ownership Between Spouses

An advanced strategy where each spouse donates the bare ownership of their private assets to the other, retaining the usufruct. This protects both spouses in case of the other’s death and avoids assets being tied up in probate.

Strategy 5: Family Company with Bare Ownership

For larger estates (multiple properties), it may be advantageous to:

1. Contribute properties to a family company.
2. Parents retain the usufruct of the shares (and thus control and income).
3. Donate the bare ownership of the shares to children.

Benefits include centralised management, potential 95% relief under the family business exemption, and easier distribution among multiple heirs.

Protection Against Risks

Creditor Protection

The separation of bare ownership and usufruct can offer protection:

• Seizure of bare ownership: a creditor can seize the bare ownership but cannot evict the usufructuary. This significantly reduces the value of the seized asset.
• Seizure of usufruct: only the usufruct can be seized, not the property title.
• Clawback risk: if the donation was made to defraud creditors, they may challenge it within 4 years (Paulian action).

Protection in Children’s Divorce

Bare ownership received by donation or inheritance is private property (not community property), provided it was received gratuitously and can be proven. It would not be divided in a divorce.

Protection Against Future Incapacity

Donating bare ownership allows asset distribution while parents have full legal capacity, avoiding the complications of a potential future incapacity (which would require court authorisation for property disposal).

Tax Variations by Region

Gift Tax relief varies significantly across Spain’s autonomous communities:

Region	Parent-to-child donation relief
Madrid	99%
Andalusia	99% (up to €1,000,000)
Catalonia	Variable (kinship-based reductions)
Valencia	75% (up to €100,000)
Basque Country	Exemption up to certain limits
Galicia	Kinship-based reductions

Important: these reliefs may change. Always consult an up-to-date tax adviser on the regulations applicable in your region.

Practical Case Study

Situation:

• Juan and Maria (both 72) own a property in Madrid valued at €500,000.
• They have two children: Pedro and Laura.
• They want to transfer the property to their children while continuing to live in it.

Strategy: donation of bare ownership with life usufruct reservation for both spouses.

Calculation:

1. Bare ownership value: €500,000 × 81% = €405,000
2. Tax base per child: €202,500
3. Madrid relief: 99%
4. Effective tax per child: approximately €500–1,000

Result:

• Juan and Maria continue living in their home with full legal security.
• Pedro and Laura are bare owners at 50% each.
• When both parents pass away, the children consolidate full ownership with no additional tax.

Key Recommendations

1. Plan early: wealth planning is more effective the sooner you start.
2. Get specialist advice: every family situation is unique — engage a succession lawyer and tax adviser.
3. Document everything: keep all deeds, tax filings, valuations and family agreements.
4. Review periodically: circumstances and legislation change; review your plan every 3–5 years.
5. Communicate openly: discussing wealth planning with all family members prevents future conflicts.

If you are considering using bare ownership to protect your family’s wealth, contact our team for a personalised consultation. We will help you design the most appropriate strategy for your family.