With many South Africans encouraged to practise social distancing to help ‘flatten the curve’ of the coronavirus contagion, there is a focus on planning ahead for your future, executing a valid will or updating an existing will. When we are dealing with estate planning usufructs are often considered when we want a vulnerable family member to be taken care of. In theory this may sound like a solution but there are certain implications to consider before bequeathing a usufruct.
To bequeath usufruct to someone is a common way of providing for your next of kin after your death, but people often forget that usufruct can place an enormous financial burden on the actual heirs to your estate
When drawing up a will, a concern often raised is what to do with immovable property, especially if a dependant person requires living in the property after someone has passed away, for which purposes a usufruct is a popular consideration.
What is a usufruct?
A usufruct is the right to possession, use and enjoyment of an asset and the right to take the fruits thereof. A usufruct is most commonly over immovable property. An example would be where an immovable property is transferred to an heir, also known as the bare dominium owner, subject to the condition that a usufruct be registered in favour of a third party, known as the usufructuary.
The usufructuary cannot destroy or adversely affect the value of the asset or alter its character. On termination of the usufruct the property must be restored to the bare dominium owner.
Usufructs are personal servitudes and cannot be registered beyond the lifetime of a person in whose favour it has been created. Usufructs are usually created for the lifetime of the usufructuary, however they can also be created for a fixed period of time. Usufructs may also be subject to conditions, which should be provided for in a will.
Usufructs are not transferable, and a usufructuary cannot pass on, bequeath or dispose of the usufruct on his or her death. A usufructuary is not obligated to live in the property and may rent out the property provided that such a lease agreement does not exceed the duration of the usufruct.
When to consider creating a usufruct
A testator should be mindful of the fact that whilst he or she intends creating a benefit by ensuring a “roof over the usufructuary’s head” he or she may in fact be creating a burden for the usufructuary as the gift of the usufruct may be inappropriate to or for the usufructuary’s circumstances.
The usufructuary is responsible for the maintenance and upkeep of the property and if the usufructuary does not have the means to maintain the property the usufruct can create unintended hardships. Ideally provision should be made in the will to cover expenses such as maintenance, insurance and rates.
What are the tax implications of a usufruct?
When considering creating a usufruct it is wise to consider Capital’s Gains Tax implications for the bare dominium owner. The bare dominium owner receives the asset at the bare dominium value (this constitutes base cost) and after the death of the usufructuary and on the sale of the asset, the Capital Gains Tax is greater than if he had inherited the full value of the asset.
Further consideration should be given to the practical consequences of creating a usufruct, especially in cases of second marriages and the relationship between the second wife and the children from a previous marriage.
In a case where a husband bequeaths immovable property to his children from a first marriage and creates a usufruct in favour of his second wife for the duration of her lifetime, could create unpleasant hardships and family disagreements continuing for years. Especially if there are strained relationships between the usufructuary (spouse) and the bare dominium owner (children).
Heirs must refrain from interfering with the use of the property while the usufruct is in existence. However, they do have the right to protect their interest should the usufructuary be using the property inappropriately.
In closing, while the property is transferred into the names of the heirs, the usufruct is registered against the new title deed for the usufructuary. If the heirs pass away before the usufructuary, their portion of the usufruct assets is transferred to their heirs and subject to the existing usufruct.
It must always be remembered that a usufruct is registered at the Deeds Office against the title deed, so no transactions can take place on that property without due consideration given to an existing usufruct.
Elke Herbst – Associate
For more information on usufructs, please contact our Elke Herbst at firstname.lastname@example.org or via:
Switchboard: 021-441 9800
Bissets WhatsApp: 072 370 0416 – our Client Liaison, Tracy, will put you in contact with the relevant professional.