In a recent inquiry a client wanted to know what the responsibilities of his parents are as usufructuaries of the property he bought from them.
The parents as usufructuaries have the right to occupy and use the property until their respective deaths. On the death of the last-dying the usufruct would lapse and the full property rights would automatically vest in their son. The parents as holders of the usufruct are responsible/obliged to maintain the property in its current state, fair wear and tear excepted. Their obligations also extend to the payment of rates levied against the property, payment of all services (water, electricity and other municipal levies) rendered to the property during the currency of the usufruct.
What is a Usufruct and when is it used?
A usufruct is defined as the legal right granted to a person in respect of the property of another person. By means of this right or personal servitude the usufructuary can occupy, use or rent out the property for his/her benefit. A usufruct can be utilised to serve a range of purposes eg. a farmer can bequeath his farm to his son subject to the usufruct of his wife (to make sure she has the means to look after herself). His son becomes the bare dominium (registered) owner of the property but without the right to use or benefit from it until his mother’s death. However, with her consent she may allow him to use the property as well, on conditions prescribed by her or agreed to between them. In practice the mother would let the farm to her son to enable him to farm it as if he is a tenant, for his own profit, and developing it as his eventual asset. The rental he pays to his mother would take care of her financial needs. However, if she wishes, the usufructuary (mother) can live and/or work on the farm herself, or rent it out to another farmer. On her death or at the lapsing of a shorter specified period, the full ownership vests in the bare dominium owner (son).
While the usufructuary can rent the property out, they are not allowed to sell it or bequeath it to another party.
The usufructuary also has obligations and responsibilities in regard to the property. He/she should ensure that the property is not damaged or altered in any way and at the end of the stipulated period, the usufructuary must hand the property back over to the rightful owner or heirs.
The usufruct must be used for its intended purposes, and the usufructuary is legally bound to act as a diligent owner that may not misuse the property. The usufructuary is also responsible for paying the property rates and general day-to-day costs of maintaining it. He or she is not obliged to do any extensive repairs that result from normal wear and tear or daily use. While there is no obligation for the usufructuary to insure the home against storm, fire or other such damage, it is advisable and in his/her own interest to do so.
A usufruct is a way to ensure a surviving spouse has a roof over his/her head and is looked after for the remainder of his/her life. However, property owners who want to include a usufruct in their wills should consult with an attorney and a professional tax consultant or financial adviser before they do so. It is necessary to fully understand its implications and how it can impact those involved.
A usufruct can be created in a notarial deed of cession or retained by the seller when selling a property to reduce the amount of estate duty or transfer duty payable. When this is considered, it is important to be aware of the possible tax implications for the parties involved, both in the short and long-term.
Chris Fick & Associates Inc. – Jan 2020
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