What is a usufruct?

The English word usufruct derives from the Latin roots usus and fructus, from verbs meaning to possess and to have the benefit of, respectively.

A usufruct is a right given by an owner to someone else to use the owner’s property for a limited time, usually for a person’s lifetime. The holder of a usufruct, known as a usufructuary, has the right to use (usus) the property and enjoy its fruits (fructus), but does not acquire ownership of the property, known as the bare dominium.

An example of a usufruct is where a husband in his will leaves his home to his children but directs that his wife has the use of the house and the furniture in it for her lifetime (or some other period, e.g., until she remarries). In this example, on his death the property will be transferred into the name of the children and the usufruct is simultaneously registered against the new title deeds in favour of his surviving spouse.

Rights and obligations of the usufructuary

In the above example, the wife:

  • has the right to use and enjoy the property
  • can let it out and earn the rental income
  • cannot sell the property, mortgage it, or leave it to someone else in her will
  • must ensure that the property is maintained and is not altered or damaged in any way. She must pay the property rates and general day-to-day costs of maintaining it. The husband should leave enough money, possibly in a separate account, to ensure that the property is maintained and that his wife has enough money to pay for the rates and other property expenses
  • 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 her own interests to do so
  • may make improvements to the property but may not claim reimbursement when the usufruct ends.
  • has the right to occupy and use the property until her death or remarriage, when the usufruct would lapse, and the full property rights would automatically vest in the children.

Tax benefits

Often, a usufruct is created to reduce the amount that the testator’s estate will have to pay in estate duty. While the children become the owners of the property, the estate duty liability is greatly reduced because the usufruct, which needs to be valued, passes to the surviving spouse free of estate duty, while the bare dominium is no longer the full value of the property but the difference between the property value and the value of the usufruct.

A usufruct can also 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.

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