Although there are other situations in which usufructs can feature, this discussion will centre only on testamentary usufructs, i.e. those created in wills, in particular the classic example being that where a testator wishes to bequeath ownership in property to certain heirs and at the same time give another beneficiary (known as a usufructuary) an interest therein, either for that beneficiary’s lifetime, or possibly for a shorter period.
In this situation the usufructuary would be entitled, inter alia, to the interest/dividends generated by the capital of a financial asset, but not to use the capital itself. If the asset were an immovable property the usufructuary would enjoy the right to live in it or to move out and let it out to a third party and to retain the rent for his own benefit.
Insofar as financial assets are concerned, the security of the capital can be problematic. The normal course is for the capital to be invested by the usufructuary who is exempted in terms of the will from having to provide security for the ultimate restoration of the capital to the rightful owners. Unfortunately in many cases the integrity of the capital is not preserved by the usufructuary to the detriment of the ultimate owners thereof. The person making the bequest in terms of his will may require a guarantee of some kind to ensure that the capital will not be squandered or mismanaged by the usufructuary. Where this is the case the will should provide either for a specific method of investment of the capital or for some other practical structure to contain same so as to ensure that the necessary protection is in place to protect the rights of all parties involved.
Immovable property is often bequeathed subject to a usufruct. Transfer of the property concerned is then registered in the names of the heirs to whom ultimate full ownership has been bequeathed and the rights of the usufructuary are protected by the inclusion in the title deed of a condition detailing such rights. The result is that neither the owners nor the usufructuary can ever sell the property unless they are all in agreement and a party to the transaction. This is sound insofar as it goes but what happens when the usufructuary can no longer live in the property perhaps because he or she wishes to scale down due to advancing age or ill health? Perhaps renting it out is not a practical or desirable option. Technically, the registered owners can either refuse to sell or agree to sell but on unreasonable conditions. In these circumstances which arise often where there is no harmony between the parties involved the usufructuary can be stymied in achieving the desired outcome which might well have been acceptable to the person who created the usufruct in his will had he been suitably informed before doing so. If the property were to be sold with the agreement of all concerned and say it is also agreed by all that a new smaller property can be purchased for a lesser consideration, what happens to the balance of the proceeds of the sale not utilised for this purpose? How will ownership of the property be reflected in the title deed? All of these issues should be given consideration when a will is being drafted so that provision can, if possible, be made in the will to achieve the most favourable outcome for all concerned.
Then there is the question of who is responsible for property related expenses. The usufructuary must look after the property with a high degree of care and must affect such moderate repairs as are from time to time necessary, but is not bound to make improvements to the property or to attend to repairs necessitated because the buildings have become dilapidated or worn out with age. If a usufruct is to extend for a long period of time, major repairs can become a financial burden for the registered owners who must pay up but may not ever see a realisable benefit for themselves during their lifetime. The registered owners are legally responsible for insuring the property while the usufructuary must pay all rates and other municipal levies as well as all utility bills – failure to meet obligations on either side can be problematic for the other.
If a will makes provision for a usufruct to be created it must also stipulate the period for which the usufructuary right will be enjoyed. Will the right terminate on the death of the usufructuary irrespective of remarriage or cohabitation in the property with another or on the first to occur of these events? It should be remembered that a bequest of a usufruct also entitles the usufructuary to move out of the property and to rent same to a third party for his own benefit in which case depending on the way the will is worded the usufructuary could theoretically be cohabiting elsewhere than in the property and still receiving the rentals – if it is not intended that this should be permissible then the bequest is actually for a lesser right of occupation and not of a usufruct at all and this should be made clear in the will concerned.
Usufructs are often used in circumstances where the person making a will is married to a person other than the parent of his or her children. A bequest may be made to the children subject to the usufruct of the surviving spouse. Any bequest to a spouse can be claimed as a deduction for estate duty purposes in terms of Section 4q of the Estate Duty Act so this format in a will appears to achieve all round benefits by minimising estate duty, securing the inheritance of the children and conferring a benefit on the surviving spouse. However the above potentially problematic consequences need to be considered carefully particularly in the circumstances where the children of the first marriage and the second spouse do no not relate well to one another.
We are not offering solutions here, only points to consider which are frequently not raised when drafting a will which provides for the creation of a usufruct. There are possible solutions which differ depending on the variables of each situation and these can be explored when discussing your requirements with the professional who is assisting you.