THE ALTERNATIVES TO USUFRUCTS

Article by listed attorney:  Nicolen Schoeman

Introduction

A usufruct or the right to use and enjoy (together with enjoying the fruits) of the property involved, has for many years been commonly used in the estate planning process. In simple terms, a usufruct is a right of enjoyment, enabling a holder to derive profit or benefit from property that either is titled to another person or which is held in common ownership, as long as the property is not damaged or destroyed[1].

These have specifically been applied, where the intention of the deceased was to leave the said property to someone (full ownership), but the use and enjoyment thereof (including a right to the fruits) for the benefit of another.

The practicalities

A usufruct, like fideicommissum as an example, constitutes a limited real right to property.

Real rights are defined or rather explained as: “…a real right that ensures the owner the opportunity to exert direct influence on an article: he does not require the actions of anyone else in order to possess, use, or dispose of an article. A real right belongs to the category of absolute rights. This means that, as opposed to the subject of a real right, there is an indeterminate number of persons who are obligated not to obstruct the exercise of the subject’s right….”[2].

Because a usufruct limits the property owner’s (the bare dominium holder) ability to exercise his/her/it’s real rights (to the property), it has to be registered against the title deed of the fixed property (house etc) involved. As such, these need to be registered against the title deed of the fixed property in question in the deeds office. Accordingly, there are costs involved in registering these rights and once these lapse (with the death of the usufructory - the mother in our above example) and there are also costs in removing those conditions from those title deeds. In the event of the usufruct not being registered, specifically in the instance where the usufruct does not  automatically lapse due to the passing of the usufructory, this may unintentionally limit the next owner’s real rights or become the cause of other challenges, which would normally not have been the intention of the next owner.

Moreover, where the situation is created by a will there may be taxable implications including, amongst others, the implications of estate duty. This may affect the deceased’s estate (father in our example), the usufructory or the bare dominium holder (son in the above example) – depending on the circumstances.

In addition, some other practical challenges may arise due to the misconception of the legal enforceability of claims involving the payment of or rather the collection of levies in sectional title schemes, where (as an example) the usufructory has not paid. Moreover, more than one usufruct cannot be registered against a title deed concurrently[3].

For the above reasons, amongst others, usufructs should not be applied lightly and without proper consideration in relation to the relevant circumstances at hand.

So what are the alternatives?

According to Dr Eben Nel, a potential alternative would be to register a discretionary inter vivos trust[4]. This on the basis that trusts could accommodate a number of beneficiaries and allocate rights to them at the discretion of the trustees and founder. It could furthermore be structured to optimise tax efficiency so that those implications would not be relevant, particularly from an income tax and naturally estate duty perspective. If vesting (“to confer or bestow property on someone”) is avoided so are the income tax implications and the trust by its very nature ensures perpetual existence, is also not a person in the context of estate duty and cannot attract such a liability. Finally no transfer duty or property transfer costs as the full unencumbered ownership will be in the property.

With that being said, the solution proposed has not considered the potential for disputes arising between beneficiaries or trustees for that matter.

For instance, in Vairetti v Zardo NO and Others (12423/2007) [2010] ZAWCHC 146 (12 April 2010), the court had to interpret the meaning of a clause bestowing a limited real right on one of the beneficiaries (here a usus – right of use) in a trust. The clause in question read as follows: “Notwithstanding the foregoing, the Donor specifically requires and directs that FRANCESCA ZARDO (born Gennari), the daughter EMILIO GENNARI, shall during her lifetime have the full use of the property described as Erf 1650 (a portion of Erf 159) Bakkershoogte and that MARIA VAIRETTI [the applicant], the companion of EMILIO GENNARI, shaft during her lifetime have the full use of the property described as the remainder of Erf 159 Bakkershoogte as Indicated on the diagram SG No 3965/1997 approved by the Surveyor General on 3 July 1997.” (Emphasis supplied)” The court found in the favour of the applicant. As such careful and meticulous drafting along with choosing the most suitable trustees are key when considering a trust as an alternative to the usufruct.

Conclusion

The use of the usufruct as a tool to give effect to a will or other agreement should, as the use of trusts, be carefully considered and where elected implemented by a professional specialising in the field. That way the solution would be tailored considering all relevant implications.

Nicolene Schoeman - Louw, Schoeman Tshaka Attorneys (Cape Town)

 

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