Usufruct

Usufruct plays a significant role in inheritance law, particularly in the area of"anticipated succession".

In the context of anticipated succession, parents often decide to transfer real estate (e.g. a condominium) to their children during their lifetime. This can make sense for gift or inheritance tax reasons, for example. However, it is just as often the case that parents realize in the course of planning the anticipated succession (possibly on the basis of appropriate advice) that they should ensure that their own security or pension provision is not neglected when structuring the anticipated succession. If, for example, the parents are dependent on the income from a condominium rented out to third parties as an investment because they still need the income as part of their retirement provision, but still wish to transfer the condominium to one or more children during their lifetime for the tax reasons already mentioned, the question arises as to how these two objectives can be reconciled.

The law makes it possible for parents to reserve a so-called usufruct when they transfer the property to their child or children.

The usufruct is established either in an object or in a right and entitles the holder of the usufruct (the so-called "usufructuary") to draw all the benefits of an object. This means that the usufructuary may use the object (or right) as if he were its owner. In practice, a usufruct usually means that the holder of the usufruct receives the rental income from a property (e.g. a condominium) even though he does not or no longer owns it.

In the context of anticipated succession, usufruct can be a means of tax planning in particular. For example, if parents give a condominium to a child, it can quickly happen that the tax-free allowance of EUR 400,000.00 available to the child after the respective parent (depending on whether the apartment belongs to both parents or just one parent) is exceeded, given the current high property prices. In this case, it may make sense to reserve the usufruct when transferring the home, as this results in the value of the home being reduced by the value of the usufruct for gift tax purposes. Depending on the value of the usufruct (which can be calculated using a formula), the tax-free amount may not be exceeded and therefore no gift tax is payable.

However, it is important to warn against the ill-considered reservation of usufruct in the context of anticipated succession. Particularly if the relationship between the parents and one of several children is strained, the usufruct can have extremely detrimental effects on the right to a compulsory portion of this child from the parents' perspective. If the child entitled to a compulsory portion were to assert claims to a supplementary compulsory portion due to the gift of the property to his/her sister/brother, the reservation of usufruct would mean that the period for reducing the claim to a supplementary compulsory portion would not begin to run.

The reservation of usufruct should therefore be chosen with care. In any case, it should be preceded by appropriate advice that takes into account the design of an "overall plan" for the anticipated succession.

The above explanation is intended to provide an initial insight into the topic of usufruct. It is not a substitute for advice in individual cases.

If you have specific questions or would like an assessment of your case, we will be happy to provide you with an initial consultation at any time. The costs of such a consultation amount to a maximum of EUR 190.00 plus VAT. The length of the consultation and the size of your assets are irrelevant.

Status: 19.07.2023