It is impossible to know all the legal terms if we are not studying to dedicate ourselves to it. Although they are usually scary because some of them sound very grandiloquent, these concepts, once explained, are easy to understand, assimilate and remember. Especially when they are something positive. That is the case of usufruct for life, a real right that allows you to own something without actually owning it. Don’t worry if you haven’t quite understood it.
Below we will explain it in detail and tell you more about this ‘good news’ if you ever receive it.
What is the usufruct for life?
It may be a little difficult to understand at first, but the usufruct for life is a right that allows a person to enjoy an asset (whatever it may be) throughout his life, whether or not he owns it. This right is made up of 2 parties: the person who inherits the right (the usufructuary) and the person who owns the property (the bare owner) but cannot enjoy it. This type of situation is very common when a house is inherited or when an elderly person dies. The property to which this right is attached is generally a dwelling.
As this is a lifetime right, any fruits of the property on which the usufruct is constituted go to the usufructuary. The owner of the property, therefore, would not make any profit, even if it is legally his. Let us take an example: a member of the family inherits a house in usufruct, while the property belongs to another person. The first person can rent it, dispose of it as he wishes and all the benefits would be his. The second person is simply its owner, but cannot benefit at any time from any possible income. As this right is for life, it is called usufruct for life.
Rights and obligations of a usufructuary for life
The first thing we want to comment is that the usufructuary is not obliged to use the property assigned in usufruct at any time. If it were the case of a house, he does not have to dispose of it (as for example to live in it or to rent it). However, he remains entitled to receive the fruits of the thing transferred in usufruct.
The right of usufruct cannot be assigned. As usufructuary you are obliged to assume the cost of ordinary improvements and repairs for the maintenance of the property in question. If you inherit a house in perfect condition, you must maintain it in this way. Continuing with this theme, you may make alterations and improvements to the house you inherit, but they cannot affect the form or substance of the property. In other words: you can renovate the kitchen but you cannot build another floor.
Advantages and disadvantages of this right
This right can be applied to many things: to movable and immovable property, to rights (except the very personal and non-transferable ones), to a part or the totality of the fruits generated, to an inheritance (if it is constituted on all the assets that compose it…). It is true that it brings enormous advantages to the usufructuary, but also some disadvantages that are worth knowing:
The main advantage is that you can obtain liquidity without a perceptible transfer of assets. Therefore, if you sell the bare property you receive a capital, but this fact does not modify the immediate rights.
Another frequent use of this right is in donations or inter vivos transfers. This means that some people transfer property to their successors while they are still alive. They may do this to avoid inheritance tax or to offer the assets to specific persons before they die. In any case, the sale of the bare property represents a percentage of the total price of the property. If you use it correctly, it can represent a tax saving and guarantee the donor that he will not be kicked out of his house during his lifetime.
However, there are also some disadvantages. If you sell your bare ownership of an asset, you cease to be its owner. Whoever has died under these conditions: his usufruct will be extinguished, the bare owner will become the full owner and the successors of the deceased will not have the right to inherit.
Another disadvantage is that the rights of disposition are lost. If you have the usufruct for life, you will not be able to sell or mortgage the property again. However, this disadvantage has to be borne in any kind of sale, so it is minor. The real disadvantage lies in the fact that the sale price of the bare property is less than the price that could be charged if the full property were sold.
How is a life usufruct constituted?
There are many ways to constitute a usufruct:
- A manifestation of will between living persons.
- By prescription (when a right or obligation is extinguished by the passage of time).
- With a will.
- By law.
The usufruct can also be constituted simultaneously or successively, or purely or under some condition. A good example of this case would be if you inherit a house in usufruct with the condition that you live in it alone.
Tax regime for usufruct for life
In the case of real estate, the tax regime of the usufruct takes into account the time and form in which it was created. This characteristic affects both the usufructuary and the owner. If the usufruct is created between living persons (usually the most common), the usufruct must be taxed according to the IRPF (Personal Income Tax). In this case, the usufructuary will have to pay annually an imputation of real estate income.
The value of the usufruct is 70% of the total value of the property when the usufructuary is under 20 years of age. The percentage is reduced as the beneficiary reaches the age of majority (around 1% for each additional year of age), up to a limit of 10% of the total value. From Blegal we recommend you to analyze the Transfer Tax, as it depends on each autonomous community.
Now, how can we calculate the value of the life usufruct? The general way is the following:
- We take the value identified with the life expectancy and subtract the age of the beneficiary of the life usufruct. This will be the value that represents the time during which, foreseeably, the right will persist.
- The value obtained is applied to the value of the property. The result is the price of the usufruct. The price of the bare property will be the sale value minus the price of the usufruct.
The value of the usufruct for life will never be less than 10% or more than 70% of the sale price.
Universal and life usufruct
Universal usufruct is a type of life usufruct. We also usually refer to it as widow’s usufruct and they are present in the so-called ‘one for each other’ wills, in which the two members of a marriage include in their wills this clause. They make the usufruct of the estate compulsorily for life. If one of the two dies, the surviving spouse does not lose this right, even if he or she remarries. The universal usufruct for life is exempt from certain obligations that the Civil Code imposes on universal usufructuaries (such as forming an inventory or providing a guarantee). The universal usufruct for life of the widowed spouse is that which the law or the testator has granted him/her over his/her property in favor of the survivor.
It is very common to include in these cases the so-called ‘cautela socini’. This clause allows to compensate the rest of the heirs for the fact that the spouse who receives the universal and lifelong usufruct has access to the entire estate. This is not very common, since he/she should receive the third that corresponds to him/her legally. Hence, the rest of the relatives or friends of the deceased are compensated in some way. For this purpose, they are assigned more than what corresponds to them in the legitimate. In this way, in addition to compensate, the rest of the heirs will respect your usufruct.
End of the usufruct for life
The usufruct for life can be extinguished for several reasons:
- Death of the usufructuary. In this case, the bare owner becomes the full owner of the property. To make this possible and to cancel the right of usufruct, the death certificate must be presented to the Land Registry. The same person will become usufructuary and bare owner. In this case, the legitimate portion of the heirs must be taken into account.
- Renunciation of the usufructuary.
- Complete loss of the thing object of the usufruct.
As you can see, although the usufruct for life has more advantages than disadvantages, it is advisable to understand all that this real right implies, both for the heir and for the rest of the families. For this reason, at Blegal we offer you a professional, prepared and diverse team that works closely together to help you with any doubts or situations. In our work method, a partner will accompany you at all times and will study your case in depth to help you achieve your goals and solve problems in your business and personal life. You can contact us and ask any questions you may have. We are here to help you.
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