Long live the usufruct!
A useful device in the wake of the demise of the double usufruct?
THE USUFRUCT is a time-honoured device in estate planning, which limits an estate’s exposure to various taxes.
Unfortunately, in this year’s Budget speech then Finance Minister Trevor Manuel announced that new measures would be introduced to curb the use of successive (or “double”) usufructs as a means of reducing estate duty. The new measure has not yet been introduced
but will probably apply retrospectively from the date of the announcement, when it’s made.
In order to reduce the exposure to estate duty on the death of the surviving spouse, it was common practice to provide for his/her rights of use and enjoyment on a property to first pass, for a short period, to somebody else, before passing on to the heir or heirs of the first-dying spouse. This is known as double usufructs and limited the estate duty payable by the final heirs.
The Income Tax Act states that if the rights of use and enjoyment were to pass immediately to the children, the lastdying spouse’s estate would be subject to estate duty on the value of the rights as determined by reference to children’s life expectancies. If the rights of use and enjoyment pass to a trust for an indefinite period, the last-dying spouse’s estate will be subject to estate duty by reference to the full market value of the property.
How it initially works is that instead of bequeathing one’s property to a surviving spouse in a will, bequeath it to the children, or to a family trust. The bequest to the children or to a trust is, however, subject to your surviving spouse having a usufruct – a right to use and enjoy the property until death. If the property is a dwelling, the survivor can live in it, or let it, and enjoy the income. If the property consists of shares or other investments, the survivor will receive the dividends or interest.
The value of the usufructuary rights can be deducted