Usufruct Simplified

by Annemarie Schutte


Every client will at some stage during the process of setting up their structure, moving their personal assets into their trust structure and building a new property portfolio, be confronted with one or both of these questions: “How do I transfer my property from my name into my property trust?and  “What fees will be applicable to the transfer?”.  

The simple answer to the first question is that you will sell the property to your trust, but there are different options available to you, namely:

  1. Buy and sell agreement. The trust will buy the property from you through financing. In other words, the trust will apply for a bond in its name. Transfer costs, transfer duty and bond registration costs will be payable;
  2. Alienation of Land Act agreement, whereby the trust will take over the bond which will remain in your name and will at a later stage take transfer. Transfer costs and transfer duty is payable within 6 months from registration of the contract against the title deed of the property. This contract will regulate this transaction. No bond registration costs will be applicable;
  3. Register a Usufruct in your name and transfer the bare dominium to the trust.

Today we will focus on the third method, Usufruct. I want to explain exactly what it is, what the benefits/advantages and possible disadvantages are to use this method.


What is Usufruct?

Usufruct is two rights given to someone who is not the owner (the 'Usufructuary'), namely:

  1. usus -  which is the right to use and enjoy the property; and
  2. fructus – or, the fruit of a property, which is the right to derive profits from the property you use and enjoy.

The value of the usufruct is calculated using a factor, which includes the property value, age and gender of the Usufructuary. This right can be registered for a specific period or it could be a lifelong right.

Now we understand the Usufructuary has the right to live in the property and to receive the profit generated from the property.


What is the Bare Dominium?

It is a limited real right to property which has been stripped from its income.

Thus the use and enjoyment and the right to receive the income is now separated from the ownership.

The value of the bare dominium is the property value minus the value of the usufruct.


Advantages & Disadvantages of a Usufruct 

Advantages of registering a Usufruct:

This gives the Usufructuary protection to stay in and/or earn income on the property, since there is a registered right on the property (to use, enjoy and receive the profits). Thus a step daughter who inherits a bare dominium, cannot evict her stepmother (Usufructuary) or sell the property without her.

The value of the usufruct becomes smaller the older the Usufructuary is. The bigger the value of the usufruct, the smaller the value of the bare dominium, the lesser the transfer costs and transfer duty payable.

Currently if the market value of a property is less than R900 000, no transfer duty is payable, only transfer costs, making this a very attractive method to transfer your property into a trust.

Let me illustrate by way of example:

X is currently the owner of a bond free property and wants to transfer it to ABC trust. The market value of the property is R1 200 000. Mr X's conveyancer calculated the usufruct to be registered in his name to carry a value of R900 000 and the bare dominium is valued at R300 000. No transfer duty is payable since the value of the bare dominium is less than R900 000, he will however pay transfer fees (attorney's fees).


Unfortunately, usufruct may only be registered if there is no bond registered over the property or the bond cancellation and the usufruct registration must be done simultaneously.

The Usufructuary must declare the rental income in its name, thus the trustees may not conduit the profits of this property to beneficiaries for tax purposes.

If the usufruct is cancelled or the term expires there will be tax implications for the Usufructuary and the trust.

Generally the usufruct method will work very well to transfer a bond free primary residence to a trust.

How do I sell a property with a usufruct registered against the title deed?

Either the usufruct must be cancelled, then the full rights to the property falls to the owner and the owner sells the property. Alternatively, the Usufructuary and the owner will sell the property, thus there will be two sellers. Generally we recommend the latter, since the tax implications should be less.

The long and the short is there are options available when property is transferred, speak to your Trust Advisor to discuss your specific need and financial position to determine which option will be best suited for your circumstances.

Please contact should you wish to be put in touch with a Wealth Masters approved Trust Advisor.