Usufruct: Keeping your house in the family – and you in the house

Owning your own four walls goes over and above the bricks and mortar – it’s often considered part of the family identity. Housing innumerable memories and something you’ve bestowed plenty of money and love on over the years. So it’s small wonder that you would like to keep it in the family, even when you are no longer around. And here, the right of usufruct is quite possibly the most promising way forward, allowing you to remain in your beloved house, but giving you the chance to transfer it to your descendants, even ahead of time. This also shores you up if one of the spouses dies prematurely, which would risk the house otherwise going to the community of heirs during your lifetime.

Still not clear? No problem! Read on for more on exactly how it works, why it makes sense and how usufruct differs from the right of residence.

What is usufruct?

So back to basics – what does usufruct actually equate to?

In a property context, it paves the way for a beneficiary to use property originally belonging to someone else. In other words, if you were to transfer your own home to your descendants (more on this later), you would be the beneficiary and your descendants would be the owners. As the beneficial owner, you decide how to use the property: either live in it yourself or rent it out to another person. What it boils down to is the owners, namely your children, being left with, for want of a better word, the ‘naked property’, or the name on paper. Establishing a right of usufruct is contingent on arranging public notarisation and an entry in the land register.

How to regulate usufruct:

• By notarised agreement

• By will or contract of succession

• By written contract of division

Making an entry in the land register is normally a must and if the jargon doesn’t faze you, you may want to reference the Swiss Civil Code (ZGB) at this point, which regulates usufruct in fine detail.

Incidentally, although the right of usufruct is theoretically applicable to all kinds of objects, apartments, houses and land, it normally comes into play for apartments, houses and land from a practical standpoint. Hypothetically speaking though, there’s nothing stopping you from establishing a right of usufruct to your vacuum cleaner.

Usufruct: rights and obligations

So first the good news: if you become the usufructuary of a property or plot of land, not only does it entitle you to live in it yourself, you can also collect any rental income or agricultural yield on the same. Needless to say though, there is a downside – all heating, ancillary and maintenance costs are on you. Plus, as the usufructuary, you have to pay any mortgage interest and insurance required on top. You have to cover ordinary repairs and renovations (e.g. to floors, windows, fences or paths) and even, depending on the contract, major repairs too. All of which underlines the need to negotiate well with your nearest and dearest!

The owner, conversely, is entitled to sell the property. But relax – this does not entail the right to usufruct expiring and you need not worry about ending up on the street. By the way, the right to usufruct is also something you retain personally, which means it cannot be inherited or given away. And as the usufructuary, no substantial alterations to the property are allowed. So you’d better build that sauna extension you’ve always dreamed of before transferring your house to your children …

Right of residence vs. usufruct – how do they differ?

Hang on – doesn’t this mean usufruct and the right of residence are two sides of the same coin? No! Both, while similar, have subtle differences. Quite simply, the right of residence means (shock!) the right to occupy a property. And the emphasis here on “residence” is deliberate because unlike usufructuaries, no-one holding the right of residence can rent out the property to third parties or manage it in any other way. The fine details differ from one agreement to the other, but the owner may also levy a fee on the person entitled to reside. Assuming you are a tenant, the maintenance, electricity and heating costs are also on you (but not major repairs or renovations). Similar to usufruct, no significant remodelling of the property is allowed. Logical, right? You can also expect the same amount of paperwork and red tape, since a right of residence must be publicly notarised and entered in the land register.

And what about taxes?

The usufructuary pays tax on the official value and any income (e.g. from rental) accruing via the property, with scope to make deductions for mortgage interest and maintenance. In contrast, owners of residential property only pay tax on the imputed rental value. Although deductions for maintenance are possible, only owners can make deductions for extraordinary expenses. For further responses to tax-related questions, see our FAQ on financing and taxes. Your personal situation usually dictates whether the right of residence or usufruct makes more sense. The key point here is: Do you want to be able to “just live” in the property or are you also keen to generate income with it (e.g. by renting or managing it)? In the former case, the right of residence suffices, otherwise aa usufruct will be needed. We recommend consulting a specialised law firm for peace of mind.

Anticipatory succession and usufruct: a powerful combo

Above all, when your own home is involved, anticipatory succession together with the right of usufruct is a good solution. With this approach, come what may, you are untroubled by complex inheritance regulations and parents and children benefit too.

It’s like this: Whenever someone dies, an inheritance process is automatically triggered. If there are children involved, a community of heirs is formed, comprising the children and the surviving parent. The entire estate then goes to the community of heirs and individual arrangements dictate whether children first have to grant the surviving parent an usufruct to allow him or her to keep living in the house and - for example - renting out the granny flat as before. For less of an admin headache, transferring the house to the children in advance and establishing an usufruct or right of residence is an option. Perhaps never more so in difficult times, with innumerable things to handle alongside grief, showing the foresight to prepare for such eventualities in advance is bound to help.

As already mentioned, the advantage of the usufruct is scope to supplement your income or pension, for example, by renting out a property or using it for agricultural purposes. People often believe that inheritance is a means of protecting the home against seizure, e.g. if the old-age pension does not stretch to covering the costs of care or nursing homes and supplementary benefits have to be drawn. Word to the wise: this is incorrect. Namely, because opting for inheritance means giving up assets at the same time, which is taken into account when supplementary benefits are determined. It may render you ineligible for such benefits, in whole or in part. Depending on the amounts involved, your descendants (i.e. the house owners) will then have to pay for your care costs.

Even so, the inheritance route helps your descendants benefit in several ways. As well as becoming homeowners earlier, they can also save on taxes.Meanwhile, nowadays in small Switzerland, most cantons tend not to levy inheritance and gift tax on direct descendants, but instead require your children to pay taxes on the property, which is treated like any other asset. But while you continue to “block” the property (as is your right, and why indeed not...), the value of this asset for your children declines. Accordingly, they have less of a state and municipal tax load than would apply to the parents. Speaking of asset value – can you pinpoint the precise value of your property? Whether it’s taxes, rental or even going for inheritance, having the property reappraised one more time may well be in your interests. Find out more here, what to bear in mind when obtaining an estimate.

When does usufruct law expire?

Worry not: a usufruct will not tie you to the property indefinitely. Spending a few years in the south of France before returning to your beloved Swiss abode is more than doable, because the usufruct right remains in place, even when the usufructuaries move out. In fact, it will be valid until the usufructuaries pass away or after 100 years have elapsed at the latest. Alternatively, usufruct law can also be cancelled by a waiver, which allows it to be cancelled and removed from the land register.

Need more help to decide?

You may well want an overview, right? So here we’ve rounded up the key details for you in a table.

No matter what your final decision, the feelgood part remains the same: you already know your home is in the safe hands of your descendants, but you’re also entitled to occupy it for as long as you want. Talk about a win-win!