by Dennis Swing Greene
Most investors, when buying property, are looking to build their net wealth, enjoy retirement and pass their assets on to the next generation.
Many want to buy their home and include their children in the ownership, intending to leave their affairs in order and mitigating eventual inheritance tax problems.
Life sometimes takes unexpected and cruel twists: bitter divorce, crippling illness, untimely death. In the worst case scenario, a retirement home in the children’s name could vanish as a consequence of an unanticipated calamity, leaving the parents without a home, nor the means to replace it.
Staying in control
One simple solution is to use your nominee company with the shareholding in the name of the children.
The company grants a Deed of Life Tenancy (Usufruto Vitalício) to the parents who then have full and exclusive rights to the property for as long as they live. Upon the passing of the last survivor, the tenancy rights automatically revert to the company which is already owned by the children, thereby solving harmlessly any potential inheritance problem inside and outside of Portugal.
Using a nominee company rather than direct ownership bypasses assessment of municipal transfer tax (IMT up to 6%) as well as stamp duty (0.8% of deed value)
Usufruto
Usufruto (right of tenancy) is the right to the use and enjoyment of the fruits or profits of another’s asset, without fundamentally changing its substance.
It is the right to enjoy things that someone else owns, in the same way as an owner, but subject to an obligation to conserve the substance. In defining usufruto, it is necessary to introduce two other characteristics:
a) First, usufruto is a temporary right and, in the majority of cases, on a lifetime basis of an individual (a corporate entity is restricted to 30 years). Individuals, however, may define a set period if they so wish up to 30 years;
b) Also, usufruto is a real right (direito real).
Usufruto grants the right to use the asset and receive the benefits (fruits) there from.
Along the right of usufruto, there is the complementary right called bare ownership (nua propriedade). When the usufruto is extinguished, the bare ownership reverts to absolute ownership (plena propriedade).
Usufruto comprises two of the rights to property as recognised in Roman law – the right of use (usus) and the right of enjoyment (fructus) – but does not include the right to change or transform the property (abusus), this latter is only available to the owner (nu proprietário).
Creating tenancy rights
Usufruto may be created by deed, by testamentary grant or it may be created by law, as with the right of parents over the property of their children while they are minors.
Usufruto may be granted over movable (móveis) or immovable (imóveis) property. Unlike a lessee, the usufructor (usufrutário) takes and accepts the thing as he finds it, but is obliged to return the subject matter as he found it originally or to provide equivalent value.
Although, if the property wears out through normal use, as with most goods, the usufrutário is not responsible for such degradation.
The grantor or bare-owner (nu proprietário) is responsible primarily for major repairs and the usufrutário for maintenance, but not for deterioration due to wear and tear (vetustez) or damage caused by força mayor.
Cessation of tenancy rights
Usufruto may come to an end: a) at the death of the grantee; b) at a set period of limitation; c) by renunciation, merger or subrogation (when one individual satisfies the debt or obligations of another)
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Dennis Swing Greene is Chairman of the Board and International Fiscal Consultant for euroFINESCO s.a.
