Quite often in South Africa today, with the financial climate as it is, an ageing couple will agree to scale down to a granny flat on their own property and transfer the whole property (including the flat) to one or more of their children. Such a situation seems beneficial to both parties. The children are now, with the financial assistance of their parents, able to own their own property, which they could not have traditionally afforded. Furthermore, they have their children’s doting grandparents close by with all the perks associated therewith. The parents, on the other hand, still have a roof over their heads and a close support network, they don’t have to concern themselves with the upkeep and maintenance of the property and they have their prized grandchildren close at hand.
The problem with transferring property to your heir
We at Gunstons have seen, regrettably however, that this situation has time and again been known to give rise to serious difficulties.
One or other of the children moving into the main home or their spouse may find that they actually do not like having the older couple on the property. Ongoing conflict then can result in them actually asking the couple to leave and, if this is refused, taking steps to get them evicted or moved to a retirement village or old age home. Alternatively, they could sell the house, purchase a new house with the proceeds and put the parents in a retirement village or old age home. As the new owners of the property, they do, of course, have every right to do this.
Our advice to you
It is essential, therefore, that you, the parents, protect yourselves against this sort of action when transferring property to your heir.
This can be done by including a usufruct or habitatio clause as part of the agreement before the property is transferred. A usufruct grants a person the right to use, enjoyment and fruits of the property, whereas a habitatio gives the person the right merely to the use of the property. These rights are limited real rights and are usually granted for the lifetime of the person concerned or for a specified period of time. The main consequence of these rights is that the person entitled thereto cannot be removed from the property or the property cannot be sold without their consent. This is excellent protection for you, the parents, who are giving over your major asset to one or more of your children.
Inserting such clauses in property agreements may seem to indicate a lack of trust and good will, but this has to be accepted because our experience in property matters has shown that the adult children can and do battle with the whole concept of having parents on their property. Relationships which have over the years been harmonious and friendly can be ruined by living in close proximity. Very often, it is not the child but his or her spouse who finds the arrangement irksome. Whatever the cause, however, it should be accepted at the outset that these relationships can possibly become bitter and you as parents have to protect yourselves in the ways outlined above.
If you are considering transferring property to your heir, it is suggested that you seek legal and tax advice as to the structure of the transaction first before committing legally thereto.