Life Rights and Your Estate in a Nutshell
A Life Right can be defined as an agreement between parties where the retiree purchases a right to occupy a unit in a retirement facility/unit/house for the remainder of his/her life, subject to the condition that ownership will always vest in the Developer / Holding Company of the property. Upon conclusion of the agreement and payment of the purchase price, the retiree becomes a Life Right holder. A Life Right holder therefore may benefit from the same amenities, features and privileges of a purchaser of an own title or sectional title without having to take ownership.
Upon the death of the holder, the right will revert to the Developer/Holding Company who will in turn proceed to market and sell the Life Right to a third party, but subject thereto that the estate of the original holder of the right, will be compensated with a proportional amount of the original purchase price of the Life Right. Depending on the specific product you are buying, this amount can vary between anything from 80% to 100% of the original purchase price, subject to agent’s commission and/or refurbishing fees.
The terms and conditions of purchasing a Life Right will be outlined in a Life Right Agreement containing the details, rules, regulations, and limitations of purchasing the Life Right. A Life Right agreement also makes provision for Life Right holders to cancel the agreement should they decide to move out of the unit due to unforeseen circumstances (this may also include illness or incapacity).
Your Rights are Governed & Protected
The Life Right model and the rights of occupants of a Life Right scheme, are governed and protected in terms of the Housing Development Schemes for Retired Persons Act 65 of 1988 (HDSRPA), which states that a Life Right holder essentially enjoys the same rights as if they had entered into a registered long-term property lease. The Act, for instance, places certain responsibilities on Developers, among other things, to provide a transparent statement of the basis on which levies will be calculated and to provide the prospective purchaser with a two-year cost estimate of all levies payable. This will, in turn, assist the prospective purchaser to consider the financial implications of investing in such a scheme.
Saving Money & Planning Your Finances
Since the property never transfers into the name of the Life Right holder, the following costs do not apply to a Life Right purchase, resulting in a considerable saving for the Life Right holder:
- VAT
- Transfer Fees
- Transfer Duty
- Bond Registration Fees
- Bond Interest Repayment
It is also not uncommon for owners of sectional or own title property to periodically face high hidden costs or high special levies. Life Right holders will most often not have these unforeseen expenses, making Life Right schemes an attractive option for retirees living on a fixed retirement income.
Deceased Estates: Transferability of Life Rights & the Implication Thereof
One of the main concerns for retirees is to make provision for the continual housing and maintenance of a surviving spouse after their demise as part of their maintenance obligations towards one another.
Since a Life Right constitutes a limited right of use and enjoyment of the unit for the remainder of your lifetime, you cannot bequeath the Life Right to your spouse or to anyone else in your Will. The best way to mitigate such a turn of events, is to enter into a Life Right agreement as a couple, ensuring both spouses are occupants in terms of the Life Right.
Once you’ve entered into the agreement as a couple, it is important to take note that no compensation will be payable to the surviving spouse after the death of the first-dying spouse. Under these circumstances, the surviving spouse will simply be able to continue to reside in the property. Once the surviving spouse has passed away, the estate of the surviving spouse and if necessary, the first dying spouse, will be compensated in accordance with the stipulations contained in the agreement after the successful resale of the Life Right by the Holding Company. The Will of the first dying spouse may leave their portion of the value of the life right to whomever they wish. This will be noted by the Life Right Holding Company and compensation will only take place on termination of the Life Right by the death of the surviving spouse/partner.
Considering the Cons of a Life Right Model
Possible drawbacks with Life Rights are that it may possibly have a negative impact on the deceased administration process since the Holding Company needs to resell the unit before the estate will receive compensation.
Circumstances may arise where the resale process can take some time, therefore delaying the receipt of the compensation and, in turn, delaying the administration process. The deceased estate will also be liable for the payment of levies until the Life Right has been resold, which can bring about extra financial implications for the estate, should the Developer not find a new purchaser timeously.
The full original article can be found at https://louwcoet.co.za/life-right-agreements-considering-your-options/#:~:text=Life%20Right%20in%20a%20Nutshell&text=Upon%20conclusion%20of%20the%20agreement,also%20include%20illness%20or%20incapacity).