Calculating Usufruct and Bare Ownership Values

Valuation Calculations

Assumption: If at the time of death the spouse is 69 and the value of the property is 1,000. What is the value of the usufruct?

• 69 - 19 = 50. Years over 19 have the beneficial interest.
• 70 - 50 = 20. To estimate at least 1% each year over 19 years.
• 20% of 1,000 = 200. This is the value of the usufruct.

If I am 80:

• 80 - 19 = 61.
• 70 - 61 = 9. This is not applied because it must be at least 10%. So, apply 10% of the value of the property.

Temporary Usufruct Rules

In the case of temporary usufruct, the percentage duration of the usufruct is calculated at a rate of 2% per year in duration, with a ceiling of 70%. That percentage will apply to the value of the property.

If we have a good whose value is 1,000 and the duration of the temporary usufruct is 20 years. What is the value of the usufruct?

• 20 years x 2% = 40%. As 40% is not within the 70% limit, the limit will apply.
• 70% of the value of the property.
• 70% of 1,000 = 700.

Nuda Proprietas (Bare Ownership)

NUDA PROPERTY: Whenever there is a lease, there will be one or more bare owners. In the bare ownership, we calculate based on the total value of the goods less the value of the usufruct. Then, apply the appropriate average effective total value of the property.

Example:

• Value of the property: 1,000
• Value of usufruct: 200
• Base value: 1,000 - 200 = 800
• Average rate: 8%

Calculate the share of bare ownership:

Bare ownership share: 8% of 800 = 64

Tax base: Total base of asset less the total base of the usufruct.

Hereditary Reserves and Trusts

HEREDITARY RESERVES:

Here we must distinguish whether the buyer is entitled to enjoy the goods by way of usufruct, or if the purchaser has the right to full ownership upon liquidation.

Moreover, we must consider a trust, which is an arrangement for the heir (the trustee) to preserve and transmit all or part of the inheritance to a third party (the beneficiary). In this case, we must apply the concept of usufruct liquidation to the beneficiary and the concept of full ownership liquidation to the final trustee (Art. 53 of the Regulation).

Deductible Debts and Expenses in Estate Tax

Debts are deductible in the estate tax, falling basically into two groups:

1. Civil and commercial debts of the deceased, duly accredited.
2. Taxable transactions made by the deceased that may lead to debts paid by the heirs, even if the settlement occurs after death. The typical example is the income tax for the year in which the deceased died.

The expenses deductible in the inheritance tax are:

1. First, the expenses of the last sickness of the deceased.
2. Second, the costs of burial and funeral.
3. And third, litigation expenses, whether testate or intestate.

In all three cases, the expenses must be justified.