Dismemberment of property: principle and interest

What is the dismemberment of a house or apartment?

Principle of property rights

Property is the right to enjoy and dispose of things in the most absolute manner, provided that they are not used in a way prohibited by laws or regulations (article 544 of the Civil Code). This means that property rights are made up of three elements or attributes:

• usus (right to use the property);
• abuse (right to dispose of the property by selling or transmitting it);
• fructus (harvesting the fruits linked to good).

Bare ownership and usufruct

Dismemberment allows property to be distributed between several people:

• Abusus corresponds to bare ownership of the property. It allows its holder to have access to it without using it directly themselves.
• Usus and fructus correspond to usufruct and last as long as its beneficiary lives (or until the contractually agreed term).

Principle of dismemberment of real estate

The dismemberment of real estate is a legal mechanism which consists of dividing the property into two distinct rights: usufruct and bare ownership. The usufructuary have the right to enjoy the property, sometimes until their death, while the bare owners hold the title to the property. When the usufruct expires, the bare owners regain full ownership of the property.

What is bare ownership?

Bare ownership: definition

Bare ownership is a property right which does not confer on its holder the right to use or enjoy the property. In other words, the bare owner holds title to a property, but does not have the capacity to earn income from it or use it while the usufruct is in force. It is a form of property with a limited duration, because it transforms into full ownership at the end of the usufruct.

Dismemberment of property and bare ownership

The bare owner is the person who has bare ownership of a property in the context of a dismemberment of ownership. In this configuration, two parties share the rights to real estate: the usufructuary and the bare owner. While the usufructuary has the right to enjoy the property and receive income from it, the bare owner holds the property and will recover full ownership once the usufruct is extinguished.

What is usufruct?

Usufruct: definition

Usufruct is a civil right which allows a person, called a usufructuary, to use property and receive income from it without being the owner. This right can be granted for a specific period or for the life of the usufructuary. At the end of the usufruct period, the right expires and the property returns to the bare owner.

Dismemberment of property and usufructuary

As part of a dismemberment of property, the usufructuary exercise rights of use and enjoyment, which allows them to live in a property or to earn income from it. The usufructuary and the bare owners therefore share ownership of the property, but with distinct rights.

The usufructuary must maintain the property and cannot damage it, because they have the responsibility to return it in good condition to the bare owner when their right expires.

What is full ownership?

Full ownership: definition

Full ownership is the complete ownership right over a property, including both bare ownership and usufruct. This means that the owner can use the property, earn income from it and pass it on or sell it without restriction. This is the most common form of ownership, where a single person owns all the rights to a property.

Dismemberment and full ownership

When a property is dismembered, the full ownership is temporarily split, which makes it possible to dissociate the rights of use and enjoyment from the property rights. When the usufruct expires, the bare owner regains full ownership. We are talking about consolidation of the property. This mechanism is frequently used in the management of real estate assets and inheritance.

What is the difference between a donation and a dismemberment?

Definition of donation

A donation is a legal act by which a person (the donor) transfers free ownership of property to another person (the donee). This involves a definitive transfer of ownership. Donations can be made in different forms, such as a simple donation, with usufruct reserve, or even a sharing donation.

Type of transfer

The donation therefore results in a complete and immediate transfer of ownership of a property. Once the donation is made, the donee becomes the owner unconditionally. Dismemberment does not result in a complete transfer of ownership. The bare owner and the usufructuary share the rights to the property.

Objective

The main objective of the donation is often to transmit assets to a person of their choice with a view to reducing inheritance taxes or to help loved ones (such as children) to establish themselves financially. Dismemberment is mainly used as a tool allowing you to keep the use of a property while transferring ownership. This also makes it possible to reduce the taxable value when transferring assets.

What is the point of dismemberment of real estate?

An absence of inheritance tax

When the inheritance is opened, the usufruct and bare ownership are reconstituted to form full ownership again, all duty-free, paying much less inheritance tax. Thus, by dismembering real estate, parents can anticipate their inheritance while benefiting from an advantageous tax framework.

Please note, to avoid paying inheritance tax on the total value of the property, bare ownership must have been transmitted at least three months before the death of the donor by notarial deed.

Tax advantages

The transfer of dismembered real estate only takes place on bare ownership, its value only corresponds to a fraction of the price of the property. When the parents die, for example, the child becomes the full owner free of inheritance tax. In addition, during the period of dismemberment, the child bears neither the charges nor the taxes (property tax in particular), payable by the usufructuary.

Protection of the surviving spouse

Property division also protects the surviving spouse. By dismembering a property, the usufructuary spouse can continue to live in the home or receive income from it, while ensuring that bare ownership is transferred to the children. This guarantees a certain financial security to the surviving spouse, who benefits from usage rights.

Disadvantages of dismemberment

Despite its advantages, property dismemberment has certain disadvantages:

• It remains complex and often requires the intervention of a notary or a real estate asset management advisor.
• The usufructuary has obligations to maintain and manage the property, which may result in unforeseen costs.
• It can limit the ability to alienate the property, because any sale or transformation requires the agreement of both parties (usufructuary and bare owner).

When can a property dismemberment be carried out?

The use of property division can be a wise strategy in various contexts, notably for estate planning, wealth management or the acquisition of investments.

Estate planning

Parents may choose to dismantle their assets to reduce the value of the estate. This also helps protect heirs by guaranteeing them a share of the inheritance while ensuring a certain financial security for the donor.

Wealth management

Dismemberment can be used to optimize the tax management of real estate assets, in particular by reducing taxation. The value of bare ownership is often lower than that of full ownership, which can reduce the tax bases. In addition, charges and taxes can be distributed between the usufructuary and the bare owner, allowing more flexible management of the property.

Real estate investments

In certain cases, people can choose to buy property in dismemberment of ownership to benefit from a reduced purchase price (bare ownership) while allowing another investor to enjoy the income generated by the property (usufruct). . This can be an interesting investment strategy.

Specific situations

In the context of certain matrimonial regimes, dismemberment can be put in place to protect the interests of each spouse, especially in the case of marriage or long-term partnership. Likewise, in cases of family disputes, dismemberment can help manage property rights in a way that avoids future disputes, by clearly establishing who owns what.

How to buy in dismemberment of property?

There are several possibilities to buy in dismemberment of property.

Simple dismemberment

The simple dismemberment purchase allows parents to acquire the usufruct of real estate, while their child buys their bare ownership. The parents benefit (enjoy) the property throughout their life and, upon their death, the child receives full ownership without having to pay inheritance tax (tax-free).

Cross dismemberment

Cross-division purchasing is used in practice by unmarried or civil partnership couples. In this scenario, the partners each purchase a share of usufruct and a share of bare ownership of the real estate. Upon the death of the first of them, the survivor retains his shares of bare ownership and usufruct. He therefore retains the enjoyment of the accommodation.

Cross dismemberment via an SCI

In this hypothesis, each of the partners is the bare owner of one part and usufructuary of the other part. After the establishment of the SCI, all of the shares must be dismembered and each of the partners must be granted usufruct over half of the shares and bare ownership over the other half.

What is the tax scale for usufruct and bare ownership?

The French tax scale for assessing the value of usufruct and bare ownership is established according to the age of the usufructuary at the time of dismemberment, in accordance with article 669 of the General Tax Code.

Note that the figures are given for life annuity sale usufructs. For temporary usufructs, the rate is estimated at 23% of the value of the entire property for each ten-year period.

Scale applicable to the value of the usufruct

Here are the rates for the year 2024:

• Under 21: 90%.
• From 21 to 30 years old; 80%.
• From 31 to 40 years old: 70%.
• From 41 to 50 years old: 60%.
• From 51 to 60 years old: 50%.
• From 61 to 70 years old: 40%.
• From 71 to 80 years old: 30%.
• From 81 to 90 years old: 20%.
• Over 91 years old: 10%

Scale applicable to the value of the usufruct in 2024

Here are the rates for the year 2024 defined by the tax administration:

• Under 21: 10%.
• From 21 to 30 years old: 20%.
• From 31 to 40 years old: 30%.
• From 41 to 50 years old: 40%.
• From 51 to 60 years old: 50%.
• From 61 to 70 years old: 60%.
• From 71 to 80 years old: 70%.
• From 81 to 90 years old: 80%.
• Over 91 years old: 90%.

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