Louisiana Law of Usufruct:
Full ownership in Louisiana is broken down into three elements: (1) usus which is the right to use or possess a thing; (2) fructus which is the right to the fruits or income of a thing; and (3) abusus which is the right to abuse or dispose of a thing (either physically or juridically).
Per La. Civ. Code art. 535, a usufruct is a real right of limited duration on the property of another. It combines the first two elements of ownership, usus and fructus. The person who truly owns the property is known as the naked owner, while the holder of the usufruct is known as the usufructuary.
How Usufructs are Acquired:
A usufruct may be established by a juridical act either inter vivos (either by a sale or donation during one’s lifetime) or mortis causa (usually in one’s last will and testament), or by operation of law. A usufruct created by juridical act is called a conventional usufruct, while a usufruct created by operation of law is called legal usufruct.
There are three common legal usufructs. The most common is known as the spousal usufruct. Per La. Civ. Code art. 890, if the deceased spouse is survived by descendants, the surviving spouse shall have a usufruct over the decedent’s share of the community property to the extent that the decedent has not disposed of it by testament. In other words, a spousal usufruct arises when there are children and community property, and a spouse dies intestate (without a will). This is important as it allows the surviving spouse to continue to live in the family home until his or her death and to continue to have access to their bank accounts.
A parental usufruct arises over the separate property of a deceased person who passes without heirs. In the order of succession, parents and siblings succeed in the same class. However, if both survive a decedent then the siblings inherit naked ownership and the parents inherit a usufruct. This is so even if the decedent is married since parents and siblings inherit separate property ahead of the spouse. The spouse would inherit the community property outright.
Parents also enjoy a legal usufruct over the property of their living minor children.
How Usufructs are Terminated:
Per La. Civ. Code art. 607, the right of usufruct expires upon the death of the usufructuary. Death of the usufructuary is the most common way a usufruct is terminated. Because of this, usufructs are commonly referred to as lifetime usufructs. However, there are a few instances in which a usufruct can terminate earlier. Per La. Civ. Code art. 890, a spousal usufruct terminates when the surviving spouse dies or remarries, whichever occurs first.
Per La. Civ. Code art. 608, a usufruct established in favor of a legal entity other than a natural person terminates when the entity ceases to exist, or upon the lapse of thirty years from the date of the commencement of the usufruct. This means if a usufruct is conferred to a company through a juridical act, the usufruct can exist for a maximum of thirty years.
Per La. Civ. Code art. 613, the usufruct of non-consumables terminates by the permanent and total loss, extinction, or destruction through accident or decay of the property subject to the usufruct. An exception exists when the destruction is caused by a third party, in which case the usufruct attaches to any claim for damages. Another exception exists when the property that was destroyed was insured, in which case the usufruct attaches to the insurance proceeds.
Per La. Civ Code art. 623, a usufruct may be terminated by the naked owner if the usufructuary commits waste, alienates things without authority, neglects to make ordinary repairs, or abuses his enjoyment in any other manner.
Estate Planning Considerations:
Usufructs can be a useful tool in an estate plan, but they can also be avoided when desired. Many people are often blindsided by them when a loved one passes without a will, particularly when a parent dies.
We see many couples who come to our office to each create a will. Often, they want to leave everything to each other, and only in the event that their spouse predeceases them or they die together, then to the children. This is often fine for elderly couples who wish for their spouse to be able to do whatever they want with their property without being encumbered by the spousal usufruct. However, we often advise against this for younger couples and for blended families.
A young spouse is more likely to remarry and have more children. They can change their will. They can have a falling out with their children. Thus, it may be beneficial to leave the spousal usufruct in place so that one can rest easy that their children will inherit their half of the community property even if many years pass before the other parent dies.
Similarly, leaving a spouse a usufruct in a will can be beneficial in instances where there are significant separate assets. Perhaps a couple lives in a home that is one spouse’s separate property. If that spouse dies intestate, his or her heirs inherit it outright and can force the other parent or stepparent out of the home. By leaving a spouse a usufruct, one can ensure their spouse still gets to live in their home but that the decedent’s children inherit the property one day.
This is particularly useful for blended families wherein one or both spouses have children from prior marriages or are at an age when they can be expected to start another family in the event of an untimely death.
Some people even give themselves a usufruct of their own property. Perhaps an elderly person wants to donate his home to his children but wants to continue to live there. Donating naked ownership and retaining usufruct accomplishes this. The upside is that it gives the children the possibility of avoiding the probate process. However, there can be tax and other disadvantages that often outweigh the benefits.
A usufruct can also be handy to name a successor of an heir. Technically, one cannot name a successor of an heir in a will. Once a person inherits property, they are free to do with it as they wish. However, by leaving naked ownership to one person and usufruct to another, one can in essence accomplish the same goal. This allows someone to leave a piece of property to a friend or relative but ensure that it ultimately stays in his or her immediate family upon the passing of the usufructuary.
Usufructs are also used to avoid forced heirship. If a person has a forced heir, they cannot disinherit them, meaning the heir must inherit a certain percentage of the decedent’s estate with few exceptions. However, a person is allowed to encumber the forced portion with a usufruct.
Finally, an important consideration is the usufructuary accounting that is owed to the naked owner(s) upon the termination of the usufruct. A naked owner is entitled to receive 100% of the value of the property at the time they inherited naked ownership. The usufructuary’s estate must account for those assets. Many times this is moot, such as when a couple have children only with each other. Since they share the same heirs, those heirs inherit everything that’s left regardless of how much the other parent spends.
However, if there is a blended family or the usufructuary has more children, then the situation can get dicey. For instance, imagine a husband dies intestate and he and his wife had $500,000 in a bank account. Their children would immediately inherit naked ownership of $250,000 but the mom gets to use that money for the remainder of her life.
Now imagine she has another child along the way while also spending half the money during the course of her life. Her children with her late husband would receive the remaining $250,000 that they are naked owners of, and her youngest child would get nothing. This is so because her estate owes and accounting to the naked owners of her usufruct and the first $250,000 in her estate must be paid out to those naked owners.
The wisest thing to do when there are significant liquid assets and a blended family, is to keep those former community assets in separate bank accounts. For instance, the wife can keep her half in her personal bank account and keep her husband’s half in another account that she designates as the usufructuary account. She is free to use the money and to keep all the interest it earns. She may even have the interest automatically sweep over to her personal account. Doing this makes it much easier to sort out later.
Louisiana Succession and Estate Planning Attorneys:
We are a Gretna law firm that has served the New Orleans area since 1980. Our succession lawyers can quickly analyze your loved one’s intestate succession and advise you on the impact of any legal usufructs. Further, our estate planning lawyers can help you utilize conventional usufructs in your last will and testament or by a lifetime donation to ensure your wishes are carried out. We take pride in offering a personal and trusted experience. Call us today for a free consultation and find out why so many of our clients come back to us.