Life annuities (viager) allow you to monetize your home without having to move. But it is not the only solution.
Article published in Le Figaro on May 13, 2022. By Valérie Valin-Stein
You are 65 or older, you own a home in which you wish to stay, but you do not have the necessary budget to live your dreams, financially help your loved ones, or carry out renovations. Have you thought about a life annuity? This arrangement attracts a growing number of seniors from all social backgrounds. According to the specialized agency Renée Costes, the number of life annuity sales is increasing by 5% per year.
Misunderstood despite its two hundred years of existence and a victim of stubborn prejudices—remember the film of the same name—the life annuity is nevertheless an excellent way to receive regular and secure income. The payment of the sale price occurs in two stages: on the day of the signing at the notary’s office, you receive a lump sum (called the “bouquet”). Then, until your death, an annuity is paid to you by the buyer. More than 90% of sellers opt for what is known as an occupied life annuity, thereby retaining a right of use and habitation.
Please note, as soon as you leave your home (to move into a retirement home, for example), you lose this right. Your buyer then recovers full ownership of the property, which they can live in, rent out, or sell. In exchange for this early departure, you receive an annuity increased by approximately 30%. “The conditions for waiver for early departure must imperatively be drafted in the sales contract to avoid any ambiguity,” specifies Stanley Nahon, Managing Director of Renée Costes. Note: if your buyer dies before you, their heirs will be responsible for paying the annuity.
Protecting Yourself
To determine the value of a life annuity, several criteria are taken into account: the market value of the property (what it would be worth if put on the market), the status of the life annuity (vacant or occupied), and your life expectancy, estimated using specific tables. The calculated value is divided between a bouquet and an annuity. “For example, a property worth €450,000 occupied by a couple aged 75 could result in the payment of an €80,000 bouquet along with a monthly annuity of €712. In a vacant life annuity, the annuity would be increased to €1,955,” explains Sophie Richard, founder of Viagimmo, a real estate network of about thirty specialized agencies. “But if the couple were 80 years old, they would receive an €80,000 bouquet and a monthly annuity of €1,060, reaching €2,368 in a vacant
life annuity.” The breakdown between the bouquet and the annuity will vary according to your objectives. If you wish to financially help your children or carry out renovations, you will prefer a high bouquet; conversely, if your priority is receiving income, you will opt for a smaller bouquet and a larger annuity.
Even though it is extremely rare, to protect yourself against a possible default by your buyer, it is recommended to insert a termination clause that will cancel the sale in the event of non-payment of the annuity. However, you will keep all sums (bouquet and annuities) already paid. You can also register a “seller’s lien” (privilège vendeur) which will allow you, in case of non-payment and seizure of the property, to obtain reimbursement of the sums owed before other creditors. Finally, do not forget to provide for an indexation of the annuity and, if you are a couple, the reversion of the entire annuity to the surviving spouse. To draft the sales contract, rely on a life annuity professional (specialized real estate agent or notary).
The dismemberment option
This formula is offered by funds that invest in life annuities themselves (ViaGénérations…) and by certain high-end real estate agents (notably Barnes and Féau). You then receive the full sale price, calculated in the same way as for a life annuity. It is up to you to invest this sum to derive additional income. Secure (you do not have to fear non-payment of the annuity), this life annuity without an annuity is based on a dismemberment of property ownership. Your buyer is the bare owner and you are the usufructuary. You hold a real estate right that you can sell (after agreement from the bare owner) and which gives you the freedom to rent out your home. But the buyer also finds an interest in it.
“It is easier to finance a bare ownership than a life annuity,” explain Vincent Illouz and Nicolas Pettex of the Féau group. “Furthermore, receiving a large sum of money allows sellers to help their loved ones, but also to treat themselves. Today, seniors have a great many projects.” Like this couple in their eighties who sold the bare ownership of their apartment in the Invalides district of Paris for 2.4 million euros. After making donations to their three children and grandchildren, they kept 1.5 million euros to indulge in their hobby: sailing the seas on luxury sailboats!
In addition to receiving capital, selling through a life annuity with or without an annuity frees you from most costs associated with owning a building. If the property sold is your primary residence, you are exempt from capital gains tax. The life annuity is indeed taxable, but after a 70% allowance if you are over 70 years old. You will not be taxed under the real estate wealth tax (IFI) within the framework of the life annuity and, as a usufructuary, you will benefit from a variable allowance based on your age. As for the distribution of charges, it proves to be more favorable in a life annuity than in a dismemberment. “In a life annuity, the seller only bears the housing and household waste removal taxes as well as routine repairs. Whereas the usufructuary pays all expenses, excluding property tax and major works listed in Article 606 of the Civil Code,” specifies Reza Nakhai, founder of the specialized agency Viva Viager.
