The sale in life annuity

Despite the unpleasant nature of a life annuity sale, where one party has a financial interest in another’s death, this formula can be interesting for both the seller and the buyer. We briefly outline its particularities.

Concept of Life Annuity Sale

The life annuity is a real estate sale contract by which the buyer (Debtor) pays the owner (Creditor) a pension called a life annuity for the entire duration of the latter’s life. As it is a sale, the deed must be executed before a notary by both parties. The authentic deed must include a number of clauses such as the identification of the parties and the identification of the property. It will not be uncommon to see the parties also agree on a preliminary sales agreement before the execution of the authentic deed.

Annuity

The law allows the parties to freely set the amount of the annuity. This amount will therefore depend on the nature of the rights transferred; the life expectancy of the creditor, but also the forecasts that their health condition allows; the value of the properties sold as well as their profitability; the possible existence and importance of the bouquet that was paid in cash upon signing the deed. In order to ensure the balance of the contract and protect the real estate seller, contractual freedom does not allow the sale to be agreed upon under derisory or unserious financial conditions. It should be noted that life annuities are not taxable in Belgium as long as they are paid by an individual natural person. In such a case, the life annuity thus constitutes a net monthly income for life.

Recommendations

Although it is legally possible to offer a property in life annuity at any age, it is generally between 60 and 90 years old that the sale with life annuity will be most interesting and will allow finding a buyer under the best conditions. This sales formula is very interesting for the seller who will benefit from their capital themselves, instead of leaving it to greedy or sometimes distant heirs who will abandon a large part of it as inheritance taxes. It can also be interesting for the buyer who will pay less than if they had taken out a mortgage loan. However, be cautious as life expectancy is not an exact science.