Durban – It has almost always been the norm for home owners to bequeath their properties to their heirs when they pass away, but it seems like the times are a-changin’.
More retirees are choosing to sell up so they can buy life rights in a modern retirement village and live a better quality of life.
Likewise, more adult children are in support of this, choosing to rather have their parents enjoy their golden years and hard-earned money instead of staying in their homes just so they can pass them on.
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The dream for many retirees these days is to move into a modern retirement development that offers community, activities, friendship, health care, and security, but most of them cannot afford to buy a home in such a village. The alternative, therefore, is to purchase a life right which is much more affordable, and offers them a unit in such a development for the rest of their lives, although ownership remains with the developer.
On their passing, the developer also retains any capital growth on the purchase price. A portion of the original purchase price – which differs throughout developments and agreements, is returned to the estate of the deceased. This means that there is no physical property to bequeath to any heirs.
However, heirs can feel secure that their parents were able to enjoy their retirement years at a significantly reduced price.
For some heirs, this is enough. But others want a property to be left to them, regardless of the lives their parents will lead.
Mariska Auret, director at Rabie, says there is “still quite a lot of concern” from retirees who feel they have to leave something to their heirs, especially when they have little or no other assets. However, where a retiree has other assets, whether they are immovable, such as property or policies or a share portfolio, it seems easier for them to make a lifestyle choice that serves them, rather than being concerned about their heirs.
“Unfortunately, there are always instances where heirs dissuade their parents for their own gain. In our experience, the benefits of life rights, once understood, outweigh the need to leave something behind, and simultaneously, more heirs are realising the tremendous positive impact that living in a life right estate has on their parent/s.”
Over the past five years, says Phil Barker, a consultant to Renishaw Property Developments, heirs and retirees have, together, been recognising the reality that having the financial means to bequeath a property is becoming increasingly less of the norm.
“We are seeing more and more heirs recognising the need for their parents to continue to live the lifestyle that they are used to and have enjoyed.”
Echoing this, Gus van der Spek of Aview Properties, says the lack of capital growth that people are facing with life rights is “a small price to pay for the safety and security and well-being of their parents”.
“Our experience is that the majority of individuals in the children’s generation are more interested in standing on their own two feet and are just happy that mom and dad are safe, cared-for, and happy.
“The financial side of things is regarded as part of retirement living, and I think this will most definitely be the trend going forward as life rights become more widespread.”
He explains that life rights generally provide a range of services that are not just lifestyle-based and include essentials such as medical care and food.
“In addition, the social element of retirement living is very important, so there are a number of benefits which people get from living in retirement developments.”
Advice for retirees in this predicament
As life expectancies continue to increase, Barker says retirees have to ensure, as best as they can, that their retirement savings will last.
“Life rights and the sectional title equivalents are ways of assisting this process. Our experience is that the children of retirees are recognising this and supporting their ageing parents in making this type of difficult decision.”
He emphasises that times are changing, and that, in the end, it all boils down to affordability.
“People are living longer and medical costs escalate as one ages. Life savings to fund one’s longer life must inevitably include the family home.”
Ultimately, Van der Spek encourages retirees to choose where they are going to be happy. After all, they have worked hard to set themselves up for a comfortable retirement.
“I would urge them to see an investment like this as a repayment for life’s work. They have earned the time to settle down and enjoy these golden years in the way they feel is best, and that ultimately should be the focus of the decision.”
A life right, says Auret, benefits retirees by offering them a tailor-made lifestyle.
“It is therefore an investment that outweighs any financial interest or gain that an heir might receive (which is not guaranteed in any event). The heir will still benefit financially, as they will receive the original capital back, depending in which development they purchase, as developers have varying terms and conditions.”
In addition, she says legislation protects the occupier (retiree), which means that they have a home for life – “a tremendous benefit”.
“Over and above that, there are so many things that are looked after on behalf of the occupier – 24/7 security, maintenance, landscaping, as well as the benefits of enjoying amenities such a clubhouse, a nurse on duty and so on.
“Retirees and their families therefore need to carefully consider what is in the best interest of the retiree. It’s about giving him or her the opportunity to enjoy a care-free retirement and not have the stress of things like safety, mowing the lawn, or fixing the roof.”
Below is a graphic explaining the general life rights process, although in some developments, and according to upfront agreements, the deceased estate may not receive 100% of the original purchase price, but a smaller portion of it.
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