Life annuity: a home to live in AND financial freedom

When struggling to get by on their pension, many seniors consider selling their own home and moving into a smaller, more age-appropriate property. Yet many struggle to part with their home, having spent a large proportion of their lives residing there. Those wishing to continue living in their own homes yet still wanting more financial freedom may find that a life annuity is an appropriate option for them.

A life annuity works as follows: you sell your property, yet retain a life-long or fixed-term right of residence for your home. This means you can continue living in your home without having to pay rent. At the same time, however, you also receive the money from the purchaser of your property. You can receive this either as a lump-sum payment or – as the name suggests – an annuity paid out monthly, or a combination of the two, i.e. a large lump-sum payment and the rest as a monthly annuity. You receive the annuity for the rest of your life. This is in contrast to a fixed-term annuity, where the payment period for the annuity has been set. The sale of the property for the purposes of a life annuity and the right of residence are certified by a notary and entered in the Land Register. The purchaser also takes on responsibility for the property. This means that they pay any maintenance costs and property tax.

Purchasers thereby take a gamble. For example, the property can be purchased for less than it is actually worth. However, there is also the example of the centenarian lady who liquidated her property for her life annuity. In this case, the purchaser clearly paid over the market value. Nevertheless, property purchases for life annuities are an interesting investment model for investors.

Greater financial freedom instead of property ownership – what are the pros?

By liquidating your property for a life annuity, you have more money to live on in your old age. In the best-case scenario, a life annuity frees you from those notorious financial bottlenecks and thus provides greater quality of life. And even when considering your heirs, there are some potential advantages to liquidating your property for a life annuity. That’s because it allows you to help your children and grandchildren financially in the here and now. In many cases, such support – such as financial assistance for a grandchild at university – is of great benefit. You can perhaps do more good in this way than by leaving your heirs a property after your death, as the division of property among the “community of heirs” is often difficult to accomplish.

Calculating the life annuity

In order to calculate the life annuity, you must know the value of your property. A local professional estate agent will establish the value of your property. A detailed calculation is then a little more complicated. It initially depends on whether you only want a monthly annuity or a larger lump-sum payment. However, another important factor is your estimated lifespan. This is because the actual time of your death is unknown, as with the example of the centenarian lady. The price of the property must then be distributed across this estimated time-frame.

Would you like to find out whether liquidating your property for a life annuity is a good choice for you? Get in touch with us! We are happy to advise you.


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Legal note:  This article does not constitute tax or legal advice in individual cases. Please have the facts of your specific individual case clarified by a lawyer and/or tax advisor.