With an annuity, ownership of the property is transferred to a new owner, but the previous owner can continue to live in the property until the end of his life. However, the buyer does not pay the purchase price for the property, but promises the previous owner a lifelong monthly annuity payment in the form of an annuity. It can also be contractually agreed that the annuitant receives part of the amount as a lump sum and then a correspondingly reduced annuity.
Since the amount of the annuity is also based on the remaining years of life, it is usually only possible to choose this option at retirement age, especially since many providers have set a very high minimum age for the annuity.
The life annuity is particularly suitable for property owners:
- who have no direct heirs and would like to use up their assets themselves during their lifetime
- want to hand over responsibility and no longer want to worry about renovations and maintenance of their property. The buyer of the property will be responsible for all maintenance in the future
- who would like to secure their life partner with a real estate pension and a lifelong right of residence even after they have departed. This is also possible if the other heirs have claims.
Usually, the property should be debt-free when it is annuitized. However, it is also possible to settle a remaining debt with a one-off payment at the beginning of retirement - depending on the amount of the remaining debt, the monthly annuity will then be lower.
The amount of the life annuity depends on the age of the owner and thus on his statistical remaining life expectancy. Anyone who retires their home at age 65 will receive a lower annuity than someone who does so at age 75.
But the value of the property and the value of the right of residence also play a role. The value of the right of residence corresponds to the rent that could be achieved for the property.
The question of whether there are only one or two owners who rent out their property also plays a role. Because in the latter case, the annuity will continue to be paid if one of the owners passes away.
A simplified formula to calculate the annuity: Value of the property – value of the lifetime right of occupancy = amount that the annuitant will receive
The annuity is also of interest to the Treasury, because it has to be taxed as income - not in full, however, but only the so-called income share. Its percentage depends on the age of the annuitant at the beginning of the pension and is lower the older the taxpayer was at the beginning of the pension. No or very little tax is due if the overall income is low.
If the annuitant passes away, there is no longer any annuity to be paid. However, if a specific term of the annuity was agreed in the contract, the buyer may have to continue to pay an annuity to the heirs.
When contracting an annuity, interested parties should pay attention to the following aspects in order not to accept any disadvantages:
- Since real estate is the only security annuity providers have and cannot be otherwise exploited during the life of the annuity, a significant cut off is often applied. This has a direct effect on the amount of the real estate pension.
- It should be contractually regulated in detail who will pay for maintenance and repair costs in the future.
- The life annuity should definitely be secured in the form of a registered deed in the land register. A registered deed establishes certain rights in favor of a person.
- It should be agreed in the contract that the annuity is value-hedged – meaning that it increases regularly with inflation. However, such value retention clauses must comply with the Price Clause Act - this means that they must be agreed either for life or for a period of at least ten years and are based on an official statistical cost of living index.
- If the provider goes bankrupt and can no longer pay the real estate annuity, a regulation should be made: In the case of a transfer of ownership with an annuity, a registered deed is entered in the land register. In the event of late payment, the annuitant can then, under certain circumstances, conduct the foreclosure sale of the property.
- Provisions should also be made in the notarial contract as to what happens if the life annuitant can no longer use the property during his lifetime, for example because he moves into a nursing home. Financial compensation would be possible.
Please note that these are explanations and not legal advice. We expressly point out that the information provided cannot replace individual legal advice that takes into account the special features of the individual case.