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In respect of income that can be gained, his/her position is approximately the same as according to the modern approach. Consequently, one may very well doubt whether there is any better alternative for the usufructuary. A brief journey to the Netherlands teaches us that, in fact, there is!

6. The twisted face

Dutch law endows the usufructuary with more extensive powers than any other jurisdiction. Some authors even argue that the new Dutch Civil Code (DCC) has denaturised the concept of usufruct, resulting in what we have called here the ‘twisted’ face of usufruct. On 1 January 1992, the new statutory provisions regarding usufruct entered into force: Title 8 of Book 3 of the new DCC. A fundamental, even revolutionary100 change is that the requirement to keep the usufructuary assets intact (salva rerum substantia) disappeared from the statutory law on usufruct.

The Dutch usufruct offers an ideal position to the usufructuary regarding control over the usufructuary assets and the income that can be gained from these assets. Even the new default rules provide extensive powers with regard to consumption and disposal of usufructuary assets. These powers can even be increased by a contractual expansion of the position of the usufructuary.

6.1. Default rules

DCC, art. 3:207 stipulates that the usufructuary is entitled to use or consume usufructuary assets. Use and consumption are governed by the rules agreed upon at the constitution of the usufruct. In the absence of any such rules, the usufructuary must behave with due regard of the nature of the usufructuary assets and local customs regarding their use or consumption. The law offers no clear description of consumable property. In the official explanation of the new DCC, consumable property is described as property which is consumed by its mere use (by wear and tear).101 Hence the nature of the goods is crucial in determining the consumable character of the property. In spite of the official explanation, a wider and more flexible meaning must be given to the term consumption. In general, consumption is regarded as the decay of goods through wear and tear by individual or multiple use.102

100Van Oven, ‘Het Vruchtgebruik in het Ontwerp Nieuw BW’, p. 361.

101van Zeben and Dupun, Parlementaire geschiedenis, p. 639.

102See in general Bos, ‘Vruchtgebruik op aandelen’; van Gaalen, ‘Vruchtgebruik’, p. 238.

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Upon extinction of the usufruct, the owner is entitled to the restoration of the usufructuary assets, at least in so far as the usufructuary or his legal successors are unable to prove that these assets have been consumed or have perished by accident (DCC, art. 3:215, § 1). Since a usufruct usually expires on the death of the usufructuary, the burden of proof is likely to fall on the legal successors of the usufructuary. Hence the usufructuary will have to provide the legal successors with

evidence of consumption, unless the successors are the same persons as the owners.103

A significant innovation is that the usufructuary is entitled to use and consume the usufructuary assets without being obliged to restore either the assets or its equivalent upon extinction of the usufruct. This means that quasi-usufruct (where consumption is allowed subject to the obligation to restore an equivalent, see section 5, above) has been abolished under Dutch law. At this point Dutch law has made a complete break with the traditional institution of quasi-usufruct compared with French and Belgian law. Even in the case of the conventional quasi-usufruct, the French and Belgian usufructuary is obliged to restore an equivalent.

Furthermore, DCC, art. 3:212, § 1 stipulates that if the usufructuary assets are destined to be alienated the usufructuary is entitled to alienate the assets in accordance with their intended purpose. A classic example is trade stocks.104 The law explicitly grants the usufructuary the power to dispose of these assets. In the absence of any statutory basis, the usufructuary is only permitted to dispose of the usufructuary assets with the consent of the nude owner or with authorisation of the Cantonal (district) Court (DCC, art. 3:212, § 3). The Cantonal Court may only authorise such a disposal if it serves the interests of both the nude owner and the usufructuary and if the interests of neither are prejudiced by the disposal. If the usufructuary legally disposed of the usufructuary assets in accordance with DCC, art. 3:212, the assets replacing the original assets still belong to the nude owner and are still burdened with a usufruct pursuant to the doctrine of real subrogation (DCC, art. 3:213).105

6.2. Contractual expansion

The already strong position of the usufructuary under the default rules can even be further strengthened contractually. Parties can agree to an

103van Gaalen, ‘Vruchtgebruik’, p. 166.

104Mijnssen, Van Velten and Bartels, Asser, Eigendom, p. 287.

105Berenschot, ‘Enige aspecten van de plaats van vruchtgebruik’, p. 178.

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expansion of the usufructuary’s powers of consumption and disposal (DCC, art. 3:212, § 2).106

Consequently, parties may include rules in the constitutive deed that an asset is consumable in spite of its obvious inconsumable nature (DCC, art. 3:207). Furthermore, DCC, art. 3:215 stipulates that the usufructuary can be empowered to complete or partial consumption of the usufructuary assets by virtue of a contractual provision. In the absence of any limitation, the usufructuary is in principle entitled to consume all of the usufructuary assets without any obligation of restoration whatsoever.

Expansion with regard to powers of disposal is also possible. The default rules state that alienation by the usufructuary without the consent of the nude owner is permitted only if this is consistent with the purpose or destiny of the usufructuary assets. Nevertheless, parties can agree that the usufructuary will be entitled to dispose of the usufructuary assets on his/her own regardless of the destination of the property (DCC, art. 3:215). An explicit agreement to allow the usufructuary to dispose of the assets releases the usufructuary of the obligation to invest the goods in the best interests of the nude owner imposed by DCC, art. 3:214, § 1.107 Other modalities are also possible. The power of disposal can be subjected to the consent of one or more other persons, generally a third party such as an asset manager (DCC, art. 3:215, § 2). The objective in doing so may be to retain some control in the interest of the nude owner. If the usufruct is placed under administration,108 the co-operation of the administrator is required for disposal and consumption of the assets (DCC, art. 3:215, § 2).

It is clear that the new Dutch concept of usufruct offers abundant possibilities in the sphere of estate planning. Not only can a donor retain an income by agreeing upon the consumable feature, but he/ she can in addition reserve vast powers of disposal. The donor can make a contractual arrangement that the usufructuary can dispose of the usufructuary assets without the consent of the nude owner. Since there is no obligation of restoration of the assets whatsoever (neither in kind nor by equivalent), maximum control over the assets and income gained therefrom can be reserved.

106 van Gaalen, ‘Vruchtgebruik’, p. 154. 107 Lubbers, ‘Vruchtgebruik’, p. 134.

108Civil Court, art. 4:153, para 1. Until the coming into force of the new Dutch Inheritance Law on 1 Jan. 2003, the statutory arrangement on administration of usufruct was found in Civil Court, art. 3:204.

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6.3. Limits

The usufructuary must administer the usufructuary assets with the care of a prudent man (DCC, art. 3:207, § 3). This obligation plays a central role in the exercise of a usufruct109 and can trigger liability on the part of the usufructuary during the existence of the usufruct,110 or of his/her heirs upon extinction of the usufruct.

A difficult question is whether or not the usufructuary’s obligation of proper care results in a limitation of the usufructuary’s power to alienate and consume the assets, even if this power is not limited by the deed creating the usufruct. In our view, this issue reveals the paradox between the very essence of the right of usufruct, which is conservation of the capital, and the power to dispose of and consume the usufructuary assets.111 It is arguable, under the traditional and even the modern concept of usufruct, where maintenance of the substance of the assets is fundamental, that some restraint in the usufructuary’s exercise of his powers is justified. However, to take such a view is to apply rules from another framework that is not in place here. Indeed, the statutory freedom that Dutch law allows a usufructuary in the exercise of his/her rights is unlimited. Based on DCC, art. 3:215, § 1, he/she can be empowered completely to dispose of and consume the usufructuary assets without any obligation towards the owner. Hence the law offers no basis for restrictive interpretation of the power of the usufructuary to dispose and consume.

If the usufructuary does not comply with his/her obligations, including the obligation of proper care, the Cantonal (district) Court can, at his/her request, grant the nude owner the right to manage the assets or place the usufructuary assets under administration (DCC, art. 3:221, § 2). In view of the possible wide powers of the usufructuary, namely full rights of disposal and consumption of the usufructuary assets, the Cantonal (district) Court will probably be reluctant to find that the usufructuary has failed seriously to comply with his/her obligations. The scenario will be different if limitations on the powers of the usufructuary have been included in the constitutive deed set forward by, for example, the donor. This will of course be unlikely in the situation where the donor wants to retain maximum control of the assets.

109Mijnssen, Van Velten and Bartels, Asser, Eigendom, p. 275.

110Supreme Court of the Netherlands, 9 Jan. 1998, NJ (1999), p. 285.

111See also Mellema-Kranenburg, ‘Twee buitenbeentjes’, pp. 777–8.