DEMYSTIFYING THE EXECUTOR IN A DECEASED ESTATE

During a person’s lifetime s/he will gather assets, in other words, belongings such as a house or a motor vehicle. These assets and liabilities will form part of a person’s estate. At the death of that person, his/her deceased estate must be administered, in other words, divided, distributed and controlled by someone. This person is called an executor.

However, the role of an estate executor and who can be appointed as one has been largely misunderstood.

What does the executor do?

“Executor” is the legal term for referring to the person, or people, nominated in your will to carry out the directives you set out in your will.

  1. This means that it is the executor’s responsibility to disburse your property to the mentioned beneficiaries in your will, but also obtain information on potential heirs, collecting and arranging payments, and approving or disapproving creditors’ claims.
  2. It is the executor’s duty to calculate and pay the estate tax, and to ensure that the correct documentation is filed with the relevant authorities.
  3. The executor is the individual that represents your estate.

Who can be appointed as the executor?

It has become normal to appoint a friend, family member or beneficiary to act as the executor, as they most likely have intimate knowledge of your estate and your affairs, but also, they will not rack up the fees that a legal body might accrue.

However, there is a misconception that you can avoid the fees by appointing a family member as the estate executor, but this could also mean that you are deferring the cost to the nominated family member.

  1. Family members appointed as executors on larger estates immediately find themselves out of their depth, and not only end up hiring a professional executor, but may also pay more for these services than necessary.
  2. A simple way to address this is by appointing a “professional” executor during your lifetime. This allows you to negotiate the executor fees.

If you appoint a family member, make sure that they understand that they will have to appoint a professional agent, and that they should negotiate the fee and be very cautious of agreeing to a fee arrangement in terms of which the professional agent charges their professional fee, instead of the legislated scale.

References:

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

WHAT YOU NEED TO KNOW ABOUT ESTATE PLANNING

The main aim of planning your estate is to ensure that as much of the accumulated wealth is utilised for your own benefit and for the benefit of your dependents on your death.

What is estate planning?

“Estate planning” has been defined as the process of creating and managing a programme that is designed to:

  1. Preserve, increase and protect your assets during your lifetime;
  2. Ensure the most effective and beneficial distribution thereof to succeeding generations.

It is a common misconception that it revolves solely around the making of a Last Will and Testament, or the structuring of affairs so as to reduce estate duty. Each person’s estate is unique and should be structured according to his/her own unique set of circumstances, goals and objectives.

What is liquidity?

The lack of liquidity on the date of death may cause for the deceased’s family members and dependents to suffer hardship, as certain assets might be sold by the executor to generate the cash needed.

Liquidity means that there should be enough cash funds to provide for:

  1. Paying estate duty;Settling estate liabilities and administration costs;
  2. Settling estate liabilities and administration costs;Providing for other taxation liabilities that may arise at death, such as capital gains tax.
  3. Providing for other taxation liabilities that may arise at death, such as capital gains tax.

Technically the estate is frozen until such time as the Master of the High Court has issued Letters of Executorship.

Having no will…

If you die without executing a valid Last Will and Testament, your estate will be dealt with as an intestate estate, and the laws relating to intestate succession will apply. The Intestate Succession Act determines that the surviving spouse will inherit the greater of R250 000 or a child’s share. A child’s share is determined by dividing the total value of the estate by the number of the children and the surviving spouse. If the spouses were married in community of property, one half of the estate goes to the surviving spouse as a consequence of the marriage, and the other half devolves according to the rules of intestate succession. If there is no surviving spouse or dependents, the estate is divided between the parents and/or siblings. In the absence of parents or siblings, the estate is divided between the nearest blood relatives.

The executor remuneration

Executor’s remuneration is subject to VAT where the executor is registered as a vendor.

Where the value of the estate exceeds R3.5 million, estate duty will become payable on the balance in excess of R3.5 million, with the exception of the property bequeathed to a surviving spouse, which is exempt from estate duty and/or capital gains tax.

Land

Section 3 of the Subdivision of Agricultural Land Act prevents the subdivision of agricultural land, and such land being registered in undivided shares in more than one person’s name is subject to Ministerial approval.

Minor children

A minor child is a person under the age of 18 years of age. Any funds bequeathed to a minor child will be held by the Guardian’s Fund, which falls under the administration of the Master of the High Court. These funds are not freely accessible, and are usually invested at below market interest rates. It is thus advisable to provide for minors by means of a trust.

Member’s interest

The Close Corporations Act provides that, subject to the association agreement, where an heir is to inherit a member’s interest (in terms of the deceased’s Will), the consent of the remaining members (if any) must be obtained. If no consent is given within 28 days after it was requested by the executor, then the executor is forced to sell the member's interest.

Estate duty

Section 3(3)(d) of Estate Duty Act determines that where an asset is transferred to a trust during an estate planner’s lifetime, yet the estate planner, as trustee of the trust retains such power as would allow him to dispose of the trust asset(s) unilaterally for his own or his beneficiaries’ benefit during his lifetime, then such asset(s) may be deemed to be property of the estate planner and included in his estate for estate duty purposes.

In community of property

Where the parties are married in community of property, the surviving spouse will have a claim for 50 percent of the value of the combined estate, thus reducing the actual value of the estate by 50 percent. The estate is divided after all the debts have been settled in a deceased estate (not including burial costs and estate duty, as these are the sole obligations of the deceased and not the joint estate). Only half of any assets can be bequeathed.

Life insurance

The proceeds from life insurance policies can be used to:

  1. Generate income to maintain dependents while the estate is dealt with;
  2. Pay estate expenses: funeral, income tax, estate administration, estate duty.

All proceeds of South African “domestic” policies taken out on the estate planner’s life, where there is no beneficiary nominated on the policy, will fall into his estate on his death.

Where a beneficiary is nominated on the policy, the proceeds will be deemed property for estate duty purposes, even though they are paid directly to the beneficiary (subject to partial exemptions based on policy premiums).

Policies which are exempted from inclusion for estate duty purposes are buy and sell, key man policies, and those policies ceded to a spouse or child in terms of an antenuptial contract.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

WHAT YOU NEED TO KNOW ABOUT ESTATE PLANNING

The main aim of planning your estate is to ensure that as much of the accumulated wealth is utilised for your own benefit and for the benefit of your dependents on your death.

What is estate planning?

“Estate planning” has been defined as the process of creating and managing a programme that is designed to:

  1. Preserve, increase and protect your assets during your lifetime;
  2. Ensure the most effective and beneficial distribution thereof to succeeding generations.

It is a common misconception that it revolves solely around the making of a Last Will and Testament, or the structuring of affairs so as to reduce estate duty. Each person’s estate is unique and should be structured according to his/her own unique set of circumstances, goals and objectives.

What is liquidity?

The lack of liquidity on the date of death may cause for the deceased’s family members and dependents to suffer hardship, as certain assets might be sold by the executor to generate the cash needed.

Liquidity means that there should be enough cash funds to provide for:

  1. Paying estate duty;
  2. Settling estate liabilities and administration costs;
  3. Providing for other taxation liabilities that may arise at death, such as capital gains tax.

Technically the estate is frozen until such time as the Master of the High Court has issued Letters of Executorship.

Having no will…

If you die without executing a valid Last Will and Testament, your estate will be dealt with as an intestate estate, and the laws relating to intestate succession will apply. The Intestate Succession Act determines that the surviving spouse will inherit the greater of R250 000 or a child’s share. A child’s share is determined by dividing the total value of the estate by the number of the children and the surviving spouse. If the spouses were married in community of property, one half of the estate goes to the surviving spouse as a consequence of the marriage, and the other half devolves according to the rules of intestate succession. If there is no surviving spouse or dependents, the estate is divided between the parents and/or siblings. In the absence of parents or siblings, the estate is divided between the nearest blood relatives.

The executor remuneration

Executor’s remuneration is subject to VAT where the executor is registered as a vendor.

Where the value of the estate exceeds R3.5 million, estate duty will become payable on the balance in excess of R3.5 million, with the exception of the property bequeathed to a surviving spouse, which is exempt from estate duty and/or capital gains tax.

Land

Section 3 of the Subdivision of Agricultural Land Act prevents the subdivision of agricultural land, and such land being registered in undivided shares in more than one person’s name is subject to Ministerial approval.

Minor children

A minor child is a person under the age of 18 years of age. Any funds bequeathed to a minor child will be held by the Guardian’s Fund, which falls under the administration of the Master of the High Court. These funds are not freely accessible, and are usually invested at below market interest rates. It is thus advisable to provide for minors by means of a trust.

Member’s interest

The Close Corporations Act provides that, subject to the association agreement, where an heir is to inherit a member’s interest (in terms of the deceased’s Will), the consent of the remaining members (if any) must be obtained. If no consent is given within 28 days after it was requested by the executor, then the executor is forced to sell the member’s interest.

Estate duty

Section 3(3)(d) of Estate Duty Act determines that where an asset is transferred to a trust during an estate planner’s lifetime, yet the estate planner, as trustee of the trust retains such power as would allow him to dispose of the trust asset(s) unilaterally for his own or his beneficiaries' benefit during his lifetime, then such asset(s) may be deemed to be property of the estate planner and included in his estate for estate duty purposes.

In community of property

Where the parties are married in community of property, the surviving spouse will have a claim for 50 percent of the value of the combined estate, thus reducing the actual value of the estate by 50 percent. The estate is divided after all the debts have been settled in a deceased estate (not including burial costs and estate duty, as these are the sole obligations of the deceased and not the joint estate). Only half of any assets can be bequeathed.

Life insurance

The proceeds from life insurance policies can be used to:

  1. Generate income to maintain dependents while the estate is dealt with;
  2. Pay estate expenses: funeral, income tax, estate administration, estate duty.

All proceeds of South African “domestic” policies taken out on the estate planner’s life, where there is no beneficiary nominated on the policy, will fall into his estate on his death.

Where a beneficiary is nominated on the policy, the proceeds will be deemed property for estate duty purposes, even though they are paid directly to the beneficiary (subject to partial exemptions based on policy premiums).

Policies which are exempted from inclusion for estate duty purposes are buy and sell, key man policies, and those policies ceded to a spouse or child in terms of an antenuptial contract.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

WHAT HAPPENS TO MY BANK ACCOUNTS WHEN I DIE?

In previous articles we suggested that the best way to ensure that your assets are distributed as you want them to be distributed, is to draw up and maintain a will. Should you die without a valid will, your assets will be distributed in terms of the Intestate Succession Act? This may result in unpractical distribution of assets and may lead to someone inheriting whom you did not want to inherit.

In your will you have the choice to determine what should be done with your assets. You should also appoint an Executor who will distribute your assets and manage the administrative tasks in order to fulfil the stipulations of the will and finalise the administering of your will.

As mentioned in previous articles, the death must first be reported to the Master of the High Court and the original will (or the lack of relevant required documentation) must be sent to him. The Master will then formally appoint the Executor by sending him an Executor’s letter and allocating a unique estate number to the estate. This estate number will then be used in all future correspondence with and enquiries from the Master’s Office.

What happens to my bank accounts?

The Administration of Estates Act determines that all bank accounts in the name of the deceased should be frozen and closed eventually, therefore it is extremely important that you make provision for your loved ones, so that they will have cash in hand when you pass away. Usually the accounts are frozen immediately after word of the passing has been received, so money can still be deposited, but no withdrawals will be allowed. As soon as the Executor has been appointed he/she should open a new bank account in the name of “Estate Late XYZ” according to the stipulations of the Administration of Estates Act. This is because you leave your assets to what forms your “estate”. A new bank account will be opened by the Executor and all monies of the deceased in any other bank accounts (as well as his/her spouse in the case of a marriage in community of property) will be transferred to the new bank account in the name of the estate. All estate funds will then be administrated in the estate’s bank account by the Executor until the Liquidation account (statement of assets and liabilities) is approved by the Master and has been open for inspection and remained unchallenged. The Executor will then be in a position to proceed with the distribution of estate assets and finalising of the administration of the estate.

Support to the next of kin

It may, however, take anything from 3 weeks to 3 months or longer for the Master of the High Court to formally appoint the Executor. The fact that the Administration of Estates Act requires that all bank accounts be frozen as soon as possible after date of death may result in the next of kin or other financially dependent parties not being able to access the funds of the deceased while awaiting the appointment of the Executor. In case of a marriage in community of property the bank accounts in the name of the surviving spouse will also be frozen and closed, according to the stipulations of the Administration of Estates Act, which may have dramatic consequences. Once the Executor has been appointed, he/she may start administering the estate assets, and only then will he/she be in a position to consider interim advances against inheritance. We therefore urge you to make provision for the time following your passing, so that your next of kin have money available for their immediate needs.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

THE HEAVY COSTS OF SETTLING AN ESTATE

If you have never planned your estate, perhaps now is a good time to consider it. This will be to you and your family’s benefit, as there are often hidden costs which come into effect at the time of passing, that are not taken into account when you plan your estate and inheritance.

Expenses when an estate comes into effect

  1. Estate duty
  2. Executor’s fee
  3. Capital Gains Tax

These costs have a direct impact on the cash balance of the estate. Questions arise of whether there will be enough cash to enable the executor to administer the estate without having to sell estate assets. This can slow down the administering process of the estate considerably with potential detriment to the heirs.

Settling the estate’s expenses

The care of the dependents will be influenced because the above-mentioned costs will have to be settled from the estate cash. This may result in the spouse and children inheriting less than what the testator had planned. The person who gets the worst of it is the person who lives longest, because he/she usually inherits the remaining estate cash.

Unfortunately, the fact that you have a judicially sound will may not necessarily provide the answers to these questions. Thorough estate planning will be needed in order to find the answers. The stipulations of the will must be tested against the aforementioned costs, after which the necessary changes can be made to produce a cost-effective will. The will’s lay-out will therefore have a direct impact on the costs. If you spend time to ensure that your will is in order in all aspects, it will limit the grief when you are no longer there to set things straight.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

SHOULD I PLAN MY ESTATE AS A YOUNG ADULT?

It is very important for you to plan your estate, which could include a living will, a last will and a living trust. This can help families prepare for difficult times when you are no longer around to assist or advise them. Our lives get busier and more complicated by the day, so estate planning for young and old becomes increasingly important. Young people should consider preparing certain estate planning documents, and in particular financial powers of attorney and living wills.

At the age of 18 a young man or woman officially becomes an adult in the eyes of the world. This means that you are entitled to make important financial, legal or health decisions about your lives. But what if something happens and you are unable to make these decisions at a critical time? Such situations can range from a small inconvenience to a life-threatening crisis, but if your estate is in order, it can speak on your behalf.

Financial power of attorney

A financial power of attorney allows you to appoint someone you trust, like another family member, to make financial decisions on your behalf. This document can be activated when you are incapacitated or right after it has been signed, and it will remain effective until you can resume charge of your own decisions again.

A financial durable power of attorney will allow the appointed person to handle important legal and financial matters on behalf of the grantor. In the case of a business or financial situation which involves the young adult, such as a passport or car registration renewal, it is convenient for the power of attorney to act on his/her behalf if they cannot tend to the problem. This arrangement may come in handy when there is a legal situation which requires quick action and the young adult is unable to attend. Families with a disabled family member can also benefit from the security of a power of attorney.

Living will

A living will enables you to state specific medical wishes if you are alive, but unable to communicate them. Artificial life support in the case of a coma or terminal illness is an issue often discussed in such a document. Preferences regarding administering of pain medication, artificial nutrition and other treatments can be dictated in this document.

The Terry Shaivo case shows what can happen if this document is not in place. The legal battle between her husband, family and state of Florida lasted for years before she was granted her wish and taken off life support.

Health care power of attorney

With this type of power of attorney, you give someone else the power to make health decisions on your behalf. These decisions regarding serious health and emotional crises will be made based on instructions which you have given to your power of attorney beforehand. Sometimes a living will is combined with a health care power of attorney, because both of these can be revoked, i.e. it can be cancelled at any time by destroying it, communicating your wishes to your doctor, writing a letter regarding the cancellation or by creating a new living will and health care power of attorney, indicating that the new will revokes all the previous ones.

Start the conversation

Every family’s legal needs are different, so perhaps you should take the first step in being prepared for the worst. Remember that every time your family composition changes, like when a child is born, you need to adapt your will to include them. Start the process and be prepared.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

MANAGING DISPUTES OVER A DECEASED RELATIVE’S ESTATE

If someone leaves a sizeable estate behind, it may cause conflict among the possible heirs. The help of an attorney, when settling an estate after a death, can avoid unnecessary troubles.

The Administration of Estates Act, 1965, determines what must happen with an estate after a person’s death. There are certain steps that should be taken to ensure the process is legal. However, if the estate is worth a lot of money or the deceased has children, then it is a good idea to seek the assistance of an attorney, as family disputes and debts of the deceased can be confusing. In order to do this an executor will be appointed to act on behalf of the estate.

Finding the will of a deceased relative

If the deceased person left a will the first thing to do is find it. If they did not tell you beforehand where their will was, you can try calling the probate court in their district or the office of the Master of the High Court to check if they have a copy of the will. Other places to call would be the deceased’s life insurance company, bank or lawyer. Otherwise, the deceased might have left a copy of it somewhere secure in their home.

Who is the executor?

An executor is the person appointed to handle the process of settling the estate. The executor will either be mentioned in the will of the deceased or appointed by the Master of the High Court. The Master will ultimately decide who will take the role of executor. If the chosen executor doesn’t know how to handle the estate or is unfamiliar with the legal procedure, he or she can go to a lawyer for help. Once the executor has been chosen, the Master will give them “Letters of Executorship”, which will give only them the authority to handle the estate.

What does the executor need to do?

The executor has several responsibilities such as arranging the valuation of the estate’s property and assets. They will also be responsible for contacting and dealing with all the beneficiaries.

Some other responsibilities of the executor include:

  • Arranging provisional payments for the family’s immediate needs.
  • Opening a bank account for the estate and depositing the estates money in it.
  • Paying all the necessary estate duties.

It’s important that any person who wants to act on behalf of the deceased person’s estate have the Letters of Executorship. If not, their actions would be considered illegal. This also applies to the spouse of the deceased person. This eliminates the possibility of several different family members trying to influence the estate’s dealings. The executor will also decide how the assets will be divided between the heirs and if any or all assets need to be sold. If a will is in place the executor will base his/her decisions on it.

Eventually, the executor will prepare a liquidation and distribution account. This would include what they intend to do with all the assets left after expenses. This account would be delivered to the Master, who will check to see if the executor’s actions reflect the will of the deceased and that all legal requirements have been fulfilled.

Important things to keep in mind?

The Master of the High Court should be notified of the deceased person’s estate not later than 14 days after the death. According to the Department of Justice, the death of anyone who owned property in South Africa must be reported to the Master, whether or not they died in the country.

All estates that exceed R50 000 should be reported to the Master of the High Court directly because magistrate’s offices have limited jurisdiction. If reported to the magistrate’s office, estates will usually be referred to the Master.

References

The Department of Justice and Constitutional Development. 2012. “Reporting the estate of the deceased”. Accessed from: http://www.justice.gov.za/services/report-estate.html/ on 11/05/2016.

Administration of Estates Act 66 of 1965. Accessed from: http://www.justice.gov.za/ on 11/05/2016.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

IMPLICATIONS OF ESTATE DUTY

Estate duty is charged on the dutiable value of the estate in terms of the Estate Duty Act. The general rule is that if the taxpayer is ordinarily resident in South Africa at the time of death, all of his/her assets (including deemed property), wherever they are situated, will be included in the gross value of his/her estate for the determination of duty payable thereon.

The current estate duty rate is 20% of the dutiable value of the estate. Foreigners/non-residents also pay estate duty on their South African property.

To minimise the effects of estate duty you need to understand the calculation thereof. The following provisions apply in determining your liability:

  1. Which property is to be included.
  2. Which property constitutes “deemed property”.
  3. Allowable deductions: the possible deductions that are allowed when calculating estate duty.

Property includes all property, or any right to property, including immovable or movable, corporeal or incorporeal – registered in the deceased’s name at the time of his/her death. It also includes certain types of annuities, and options to purchase land or shares, goodwill, and intellectual property.

Deemed property

a. Insurance policies

  1. Includes proceeds of domestic insurance policies (payable in South Africa in South African currency [ZAR]), taken out on the life of the deceased, irrespective of who the owner (beneficiary) is.
  2. The proceeds of such a policy are subject to estate duty, however this can be reduced by the amount of the premiums, plus interest at 6% per annum, to the extent that the premiums were paid by a third person (the beneficiary) entitled to the proceeds of the policy. Premiums paid by the deceased himself/herself are not deductible from the proceeds for estate duty purposes.
  3. If the proceeds of a policy are payable to the surviving spouse or a child of the deceased in terms of a properly registered antenuptial contract (i.e. registered with the Deeds Office) the policy will be totally exempt from estate duty.
  4. Where a policy is taken out on each other’s lives by business partners, and certain criteria are met, the proceeds are exempt from estate duty.

b. Donations at date of death

Donations where the donee will not benefit until the death of the donor and where the donation only materialises if the donor dies, are not subject to donations tax. These have to be included as an asset in the deceased estate and are subject to estate duty.

c. Claims in terms of the Matrimonial Property Act (accrual claim)

An accrual claim that the estate of a deceased has against the surviving spouse is property deemed to be property in the deceased estate.

d. Property that the deceased was competent to dispose of immediately prior to his/her death (Section 3(3)(d) of the Estate Duty Act), like donating an asset to a trust, may be included as deemed property.

Deductions

Some of the most important allowable deductions are:

1. The cost of funeral, tombstone and deathbed expenses.

2. Debts due at date of death to persons who have their ordinary residence in South Africa.

3. The extent to which these debts are to be settled from property included in the estate. This includes the deceased’s income tax liability (which includes capital gains tax) for the period up to the date of death.

4. Foreign assets and rights:

  • The general rule is that foreign assets and rights of a South African resident, wherever situated, are included in his/her estate as assets.
  • However, the value thereof can be deducted for estate duty purposes where such foreign property was acquired before the deceased became ordinarily resident in South Africa for the first time, or was acquired by way of donation or inheritance from a non-resident, after the donee became ordinarily resident in South Africa for the first time (provided that the donor or testator was not ordinarily resident in South Africa at the time of the donation or death). The amount of any profits or proceeds of any such property is also deductible.

5. Debts and liabilities due to non-residents:

  • Debts and liabilities due to non-residents are deductible but only to the extent that such debts exceed the value of the deceased’s assets situated outside South Africa which have not been included in the dutiable estate.

6. Bequests to certain public benefit organisations:

  • Where property is bequeathed to a public benefit organisation or public welfare organisation which is exempt from income tax, or to the State or any local authority within South Africa, the value of such property will be able to be deducted for estate duty purposes.

7. Property accruing to a surviving spouse [Section 4(q)]:

  • This includes that much of the value of any property included in the estate that has not already been allowed as a deduction and accrues to a surviving spouse.
  • Note that proceeds of a policy payable to the surviving spouse are required to be included in the estate for estate duty purposes (as deemed property), but that this is deductible in terms of Section 4(q).
  • Section 4(q) deductions will not be granted where the property inherited is subject to a bequest price.
  • Section 4(q) deductions will not be granted where the bequest is to a trust established by the deceased for the benefit of the surviving spouse, if the trustee(s) has/have discretion to allocate such property or any income out of it to any person other than the surviving spouse (a discretionary trust). Where the trustee(s) has/have no discretion as regards both the income and capital of the trust, the Section 4(q) deduction may be granted (a vested trust).

Portable R3.5 million deduction between spouses

The Act allows for the R3.5 million deduction from estate duty to roll over from the deceased to a surviving spouse so that the surviving spouse can use a R7 million deduction amount on his/her death.

Life assurance for estate duty

Estate duty will also normally be leviable on these assurance proceeds.

Source:

Moore Stephens’ Estate Planning Guide.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

IMPLICATIONS OF ESTATE DUTY

Estate duty is charged on the dutiable value of the estate in terms of the Estate Duty Act. The general rule is that if the taxpayer is ordinarily resident in South Africa at the time of death, all of his/her assets (including deemed property), wherever they are situated, will be included in the gross value of his/her estate for the determination of duty payable thereon.

The current estate duty rate is 20% of the dutiable value of the estate. Foreigners/non-residents also pay estate duty on their South African property.

To minimise the effects of estate duty you need to understand the calculation thereof. The following provisions apply in determining your liability:

  1. Which property is to be included.
  2. Which property constitutes “deemed property”.
  3. Allowable deductions: the possible deductions that are allowed when calculating estate duty.

Property includes all property, or any right to property, including immovable or movable, corporeal or incorporeal – registered in the deceased’s name at the time of his/her death. It also includes certain types of annuities, and options to purchase land or shares, goodwill, and intellectual property.

Deemed property

  1. Insurance policies
    • Includes proceeds of domestic insurance policies (payable in South Africa in South African currency [ZAR]), taken out on the life of the deceased, irrespective of who the owner (beneficiary) is.
    • The proceeds of such a policy are subject to estate duty, however this can be reduced by the amount of the premiums, plus interest at 6% per annum, to the extent that the premiums were paid by a third person (the beneficiary) entitled to the proceeds of the policy. Premiums paid by the deceased himself/herself are not deductible from the proceeds for estate duty purposes.
    • If the proceeds of a policy are payable to the surviving spouse or a child of the deceased in terms of a properly registered antenuptial contract (i.e. registered with the Deeds Office) the policy will be totally exempt from estate duty.
    • Where a policy is taken out on each other’s lives by business partners, and certain criteria are met, the proceeds are exempt from estate duty.
  2. Benefits payable by pension and other funds by or as a result of the death of the deceased
    Payments by such funds (pension, retirement annuity, provident funds) usually consist of two components – a lump sum payment on death and an annuity afterwards. The lump sum component used to be subject to estate duty. However as from 1 January 2009, no amount received from such a fund is included in the estate of the deceased for estate duty purposes.
  3. Donations at date of death
    Donations where the donee will not benefit until the death of the donor and where the donation only materialises if the donor dies, are not subject to donations tax. These have to be included as an asset in the deceased estate and are subject to estate duty.
  4. Claims in terms of the Matrimonial Property Act (accrual claim)
    An accrual claim that the estate of a deceased has against the surviving spouse is property deemed to be property in the deceased estate.
  5. Property that the deceased was competent to dispose of immediately prior to his/her death (Section 3(3)(d) of the Estate Duty Act), like donating an asset to a trust, may be included as deemed property.

Deductions
Some of the most important allowable deductions are:

  1. The cost of funeral, tombstone and deathbed expenses.
  2. Debts due at date of death to persons who have their ordinary residence in South Africa.
  3. The extent to which these debts are to be settled from property included in the estate. This includes the deceased’s income tax liability (which includes capital gains tax) for the period up to the date of death.
  4. Foreign assets and rights:
    • The general rule is that foreign assets and rights of a South African resident, wherever situated, are included in his/her estate as assets.
    • However, the value thereof can be deducted for estate duty purposes where such foreign property was acquired before the deceased became ordinarily resident in South Africa for the first time, or was acquired by way of donation or inheritance from a non-resident, after the donee became ordinarily resident in South Africa for the first time (provided that the donor or testator was not ordinarily resident in South Africa at the time of the donation or death). The amount of any profits or proceeds of any such property is also deductible.
  5. Debts and liabilities due to non-residents:
    • Debts and liabilities due to non-residents are deductible but only to the extent that such debts exceed the value of the deceased’s assets situated outside South Africa which have not been included in the dutiable estate.
  6. Bequests to certain public benefit organisations:
    • Where property is bequeathed to a public benefit organisation or public welfare organisation which is exempt from income tax, or to the State or any local authority within South Africa, the value of such property will be able to be deducted for estate duty purposes.
  7. Property accruing to a surviving spouse [Section 4(q)]:
    • This includes that much of the value of any property included in the estate that has not already been allowed as a deduction and accrues to a surviving spouse.
    • Note that proceeds of a policy payable to the surviving spouse are required to be included in the estate for estate duty purposes (as deemed property), but that this is deductible in terms of Section 4(q).
    • Section 4(q) deductions will not be granted where the property inherited is subject to a bequest price.
    • Section 4(q) deductions will not be granted where the bequest is to a trust established by the deceased for the benefit of the surviving spouse, if the trustee(s) has/have discretion to allocate such property or any income out of it to any person other than the surviving spouse (a discretionary trust). Where the trustee(s) has/have no discretion as regards both the income and capital of the trust, the Section 4(q) deduction may be granted (a vested trust).

Portable R3.5 million deduction between spouses

The Act allows for the R3.5 million deduction from estate duty to roll over from the deceased to a surviving spouse so that the surviving spouse can use a R7 million deduction amount on his/her death. The portability of the deduction will only apply when the entire value of the estate of the first dying spouse is left to the surviving spouse.

Life assurance for estate duty

Estate duty will also normally be leviable on these assurance proceeds.

Source: Moore Stephens’ Estate Planning Guide.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

FREEDOM OF TESTATION AND MAINTENANCE CLAIMS

Is a testator entitled to disinherit a child and if so, will the child have a claim for maintenance against the estate?

Freedom of testation is the liberty of a testator to choose how to bequeath his/her estate, and govern how his/her property is transmitted after his/her death. The law of succession then, is at least in part concerned with the preservation of a testator’s wishes, even if it additionally serves a social function related to the family and economic structures of society. In principle South Africa propagates total freedom of testation.

The general approach in South African law is that agreements or clauses which attempt to limit freedom of testation are not enforceable. Further, once the testator’s wishes have been ascertained, a court is ordinarily bound to give effect to these wishes. Our baseline is allowing for much liberty and autonomy in the law of succession.

However, freedom of testation has never been unfettered. Both the common law and statutes, such as the Maintenance of Surviving Spouses Act 27 of 1990, impose restrictions on the testator. Bequests which are manifestly illegal or contra bonos mores (against good morals) will be regarded as invalid. Further, spouses and children may be disinherited in terms of the will but they may still have a legitimate claim for maintenance against a testator’s estate which cannot be disregarded.

There is furthermore a presumption against disinheritance, and courts will usually prefer a softer construction of a testator’s will in this respect. This is based on an assumption that a parent is not likely to disinherit a child. However, it is important to note that if it is explicit or clear in a testator’s will that a child is disinherited, then this will not constitute an impermissible exercise of freedom of testation; rather, a testator is given the liberty to lawfully do so.

South Africa gives fairly broad freedom to testators. Testators can generally dispose of their estates as they desire, subject only to certain restrictions mentioned above. Further, testators are not required to give reasons for their decisions in this regard, and are not accountable to their families for testamentary choices.

Nonetheless, the parental duty to maintain children will pass to the estate upon death, as confirmed in Carelse v Estate De Vries (1906) 23 SC 532. The minor child’s claim for maintenance is endorsed as settled law and a common law restriction on freedom of testation.

It should be noted that the child’s claim for maintenance and education is not to be confused with a legitimate portion as it does not entitle a minor to a set portion of the estate or, put differently, does not presumptively limit the testator’s ability to divide her estate as she or he desires. As such a testator could potentially disinherit a child without this impacting the common law claim the child will have against the estate.

Currently, South African law also provides for the surviving spouse to exercise a claim for maintenance against the deceased’s estate. The parental (and spousal) duty then does not merely extinguish upon death. The provision of maintenance for children gives effect to children’s rights as provided for by the Constitution, and affording this maintenance claim to protect dependants is wholly justifiable. This does not however entail that children should be entitled to a legitimate portion or forced heirship generally, as this would constitute an overly extensive constriction on freedom of testation.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.