Essential estate planning: how property owners can ensure smooth asset transfer after death

Property owners must plan for death and taxes if they want their home and other assets to pass smoothly to those surviving them.

Renier Kriek, managing director at Sentinel Homes, says structuring one’s estate smartly, or at least having a will in place, will spare those grieving a relative’s passing further hardship, both emotional and financial.

He said when planning for death, property owners need to consider two main factors. The first is how to structure their estate so they don’t directly own anything when they die.

This is usually only appropriate for those with large estates and minor dependents, or businesspeople who risk having their assets attached to repay creditors, but may not be the best tax planning advice for most consumers.

The second concern is their marital status. Are they single, married in community of property, or married out of community of property, either with or without accrual?

He said each marriage model will affect the distribution of an estate differently.

Sentinel Homes said any decision a property holder makes in this regard should be guided by advice from a professionally qualified financial and estate advisor. 

The alternative home financier said without a will, intestate rules apply to the deceased estate, as prescribed by the Intestate Succession Act 81 of 1987. It said these rules determine which surviving relatives will inherit what portion of the estate, from the surviving spouse and descendants down to distant blood relatives.

The company said the Act’s complex requirements could result in, for example, a spouse losing their family home to ensure they and each child receives an equal inheritance.

So, Kriek said, for anyone having assets such as homes or other fixed property and especially those property owners who have dependents, it is always best to have a will professionally drawn up to make sure assets will be distributed in a manner desired by the property owner.

“Again, the marriage model will affect how the will should be structured,” says Kriek. “Estate planning with a licensed and regulated professional is also likely to include investments and insurance, proper planning of which remains essential.”

The MD said that avoiding direct property ownership while still enjoying the benefit of owning property can be accomplished through the use of a trust or company. However, he said the cost of these vehicles makes them best suited to more affluent people who have larger estates and minor dependents, or entrepreneurs.

He said if property is transferred to or bought through one of these entities, the entity owns the asset. So, dying is of no consequence if one’s dependents are the ultimate beneficial owners of the entity, such as through being beneficiaries of a trust.

The property held by a trust or company rather than in a person’s own name will not be subject to estate tax or capital gains tax at death, and typically cannot be attached by the deceased’s creditors.

Only income that is earned through that property is taxed at a rate prescribed for the specific type of entity, in addition to capital gains tax if the entity elects to sell the property concerned.

“Which structure is best suited to an individual’s needs must be determined with the help of a trusted estate planner or financial manager,” Kriek said.

“Do not assume that the more complicated structure, using entities such as trusts and companies, is 'better' and therefore the most appropriate one.”

Sentinel Homes said that unfortunately, structuring cannot save a property that surviving family members are unable to afford, whether it is bond repayments, rates or levies, trust administration fees, corporate accounting fees, or other expenses.

It said this could happen if a surviving spouse does not work and cannot raise the required finances to settle existing debt against the family home or other property.

The company said an estate might be able to cover its own costs, for example, where income is derived from rental properties or the entity receives cash bequests from the deceased person. Otherwise, a will, trust or company should be backed by some form of insurance that ensures funds are available after the owner’s death.

“By following this rough guide and using a properly qualified and licensed financial planner, you will allow your loved ones to continue enjoying the life you worked so hard to provide them with,” Kriek said.

According to the Department of Justice and Constitutional Development’s website, if one dies without leaving a valid will, their estate will devolve in terms of the rules of intestate succession, as stipulated in the provisions of the Intestate Succession Act (Act 81 of 1987).

In case of a marriage in community of property, one half of the estate belongs to the surviving spouse and, although it forms part of the joint estate, will not devolve according to the rules of intestate succession.

According to the department, all deceased estates will be distributed in terms of the Intestate Succession Act.

This means that the beneficiaries in order of preference are the spouse of the deceased, descendants of the deceased, the parents of the deceased (only if the deceased died without a surviving spouse or descendants, the siblings of the deceased (only if one or both parents are predeceased).

The department also says that the Intestate Succession Act should be read in such a way that it can accommodate cases where the deceased was a husband in polygamous customary union when the deceased left only spouses and no descendants, the wives will inherit the estate in equal shares.

When the deceased left spouses and descendants, the spouses and descendants will inherit the estate in equal shares, but each wife should inherit at least R250 000. 

When the estate is not large enough to allow each wife to inherit R250 000, the spouses will inherit the estate in equal shares while the descendants will not receive anything.

After the decision, deceased estates will all be administered in terms of the Administration of Estates Act. [Act 66 of 196 (as amended)].

This implies the following changes to current practice: the magistrates will no longer supervise and administer deceased estates; only the Master of the High Court will do so.

The Master of the High Court does not have the power to administer estates on behalf of beneficiaries. The Master will appoint a suitable person to administer the estate.

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