Take care when you leave an immovable asset to beneficiaries in your will – it could easily turn out to be a costly burden rather than a blessing
WORDS: HELÉNE MEISSENHEIMER – IMAGES: SUPPLIED
There are more ways than one to bequeath your property to your beneficiaries. Attorney Eduan Milner explains the pros and cons of three popular options.
Leave it in your will
The most common method is to bequeath your immovable property to one or more beneficiaries in your will. This has several advantages:
1: You can make the bequest subject to certain conditions, like directing the person who receives the property to make a payment to another beneficiary, or that somebody else should have a limited right over the property (e.g. usufruct).
2: Your beneficiaries don’t pay transfer duty on any immovable property that you leave them whereas, depending on the value of the property, transfer duty could apply if you transfer the property to another while you’re still alive.
There are, however, a couple of disadvantages:
1: The property will form part of your estate and will attract estate duty at a rate of 20% if the net value of your estate exceeds R3,5m.
2: The conveyancing costs will have to be paid from the estate. If there isn’t sufficient cash in the estate, the beneficiaries will have to make up the shortfall, or the executor will have to sell assets to raise the cash. The conveyancing costs are calculated on the value of the property disclosed in the liquidation and distribution account and are the same as with any other property transfer, except for the transfer duty exemption mentioned above.
3: The ownership transfer can only be registered after the estate has been finalised and this could take a year or more, depending on the complexity of the estate.
Direct to sell it
Sometimes the executor is directed to sell some or all of the immovable property in the estate and then distribute the proceeds among the beneficiaries as stipulated in the will.
This method works well where it’s either impractical for your heirs to take ownership of the property, or where ownership could cause animosity, or hardship for the beneficiary.
1: The executor can sell the property as soon as possible and doesn’t have to wait for the estate to be finalised before transferring the property. The Master has to give consent in terms of section 42(2) of the Administration of Estates Act and before granting it, the Master will require the consent of the beneficiaries. After transfer is registered, the proceeds will be deposited into the estate account.
2: Liquidating the assets in the estate provides cash to the estate, thereby lessening the risk that beneficiaries will have to contribute to any shortfall.
3: The property buyer – and not the estate – pays the conveyancing costs.
However, there are also disadvantages:
1: The proceeds of the sale form part of your estate and will attract estate duty if your net estate exceeds R3,5m.
2: Although the transfer of ownership can be registered as soon as possible, the beneficiaries can only receive their share once the estate has been finalised.
3: The property market may be in a down turn, which means a lower price will have to be accepted, but if the property is transferred to a beneficiary, he or she can sell it when the property market improves.
Put it in a trust
You could also sell or donate your property to a trust (inter vivos trust), which have the following advantages:
1: You’re taking the asset out of your estate, thereby reducing the risk of attracting estate duty.
2: You’re protecting the asset against any creditors’ claims or attachments as it isn’t your asset anymore.
3: The property can remain in the name of the trust, depending on the objects and purpose of the trust.
There are, however, a couple of things to consider:
1: Conveyancing costs will be paid on the transfer of the property – this will include transfer duty calculated on the value of the property as disclosed in the agreement.
2: Sars will require two estate agents’ valuations and use this value to determine either transfer duty (if it’s a sale) or donations tax (if it’s a donation).
3: Be very careful in drafting the agreement relating to the transfer of the property as it could have substantial tax implications.
4: There are costs involved with creating a trust and with the running of it.
5: There will be capital gains tax implications should the trust decide to sell the property.