Picture: Mariette Breytenbach, estate agent Jawitz Properties; Harshna Munglee, attorney H. Mung-Lee and Associates
Many people want to leave behind a beloved family home to their spouse and heirs. However, if homeowners are not careful, their legacy might end up being more of a costly burden than a blessing.
It is important to remember that bequeathing a fixed property in a will can be a lengthy and complicated process and legal advice should be sought in this regard. However, being the beneficiary of fixed property brings with it several pros and cons to consider, says Mariette Breytenbach, a recent Pinnacle Club award winner at Jawitz Properties.
Financial pros and cons
There are financial implications to consider with a property inheritance. There might be outstanding debts on the property and beneficiaries need to consider the estate taxes and other financial implications associated with the inheritance, explains Breytenbach. Once the property is officially transferred to the beneficiary, other expenses related to maintenance, possible renovations and monthly rates and taxes need to be taken into account.
“However, on the positive side, being bequeathed a property is a huge boost to an individual or family’s private wealth. In terms of wealth creation, it is an opportunity to establish a financial future that has long-term benefits and offers a degree of security and financial protection,” she adds.
Property in South Africa has a long history of appreciating in value, so keeping the asset for the medium to long-term will act as a wealth creator. In addition, renting out the inherited house or apartment will provide more passive income and the increase in the value of the property adds monetary value to grow the owner’s asset portfolio. Additional tax deductions can also be applied if the property is used for the generation of income.
“The intricacies of bequeathing or inheriting fixed property are complicated and there are many factors to consider. I would always suggest discussing the matter of bequeathing a property with the potential beneficiary prior to them finding out about it at the will reading so that the various expenses and legalities can be carefully considered. Nonetheless, inheriting a legacy property is an opportunity for wealth creation and a way in which to solidify wealth across generations, whilst retaining and celebrating history, culture and family ties,” concludes Breytenbach.
A valid will is critical
It is always advisable that as soon as one becomes a property owner, that they make a will. So says attorney and human rights activist Harshna Munglee. “Even more so in today’s unprecedented times as Covid-19 proliferates, life has become even more unpredictable,” she adds. The will sets out what must happen with the estate of the deceased.
According to Munglee, the consequence of not leaving a will is that the estate of the deceased (which consists of movable and immovable property) will devolve according to the laws of intestate, which means that a person/s who have not been elected by the person who passed on will inherit their assets. “It is important that a will complies with the formalities as laid down in the Wills Act to be declared valid and executable, and for this reason, it is advisable that a will be drafted by a professional. A will is one of the most important documents that you will ever draft in your lifetime. It is meant to reflect your intention and the future of your estate after death. It is imperative that you plan correctly to ensure that your heirs will not be disadvantaged after your death,” she said.
If you are married in community of property, your spouse automatically owns the half share of the property. In terms of your will, you will only be able to bequeath your half share of the property. Should you leave your property to the surviving spouses, the transfer of your half share is known as a section 45 transfer, and the cost is lower.
Value of the estate
Before transfer of property can take place to the heirs, the estate must be wound-up. The executors fee for winding-up of a deceased estate is 3,5% of the value of the estate. Once the estate has been wound-up, transfer of the property to the heirs can take place. A conveyancer will draw-up a proforma, which sets out the cost of the transfer of the property. The cost will vary, as it depends on the nature of the property (residential or commercial) and the value of the property and whether there is a bond on the property or not.
The value of the property will determine the various parties involved when it comes to the winding-up of the estate and the transfer of property. These include, the master of the high court, municipality, South African revenue services, banks, attorneys, conveyancers, bond attorneys, deeds office, to name a few.
The value of the estate will determine whether letters of authority or letters of executorship will be issued. Letters of authority are issued when the property value is not more than two hundred and fifty thousand rands, however the property must still be transferred, and a conveyancer needs to be instructed. The only cost that will be saved would be the winding -up of the estate, as you can proceed directly to the master for this.
Options for the heirs
The heirs can sell the property directly from the estate and the proceeds of the sale can go into the estate late banking account. It is from this account that the heirs will be paid their respective shares.
The heirs can do a simultaneous transfer to another family member. An ideal example is when the surviving spouse takes transfer of the property and simultaneously transfers the property to their child.
Depending on what type of trust is in place , a property can be transferred from the trust to the new owner, or the trustees can continue to administer the trust and pay the beneficiaries their share of the income generated from the property if not sold.
If a person wishes to transfer their property whilst still alive, same can be done in terms of a sale agreement or a donation (donation tax needs to be paid which is usually costly and not advisable in a hurry. If there is a transfer of property whilst the owner is alive there is no winding -up of the estate and this saves the heirs from paying the 3.5 % of the executors’ fees once the owner is deceased and will only incur transfer cost and all cost incidental to transfer. To safeguard the owner ,for example the parent who transfers the property to their child whilst still alive, a life usufruct can be included, which prevents the owner, the child in this instance from removing the parent from the property and or selling it. To put it simply, one would not buy a home with the parent inside. This allows the parent the use and enjoyment of their home until their death and the owner, the child does not have to wind up the estate upon their death if there are no other properties and assets.
Other important points to note:
If you are divorced and you do not change your will, the property will be transferred as per you last will with your ex-spouse.
If you are a widow or widower married in community of property and you have not winded- up the estate after the death of your spouse and upon your death, the heirs will be placed in a financial burden who will have to pay the cost of winding-up the estate twice and attending to transfer twice. ie winding -up and transfer from deceased A to B and the B to the heirs). It is always advisable to wind-up the estate and transfer the property as soon as it is reasonably possible to do so after the death of a loved one.
Delays vary so it could be anything from the client not having funds to proceed with the winding-up of the estate and or the transfer of the property. Delays may occur on the side of master’s office or the municipality for a rates clearance certificate or the deeds office, the attorney, banks, sars etc.
Normally transfers can take about eight weeks or eight months. Winding-up of an estate can take eight months or even eight years. Each matter depends on various factors such as financial resources, arrears, backlogs, family politics, no will, missing documents, outstanding taxes, commercial or residential property to mention a few.