Monthly Archives: August 2016

Managing disputes over a deceased relative’s estate

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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 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, they 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:

  1. Arranging provisional payments for the family’s immediate needs.
  2. Opening a bank account for the estate and depositing the estates money in it.
  3. 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 will 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 a 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 would 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)

The link between CGT and Income Tax

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CM_08_A3The name “Capital Gains Tax” (CGT) can create the impression that CGT stands on its own as a separate tax from the rest of the taxes but this is not the case. CGT forms part of the Income Tax system and capital gains and capital losses must be declared in the annual Income Tax return of a taxpayer.

If a taxpayer is not registered for Income Tax

If a natural person is not registered for Income Tax and his/her taxable income consists only of a taxable capital gain or a deductible capital loss, the amount of which is more than R30 000, the person will have to register as a taxpayer with SARS. In addition, the new taxpayer will have to submit an Income Tax return for that tax year.

If a taxpayer is already registered for Income Tax, they don’t have to register for CGT separately as CGT forms part of Income Tax.

Tax treatment of capital gains in three steps

The first step is to calculate the capital gain according to the provisions of the Income Tax Act, 58 of 1962. A discussion of the formulas to calculate the amount of capital gains and capital losses fall outside the scope of this article.

The second step is to reduce the capital gain with any exclusions which might be applicable. Please contact your tax advisor to find out if you qualify for any CGT exclusions.

Step three will be to include the taxable amount of the capital gain in the taxable income of the taxpayer. There are different inclusion rates for the following categories of taxpayers:

  • For natural persons, deceased or insolvent estates, and special trusts the taxable inclusion rate is 33,3% (increased to 40% from 1 March 2016). In other words, 33,3% of the aggregate capital gain will be added to the taxable income of the taxpayer and the taxpayer will have to pay more income tax.
  • Companies, close corporations and trusts (excluding special trusts) have a taxable inclusion rate of 66,6% (increased to 80% effective from 1 March 2016). This means that 66,6% of the aggregate capital gain will be added to the taxable income and taxed at the normal income tax rate of the taxpayer.

As a taxable capital gain will be added to the taxable income of a taxpayer, it will have an effect on certain deductions in the income tax calculation while other deductions will not be affected.

The following tax deductions for individual taxpayers will not be affected by the inclusion of a taxable capital gain in the taxable income of the taxpayer:

  • Pension fund contributions
  • Retirement annuity fund contributions

Tax deductions that will be affected by the inclusion of a taxable capital gain in an income tax calculation are the following:

  • Medical expenses (only applicable to individual taxpayers)

If a taxpayer’s medical deduction is subject to the 7,5% of taxable income-limitation, the deductible amount for medical expenses will become smaller if a taxable capital gain is included in the taxable income.

  • Section 18A donations

A taxpayer can include the taxable capital gain in taxable income before calculating the 10%-limit for the tax deduction of Section 18A donations. The allowable tax deduction of these donations will then increase by 10% of the amount of the taxable capital gain.

Tax treatment of capital losses

Capital losses may not be deducted from taxable income but must be set off against current or future capital gains. If there is insufficient capital gains to offset the full capital loss in the current tax year, the unclaimed balance of the capital loss is carried forward to the next tax year(s) until it has been fully offset against future capital gains.

As a capital gain/loss can have a material effect on a taxpayer’s liability for Income Tax, it is crucial to calculate these amounts accurately and take advantage of all the exclusions that might be applicable to the taxpayer. For further assistance regarding any aspect of capital gains/losses, please contact your tax advisor.

Reference List:

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.

Why is the transfer of my property taking so long?

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CM_08_A2After signing a deed of sale, the purchasers often want to move into the property with great excitement and as soon as possible. When they are informed of the process involved prior to the property being transferred this may place a damper on their excitement. Coupled with this there may even be delays in the transaction.

 

In order to avoid unnecessary frustration it is vital that parties to the transaction understand the processes involved and that delays are sometimes inevitable. Besides possible delays there are a number of processes that need to be followed before a house can be registered in a purchaser’s name.

At the outset, it must be determined if the deed of sale is valid and binding between the parties. If not, a valid and binding contract will first have to be concluded between the parties.

The deed of sale will normally be the starting point in a transaction for a conveyancer who has been instructed to attend to the transfer. This conveyancer is also known as the transferring attorney and is normally the main link between the other attorneys involved the transfer transaction. Other attorneys involved are normally a bond attorney and/or bond cancellation attorney.

A major role of the transferring attorney is informing any mortgagees, for example banks, about the transfer so that any notice periods for the cancellation of bonds can start running. The notice period is normally up to 90 days. If the bond is cancelled before then, there could be penalties payable. The transfer may therefore be delayed as a result of the notice period.

If the purchaser will be registering a new mortgage bond to finance the transaction, a bond attorney will be appointed. Since the transferring attorney will not normally be aware of whom the instructed bond attorney is, the bank will usually inform the bond attorney of who is attending to the transfer. The bond attorney will then first make contact with the transferring attorney.

Obtaining the various certificates, receipts and consents applicable to the transaction in question also takes time. Examples of these are rates clearance certificate, transfer duty receipt, homeowners association’s consent to the transfer, levy clearance certificate, electrical compliance certificate and plumbing certificate.

The transfer duty receipt is obtained from the Receiver of Revenue and should be lodged with all property transactions, even if no transfer duty is payable to the Receiver of Revenue. During 2013 it took approximately seven working days from the submission of the request, until the transfer duty receipt was issued.

The rates clearance certificate is obtained from the local municipality in the area where the property in question is located. The transferring attorney will first request the municipality to inform him of the amount they require in order to issue the certificate. After receipt thereof the amount can be paid and the transferring attorney will then await the issued certificate. The time this takes differs from municipality to municipality. In the City of Cape Town, during 2013, figures were mostly issued on the same day they were requested and the receipt was issued within approximately five working days after payment. This time frame is largely affected by whether or not the municipality works on an electronic system.

If the property is located in an area where a homeowners’ association is established, there will normally be a title deed condition in terms of which the consent of the homeowners’ association must be obtained prior to the transfer. The time it takes for obtaining this certificate differs from one homeowners’ association to the other.

After an inspection by a plumber or electrician it may be found that certain work needs to be carried out before the certificates will be issued. If the work that must be carried out is extensive this can cause major delays with the transaction.

If the property is being sold by an executor of a deceased estate, the consent of the Master of the High Court must first be obtained before the property can be transferred. Major delays can be experienced if the Master of the High Court refuses to give such consent until certain requirements have been met.

Once the transferring attorney is satisfied that all relevant documents are in place he will arrange simultaneous lodgement at the Deeds Office by all attorneys involved in the transaction. It is therefore vital that the bond attorney has by this time obtained the required approval to lodge from the mortgagee and that the bond cancellation attorney has the required consents in place to cancel the existing bond/s on the property.

Once all the documents are lodged at the Deeds Office, an internal process is followed, which has different time frames in the various Deeds Offices. This time frame can also vary in a particular Deeds Office. It is best to enquire from your conveyancer what the Deeds Office time frame is at any given stage.

The list of possible delays in a transaction varies from one transaction to the other and the possibilities are endless. It is advisable to contact your conveyancer for an explanation should you feel that the process is taking too long.

References:

Aktebesorging, UNISA 2004, Department Private Law, Ramwell, Brink & West

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)

Usufruct, Usus and Habitatio: What is the difference?

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Usufruct, usus and habitatio are personal servitudes. These servitudes are sometimes considered as an estate planning tool to reduce estate duty, but testators don’t always realise what this entails and the burden it could place on the heirs.

 

What is a personal servitude?

A personal servitude is always constituted in favour of a particular individual on whom it confers the right to use and enjoy another’s property. This servitude is enforceable against the owner of the property that is burdened with it but cannot be transferred by the personal servitude holder. It may be constituted for a fixed term or be granted until the occurrence of a future event or for the lifetime of the beneficiary, but not beyond his death.

How is a personal servitude constituted?

It is usually constituted by a last will, but can also be created by agreement.

USUFRUCT

A usufruct is a right that entitles a person to have the use and enjoyment of another’s property and to take its fruits without impairing the substance. For instance, the object of a usufruct over a farm will normally extend not only to all buildings but presumably also to livestock, farming equipment and the furniture in the homestead.

The general duties of the usufructuary

The usufructuary is only entitled to the use and enjoyment of the property; he does not acquire ownership of it. The usufructuary may not consume or destroy the property, but he is obliged to preserve its substance. The property must be used in the manner it was intended to be used. A new manner of exploitation is, however, permitted if it is considered to be the sensible thing to do under the circumstances.

Right to fruits

The usufructuary may take, consume or alienate the fruits, whether they are natural, industrial or civil. This means that the usufructuary is entitled to all the products of the land and all profits and revenues derived from the property. The young of animals as well as all products derived from the animals, including milk, wool or eggs become the property of the usufructuary. The usufructuary acquires the ownership of natural and industrial fruits by gathering it or by someone else gathering them in the name of the usufructuary. Growing crops are regarded not as fruits but as part of the soil and must be gathered and separated from the soil first. Fruits not gathered at the expiry of the usufruct do not pass to the successors of the usufructuary. Civil fruits (for example rental income or interest) become the property of the usufructuary when due. On the expiry of the usufruct civil fruits are divided between the now former usufructuary and the owner of the property in proportion to the time for which the usufruct existed.

Repairs and expenses

The usufructuary is bound to maintain the property and to defray the costs of all current repairs necessary to keep it in good order and condition, fair wear and tear excepted. He is also responsible for paying all rates and taxes. Payment of insurance premiums, costs of capital expenditure such as structural reinforcements necessary to prevent a building from falling into ruin and other similar costs, are excluded from his responsibilities.

Improvements

If the usufructuary makes improvements to the property he is not entitled to compensation, though the improvements made can be removed, provided the usufructuary makes good any damage that their removal may cause.

Alienation

A usufructuary may not alienate or encumber the property, but he may dispose of the right to the use and enjoyment of the property and its fruits whether by sale, lease or loan, provided that such arrangement does not exceed the period for which the usufruct has been granted.

Termination

A usufruct is usually created for the lifetime of the usufructuary, but sometimes for a fixed period, terminable on death.

Juristic acts by the owner

The owner may not do anything to prejudice the usufructuary’s rights. The owner may not prevent, hinder or diminish the right of use or enjoyment and may only burden the land held in usufruct with a predial servitude if the written consent of the usufructuary has been obtained. Any further actions by the owner regarding the property, for instance the sale of the property and the registration of a mortgage bond, require the consent of the usufructuary. The owner together with the usufructuary may mortgage the property, or the usufructuary can abandon his preference so that the mortgage is registered free from the usufruct. Most banks prefer the latter.

USUS

A servitude of use or usus resembles a usufruct but the holder’s rights are far more restricted. If the property is movable he may possess and use the property and if the property is immovable he and his family may occupy it. The holder may take the fruits for his and his family’s daily needs. The holder may not sell any fruit, nor may he grant a lease of the property. There are a few exceptions, for example should the house be too large for the holder’s use, he may let a portion of it. The holder’s use must, however, be without detriment to the substance of the property.

HABITATIO

The servitude of habitatio confers on its holder the right to dwell in the house of another, together with his family, without detriment to the substance of the property. The holder may grant a lease or sublease to others.

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)