Bequeathing Immoveable Property : What You Should Know

No one wants to burden their loved ones with serious cash shortfalls during the winding up of their deceased estate. So it is important to remember that having sufficient liquidity in your estate is crucial for the winding up process

One may elect to nominate a beneficiary to inherit immovable property in a will. Upon ones passing it will be the duty of the appointed Executor of the estate to ensure that the immovable property is transferred into the nominated beneficiary’s name. If multiple beneficiaries have been nominated, upon transfer the beneficiaries would become co-owners of the property.

Transfer Duty

When immovable property is transferred to beneficiaries by way of inheritance, there will be no liability on the beneficiaries to pay Transfer Duty. The Conveyancing Attorney appointed to facilitate the transfer will be required to apply to the South African Revenue Service (‘SARS’) for a Transfer Duty Exemption Certificate. It is important to note that the deceased’s estate will be responsible for the conveyancing costs, fees of the Deeds Office and the rates and levy clearance certificates.

Transfer of a Property in a Deceased Estate – the Process

The executor will appoint a Conveyancing Attorney to attend to the transfer of the immovable property from the deceased’s estate to any beneficiaries. In terms of section 35 of the Administration of Estates Act, the Conveyancing Attorney may only attend to the transfer of the immoveable property once the Master of the High Court has accepted the will of the deceased, accepted and approved the Redistribution Agreement (if applicable), approved the First and Final Liquidation and Distribution Account (‘L&D account’) and confirmed that it has not received any objections against the L&D account after it was advertised and been laid open for inspection to the general public.

The transfer process is similar to a normal transfer however, there are additional documents that will need to be lodged at the Deeds Office. The executor will be requested to sign the transfer documents on behalf of the deceased’s estate and the beneficiaries will be requested to sign their documents. The Conveyancer will also request the additional documents from the executor or may obtain these directly from the Master’s Office where appropriate. A rates clearance certificate and levy clearance certificate from the body corporate or homeowner’s association will need to be obtained.

Immovable Property that is Bonded

In terms of section 35 and 41 of the Administration of Estates Act, if there’s a mortgage bond registered against the property, the bond will have to be settled by the deceased’s estate before any transfer may take place. If there is an appropriate level of bond cover in place, the Executor will settle the bond using the proceeds of the life cover and bond cancellation instructions will be issued, thereby allowing the beneficiaries to take ownership of an unencumbered asset. Should there be no bond cover in place, the Executor may need to use cash in the estate or liquidate other assets in the estate in order to settle the bond. Once the bond is settled it will be cancelled simultaneously together with the transfer.

If a beneficiary is intent on taking ownership of the property, he can apply to take over the existing home loan, although he will need to meet the bank’s qualifying criteria in order to do so. If your beneficiary is not in a position to take over the home loan or chooses not to, your executor may sell the property out of the estate.

Applicable Tax - Estate Duty

A beneficiary does not have to pay tax on what is inherited as it does not form part of their gross income. However, the estate of a deceased may be subject to a tax called, Estate Duty. Estate duty is levied on the worldwide property and deemed property of a natural person who is ordinarily a resident in South Africa and on South African property of non-residents. Section 4 of the Estate Duty Act, 1955 (‘Estate Duty Act’) provides that Estate duty is the tax payable on all estates with a net worth in excess of R3,500,000. Currently, the tax rate in South Africa for estate duty is 20% of properties worth up to R30 million and is 25% of properties worth more than this. Various deductions under section 4 of the Estate Duty Act, 1955 are allowed to determine the net value of the estate. The tax is paid on the estate before it goes to any beneficiaries.

When one is planning their estate it important to ensure there is enough cash available in the estate to cover any applicable costs during the winding up of the estate. Cash will be used to cover costs such as settling the bond (if applicable), paying council taxes, income tax, capital gains tax, estate duty, other debts, and the costs of administration. An example of further costs is valuation fees for any immovable property. The Executor will settle all debts, costs and taxes first from the available cash in the estate, followed by bequests, with the residue going to the beneficiaries inheriting the residue of the estate in accordance with the will.

When there is insufficient cash available for the above, the Executor may sell the deceased’s assets to raise the cash required. The only way to avoid this is if the beneficiaries are willing to pay cash into the estate to cover any applicable costs.

This article is for general information purposes 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. Contact us for specific and detailed advice.