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David Thomson | Protected inheritances - keeping it in the family

David Thomson | Protected inheritances - keeping it in the family
01-02-24 / David Thomson

David Thomson | Protected inheritances - keeping it in the family

It’s that time of year, when we are urged to make resolutions that we often don’t fulfil. To be fair, we have the best intentions and even achieving one goal is progress.

Interestingly, this year, almost half of the world’s population will go to the polls, while we have our local elections. A good resolution would be to register as a voter.

Resolving to make a last will and testament (or revising your current will) and ensuring your estate fees are covered, is also a good thing to do and is not overly complicated. A will can save you a lot of worry and make matters easier for your loved ones when you ultimately pass away.

There are a few things that are worth considering when it comes to estate planning. The concept of “protected inheritances” is a prime example.

Is it possible to exclude someone’s current or future spouse from an inheritance you wish to leave them?

“Inheritances are automatically excluded from the accrual calculation for marriages concluded out of community of property.”

It is common practice to include a stipulation in a will that an asset (or assets) is to be excluded (protected) from the joint estate of a marriage that an heir may enter into. So, for example, a mother might bequeath her farm to daughter on condition that the farm shall not form part of the joint estate of the daughter’s marriage in community of property, whether she is already married or will marry in future.

Remember, by virtue of the Matrimonial Property Act 88/1984, the default regime for all civil marriages in South Africa (including customary marriages) is in community of property, unless the parties to the marriage have concluded a ‘prenup’ (known as an ante-nuptial contract), where the parties agree to marry out of community of property.

The default marriage regime creates a joint undivided estate where profit and loss are shared equally. This means that in the example above, if the daughter doesn’t have a ‘prenup’ and the mother doesn’t stipulate that what she’s bequeathing to her daughter should be excluded from her daughter’s joint estate, the daughter’s husband would be entitled to half the said inheritance on death or divorce, and the farm would be at risk if he were to be declared bankrupt or have a court judgement taken against him.

On the other hand, inheritances are automatically excluded from the accrual calculation for marriages concluded out of community of property.

Note that persons living together in a permanent relationship may by law be regarded as ‘spouses’ for certain purposes, but there is no joint estate created between them – as the law currently stands. Each of them retains their own separate estate.

Case in point

A recent matter reminds us of the importance that the heir remains vigilant about protecting their inheritance. Using the above example, the daughter – married in community of property – who inherited the farm from her mother, sells the farm and sometime later borrows funds from a bank and purchases a townhouse, utilising her entire inheritance (proceeds of farm sale) to part-fund the purchase in the process.

Her husband dies and his executor includes the full value of the townhouse in the joint estate. Daughter (spouse) objects. She is not his sole heir so potentially half of the townhouse will pass to his two children (from a previous marriage) in terms of his will. She argues that all (or at least) part of the value of the townhouse must be excluded from the estate as she used her inheritance monies to purchase it.

The case is referred to attorneys and conveyancers for an opinion.

The title deed to the townhouse makes no reference at all to her mother’s will and simply refers to the purchaser as married in community of property. Unlike other title deeds we have seen, the deed does not record that the property falls outside the joint estate by virtue of inherited funds and the provisions of a will.

Furthermore, her late mother’s will did not say that the proceeds of the disposal of the farm, nor that a property purchased to ‘replace’ the farm, would similarly be excluded from the daughter’s in-community marriage.

Her protection appears to be lost unless she can convince a court otherwise. Prospects of that appear slim. Proper instructions to the conveyancers and proper estate planning by her could have prevented this situation. In hindsight, it might have been better to amplify the exclusion details in the mother’s will or leave the farm to a trust for the daughter.

To conclude, take time to attend to your last will and testament, and, even if you already have a will, make sure it’s valid, up to date and that your family knows where to find it when the time comes.

*David Thomson is Senior Legal Adviser, Sanlam Trust.

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