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Beware the pitfalls of bequeathing property

Nov 3, 2021

When bequeathing property, make sure you have done your estate planning properly.

Beware the pitfalls of bequeathing propertyFor most middle-class families, the primary residence is the most valuable asset in their estate, as retirement funds fall outside of one’s estate.

It is not uncommon for parents to leave the family home to their children. Yet without a properly constructed estate plan and will, this legacy could create a financial nightmare for their loved ones.

Is the property yours to bequeath to your children?

Louis van Vuren, chief executive officer at the Fiduciary Institute of Southern Africa says that when it comes to bequeathing property, the first determining factor will be the matrimonial property regime. In cases where spouses are estranged but not divorced, the matrimonial property regime would still apply.

For example, if the deceased was married in community of property, the surviving spouse effectively owns half the property, and only the half that belonged to the deceased can be bequeathed to the children.

Visit the My Estate section of this website for more articles on estate planning.

If married out of community with accrual, the accrual claim must first be settled and, depending on the circumstances, the house may have to be used to settle the claim.

The property must be transferred into your children’s names

It is important to note that if the property is not sold it must be transferred into the heir’s name. It cannot remain in the name of the deceased.

As a parent, you need to decide whether you leave the property to one child or if it will be shared equally among all children. This is an important conversation to have with your children. What if one child wants to live in the property but another child wants to sell? Are all the children able to pay for the running costs or will it fall to only one child to pick up the bills?

Van Vuren says it is possible to register a residential property in the names of more than one person.

“Shared ownership can work, depending on what is done with the house. If it is rented out, all costs (maintenance, rates etc.) can be deducted and the net income shared between the co-owners. Or the house can be sold and the proceeds shared between the heirs.”

What costs will your children or estate need to pay?

As the property must be transferred, this is done by a conveyancing attorney and there will be costs involved. Can your children afford to pay for these expenses, or have you left enough liquidity/life cover to provide for the costs?

There is also capital gains tax to consider when leaving assets to your children. Although a primary residence is exempt from capital gains tax up to the first R2 million of capital gain, any second property or investment property would attract capital gains tax and possibly estate duty if the estate is worth more than R3.5 million.

It is worth having these conversations as a family, whether you are a parent or an adult child. The last thing you want is for a legacy to create financial complications for those you love.

This article first appeared in City Press.

1 Comment

  1. I am 64 yrs, very stressed about the prospect of retiring soon without having not made sufficient provision for my retirement. Property (primary home) disposal in the event of death is indeed a very crucial component to consider. Thanks for this valuable article.

    Reply

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Maya Fisher-French author of Money Questions Answered

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