When a person, who owns immovable property registered in his name at the date of his death, passes away, a number of scenarios may arise, as follows:

WHERE A PERSON DIES LEAVING A VALID LAST WILL AND TESTAMENT:

• A valid Last Will and Testament, in most cases, nominates an Executor to administer the estate (or a Master’s Representative where the estate value is R250 000 or less).
• The immovable property will be transferred to the heir/s or beneficiaries as per the provisions of the Last Will and Testament.
• If the property is subject to a mortgage bond, and where no mention is made of a bond on the property, the Executor is required to settle the bond from the estate residue, and only then is he able to transfer the property to the heirs or beneficiaries, simultaneously with the cancellation of the bond.
• To protect any beneficiaries or heirs who are minors (under 18 years old), a testator may wish to set up a testamentary trust in his Last Will and Testament.
• Where agricultural property is bequeathed, the testator needs to be aware of Section 3 of the Subdivision of Agricultural Land Act (70 of 1970), which prevents the subdivision of agricultural land, and such land being registered in undivided shares in more than one person’s name. This is especially relevant when the testator is considering bequeathing agricultural land to more than one beneficiary.
• If a testator bequeaths his immovable property to a number of heirs in equal shares (or otherwise), this may give rise to impracticalities due to the indivisibility of the bequest, and may give rise to a redistribution agreement being drawn up between the heirs.
• To save costs and time, to protect beneficiaries/heirs, and ensure that a person’s wishes are carried out, it is imperative that he executes a valid Last Will and Testament.

NO VALID LAST WILL AND TESTAMENT (INTESTATE):

Where a person dies without leaving a valid Last Will and Testament:

• The estate is intestate, and the Master of the High Court will appoint an Executor or Master’s Representative after receiving nominations from interested parties. A parent, surviving spouse or child of the testator may be appointed without having to provide security for the proper performance of his duties. In all other cases, the  Executor will need to provide a bond of security to the Master – either issued by the Legal Practice Council or a financial institution.
• The immovable property will be transferred to the heir/s or beneficiaries in terms of the Intestate Succession Act (81 of 1987).

THE EXECUTOR’S DUTIES IN RELATION TO THE IMMOVABLE PROPERTY:

• The Executor is the only person who is lawfully authorised and empowered to deal with the assets of the deceased (including the immovable property), and until such time as he is appointed, no-one can act on behalf of the deceased estate.
• All Powers of Attorney executed by the deceased person before he died, will automatically fall away on his death, and this would include a Power of Attorney to register a transfer.
• The transfer of immovable property which was sold prior to the deceased’s death, may proceed, however the Executor will be required to sign new documents, including a new Power of Attorney to register the transfer of the property.
• Once Letters of Executorship have been issued, the Executor may, in terms of the provisions of the Last Will and Testament or in terms of intestate succession (whichever is applicable), either pass transfer of the immovable property to the heir/s, or sell the immovable property to a third-party purchaser, provided consent is obtained from the heirs.

TRANSFER OF IMMOVABLE PROPERTY TO HEIRS:

• The transfer of the property to the heir/s cannot be registered before the Liquidation and Distribution Account has lain for inspection without objection, in terms of Section 35 of the Administration of Estates Act (66 of 1965).
• A Conveyancing Attorney will need to be appointed by the Executor, who will need to certify, in terms of Section 42 (1) of the Administration of Estates Act, that the transfer is in terms of the Liquidation and Distribution Account which has lain for inspection without objection, and that the transfer is in accordance with the Liquidation and Distribution Account.
• A Master’s certified copy of the Last Will and Testament and next-of-kin-affidavit (in the case of an intestate estate) will need to be lodged at the Deeds Office with the other documents for registration.
• There will be no transfer duty payable.
• The deceased estate will bear the conveyancing costs including disbursements such as the Deeds Office fee.
• The deceased estate will also need to bear the cost of obtaining rates and levy clearance certificates – valid until after the anticipated date of registration of the immovable property.
• If the gross value of the estate is R250 000 or less, the Master of the High Court may, at his discretion, direct that the estate is wound up as a Section 18(3) estate, and will issue his written directions to the person charged with the duties (Master’s Representative) in terms of which he is ordered to take control of the estate assets, pay the liabilities and transfer ownership of the residue to the beneficiaries. The remaining provisions of the Administration of Estates Act regarding the administration of the estate are not applicable. A Liquidation and Distribution Account does not need to be drawn up, there is no requirement for advertisements or a Section 42(1) certificate from the Conveyancer.

TRANSFER OF IMMOVABLE PROPERTY TO A SURVIVING SPOUSE:

• Where a deceased person was married out of community of property, there may be specific provisions in his antenuptial contract in regard to his immovable property, which may override his wishes in terms of his Last Will and Testament.
• Where a deceased person was married in community of property one half of his estate is owned by his surviving spouse as a consequence of the marriage. The other half of the immovable property will devolve either in terms of the deceased’s Last Will and Testament or according to the rules of intestate succession (where applicable).
• If the deceased bequeathed his immovable property to his surviving spouse (either by way of Last Will and Testament or by intestate succession), the following taxation consequences are applicable:
  • Estate duty – There is no estate duty payable on all property accruing to a surviving spouse [Section 4q of the Estate Duty Act (45 of 1955)].
  • Transfer duty: There is no transfer duty payable.
  • Capital Gains Tax (CGT) consequences: are discussed on page 46.

SALE OF THE PROPERTY BY EXECUTOR TO A THIRD-PARTY PURCHASER

• The Executor can cause the immovable property in the estate to be marketed and sold, before the Liquidation and Distribution Account has lain for inspection, where:
  • The Executor deems it beneficial to do so (for liquidity in the estate).
  • The deceased has specifically instructed that the property be sold in his Last Will and Testament.
  • The heirs or the beneficiary/s wish the property to be sold, or have entered into a redistribution agreement to this effect, and the heirs have consented to the sale and there is a clause in the agreement of sale stating that the sale is subject to the approval of the Master of the High Court.
• The Executor would sign the sale agreement in his capacity as such and in due course would sign the transfer documents, also in such capacity.
• The Conveyancer will need to obtain a Section 42(2) endorsement from the Master on the original Power of Attorney to pass transfer, to confirm the Master’s approval.
• The costs of the transfer, including transfer duty, would be payable by the Purchaser.
• The deceased estate would carry the costs of obtaining rates and levy clearance
  certificates valid until after registration, and of cancelling any bonds registered over the property.
• Where the Executor sells the immovable property during the administration of the estate to a third-party purchaser, the value of such property may increase or decrease between the date of death and the date of sale, which may have capital gains tax implications for the estate.
• These CGT implications are discussed in more detail below.

CAPITAL GAINS TAX, DEATH AND IMMOVABLE PROPERTY

THE DECEASED PERSON

• At death, the deceased person is deemed to have disposed of all his assets, including immovable property, to his estate, at an amount received or accrued equal to the market value at the time of death. Capital gains tax is activated through this deemed disposal.
• The R300,000 annual exclusion granted in the year of death of the individual will apply to these disposals made to the deceased estate.
• The exclusion for primary residence may apply (R2 million).
• The CGT inclusion rate of 40% applies to the deceased person, and this amount will attract tax at the deceased’s marginal rate of income tax.
• An exclusion to this provision is provided in Section 9HA(2) read with Section 25(4) of the Income Tax Act (58 of 1962), which provides that where assets (including immovable property) are disposed of to a surviving spouse (by means of either intestate or testate succession, or by way of a redistribution agreement between the heirs or legatees), the liability for capital gains tax for the deceased person is postponed until the death of the surviving spouse or until such time as the surviving spouse disposes of it him or herself. This is known as “roll over relief” and is similar to the exemption in Section 4q of the Estate Duty Act, where the estate duty liability in respect of assets inherited by a surviving spouse is postponed.

SALE OF IMMOVABLE PROPERTY BY THE EXECUTOR AND CGT

• Where the Executor sells the immovable property during the administration of the estate to a third-party purchaser, the value of such property may increase or decrease between the date of death of the deceased and the date of sale of the property, which may have a capital gains tax implication for the estate.
• The proceeds would equal the selling price of the property, less the base cost equal to the market value of the property at date of death, which will result in either a capital gain or loss.
• Capital gains tax is levied in a deceased estate at the same rate as for individuals.
• The deceased estate will be entitled to the same exemptions and exclusions as would have been available to the deceased before his death (the annual exclusion of R40 000), however it will not be entitled to any assessed capital loss that might have remained in the estate of the deceased, or to the R300 000 annual exclusion, nor to the primary residence exclusion of R2 million. Deceased estates are not provisional taxpayers.

TRANSFER OF IMMOVABLE PROPERTY TO THE HEIRS/LEGATEES AND CGT

• In this case, the calculation for CGT will reflect the proceeds as equal to the market value of the property at date of death of the deceased, less the base cost equal to the market value of the property at date of death, resulting in a tax-neutral transfer of assets from the deceased estate to heirs or legatees.
• Under most circumstances, although capital gains tax may be paid at the death of the deceased (in terms of the deceased person’s final income tax return, as described above), no further capital gains tax will be payable when an heir or legatee receives the property from the deceased estate.
• Capital gains tax will only arise again when the heir disposes of the property at a later stage, where the calculation will reflect the proceeds as equal to the selling price of the property, and the base cost equal to the market value of the property at the date of death of the deceased.

TRANSFER OF IMMOVABLE PROPERTY TO THE SURVIVING SPOUSE AND CGT

• All assets that pass to a surviving spouse (either by way of a Last Will and Testament, or by intestate succession, or by way of a redistribution agreement between the heirs/ legatees) are subject to “roll over” CGT relief.
• This means that capital gains tax is postponed until the surviving spouse disposes of the assets during his or her lifetime or at death- the capital gain is then determined from the date of acquisition by the first dying spouse and the base cost at such disposal is the base cost as incurred by the first dying spouse.
• The implication is that the original base cost is rolled over to the surviving spouse, and when he or she finally disposes of the property, capital gains tax will be levied on the difference between the proceeds and the original base cost.