Your marriage or permanent relationship affects how your assets will be dealt with after your death.
More than simply drafting a will, it is essential to understand how your marital property regime will affect the way your assets will be distributed after your death. Further, if you and your partner are not married, you may not fall within the definition of ‘spouse’ and this could impact on your planned inheritance.
Failure to understand the impact of your marital property regime on death can result in financial problems such as the forced sale of assets, inability to pay taxes and debt, and the estate not being able to provide sufficiently for the surviving spouse.
The definition of spouse
In terms of the Estate Duty Act, the first dying spouse can leave assets to the surviving spouse of up to R3.5 million without incurring Estate Duty. On the death of the second-dying spouse, she can make use of any unused portion of the Estate Duty exemption to offset any Estate Duty that her estate may attract. Although Estate Duty is levied at 20% on the first R30 million and at a rate of 25% above R30 million, the Act provides that the first R3.5 million of your net estate bequeathed to your spouse is exempt.
However, this exemption only applies to partners who fall within the definition of ‘spouse’ which includes people who are in a marriage or customary union and same-gender or heterosexual unions that the Commissioner of SARS recognises as permanent. If you are in a long-term relationship and are unsure whether your fall within the definition of ‘spouse’ it is recommended that you implement a cohabitation agreement, or prepare signed affidavits by both parties that can provide permanence.
In instances where the first-dying spouse has not been adequately provided for the surviving spouse, the surviving spouse is entitled to claim from the deceased estate for maintenance in terms of the Maintenance of Surviving Spouses Act.
The decision as to whether a spouse or partner will receive pension fund benefits of the deceased rests entirely with the trustees of the retirement fund. Distribution of retirement funds in the event of death is governed by the Pension Funds Act which requires that the trustees must identify the deceased member’s dependants and distribute the funds equitably.
In community of property
If you are married in community of property and your spouse passes away, the joint estate is dissolved. This is because there cannot be a joint estate with only one owner. The surviving spouse will have a claim for 50% of the value of the net joint estate. This does not constitute an inheritance and no inheritance tax is payable. The other half of the net estate goes to the heirs of the deceased as named in his will.
The executor is required to settle all debt in the estate, bearing in mind that you are jointly liable for the debt incurred before and during the course of the marriage. Burial costs and estate duty are liabilities that do not fall within the joint estate and are obligations of the deceased. Once all debt has been settled and costs have been paid, the surviving spouse becomes entitled to 50% of the net estate.
Being married in community of property can limit your freedom of testation. When drafting your will, bear in mind that you are only able to bequeath 50% of the joint estate. The other 50% belongs to your spouse. Bear in mind that bank accounts held in the name of the deceased, or joint accounts held by the couple, can be frozen once the bank receives the death notice. Contrary to popular opinion, bank accounts are not automatically frozen upon death. Banks will generally only freeze a bank account once they have received the death certificate.
Once frozen, no funds can be withdrawn and no debit orders will be paid. Bank accounts in the name of the surviving spouse will not be frozen, although the bank is required to provide the account balance to the executor at the date of death. If the couple operates one joint account, the account will be frozen and the surviving spouse will be required to open a new bank account in her name. Once appointed, the executor can apply to the Master to release funds for the maintenance of the surviving spouse.
Out of community of property with the accrual
If you are married out of community of property with the accrual, it is important to note that the accrual contract continues to apply after the death of your spouse. An ante-nuptial contract (ANC) sets out the terms of the possession of assets, how future earnings will be treated, and how assets will be divided if the marriage is dissolved. In the event of your spouse’s death, your financial planner should determine whether any assets were excluded from the estate to which the accrual applies. In the event of the death of one spouse, the increase in real value of the estate of both spouses will be added up and divided by two.
Because the ANC continues to apply after the death of your spouse, the surviving spouse may have an accrual claim against the deceased’s estate. If the accrual of the surviving spouse’s estate is less than that of the deceased’s, the surviving spouse will need to lodge a claim with the executor for her share. Similarly, if the deceased’s estate is less than that of the surviving spouse, the executor will need to claim against the surviving spouse’s estate for his share. If the first-dying spouse bequeaths certain assets to another party, it could result in insufficient assets in the estate to meet the accrual claim of the surviving spouse. Failure of the surviving spouse to claim her accrual amounts to a donation and this can have donations tax implications.
While life policies can be used to provide liquidity in a deceased estate, it is also important to bear in mind that a policy that pays into the estate of the first-dying spouse can increase the accrual claim of the surviving spouse and this should be factored in by your financial planner.
Out of community of property excluding the accrual
A marriage out of community of property which excludes the accrual is the most simplistic marital regime when it comes to winding up the estate. As there is no accrual, each party is able to distribute their assets according to their wishes. If you are married out of community of property excluding the accrual, then only your spouse’s estate will be wound up.
If your deceased spouse owes you money, you are entitled to lodge a claim against his estate as in the case of any other creditor. Further, if your spouse has not provided for you adequately, you may be entitled to a claim under the Maintenance of Surviving Spouses Act.