By Karen McMurray, Wills Product Manager
Pete and Kate eloped 10 years ago but could not afford to draft an ante-nuptial contract at the time, meaning that they were married in community of property. This is the default marital regime in South Africa as no marriage contract is registered before marriage. All assets and liabilities held by both spouses, before and during the marriage, fall into the joint estate. Each spouse owns an undivided one-half share of the joint estate, which means that they can only give instructions in their Will regarding their share of the joint estate.
During 2021, before his death, Pete was retrenched when the company he worked for closed its doors. He had accumulated substantial credit card debt trying to make ends meet and had also taken out a personal loan. What Kate had not realised is that when couples are married in community of property, the entire joint estate is wound up upon the death of the first-dying spouse. The estate can only be distributed after all liabilities (for both spouses) and administration costs have been settled.
In addition, executor fees are charged on the value of the joint estate and not just the portion belonging to the deceased. One of the executor's first tasks was to settle Pete's personal loan and credit card debt. Since both Kate and Pete's bank savings were part of the deceased estate, Kate also had to arrange for alternative funds during the administration of the estate, as their bank account was frozen as a result of their communal estate.
Although Kate had an indisputable claim of 50%of the net value of the joint estate, the remaining. 50% was to be distributed in accordance with Pete's Will. This means that the surviving spouse is not automatically entitled to the entire estate as the deceased spouse may have bequeath their share of the estate to a third-party. In Pete's case, he left his 50% share of their fixed property to his sister and the remainder of his estate to Kate. Kate found herself in the precarious position where she only owned 50% of their home and should she wants to sell the property to survive financially, she would first need to convince her sister-in-law to agree.
Something else that Kate did not anticipate were the tax implications of Pete's wishes which further reduced the liquidity in the estate. Over and above the possible impracticalities that may arise when leaving assets to third-party beneficiaries (children, relatives, trusts, etc.), it is important to remember that the deceased estate may also become liable for capital gains tax. (CGT) and possibly estate duty. Assets left to the surviving spouse allows for rollover relief in terms of CGT. The surviving spouse inherits the asset at the original base cost value and no CGT is payable in the estate of the first dying. In relation to estate duty, section 4(q) of the Estate Duty Act 45 of1955, stipulates that no estate duty is payable on assets bequeathed to the surviving spouse. This deduction includes the proceeds of domestic life insurance paid to the surviving spouse. On the death of the second-dying spouse, the estate will be liable for CGT and estate duty.
Leaving a legacy for your family should be well planned and not be left to chance. A carefully structured estate plan incorporating a valid and up-to-date Will, is one of the greatest gifts you can give your loved ones. Community of property marriages introduce a variety of peculiarities to estate planning. It's advisable that couples speak to their Private or Financial Advisor to ensure that the wealth they have worked hard to create during their lifetime is protected.
FNB Fiduciary (Pty) Limited Registration Number 1986/003488/07- A subsidiary within the FirstRand Group of Companies. An Authorised Financial Services Provider.
