Marital Regimes, Estates, and Taxes

Marital Regimes, Estates, and Taxes

South African law generally respects people’s ability to bequeath their belongings in a Will as they deem fit, but marital and other relationship regimes could limit a testator’s ability to make bequests. A number of tax implications come into play. Estate duty is levied at 20 percent of a deceased estate up to R30 million and 25% thereafter. Assets bequeathed by the first dying to the surviving spouse is exempt from estate duty. The first R3.5 million of the net estate (after liabilities) is also exempt from estate duty. If the R3.5 million exemption is not used in full in the first-dying estate, the estate of the second-dying spouse may apply the unused portion. This could result in the estate of the second-dying spouse qualifying for an estate duty exemption of up to R7 million. Death also triggers a disposal for Capital Gains Tax (CGT) purposes, but rollover relief applies to assets transferred to the surviving spouse. The surviving spouse is deemed to have obtained the asset at the same time, cost, and currency, and for use in the same manner as the original owner. The Transfer Duty Act exempts a property transfer as a result of death. Donations between spouses are also exempt from donations tax and estate duty.

The legal implications of the marital property regime when drafting a Will and entering into a marriage is of importance, as it may impact the treatment of the assets. The most important forms of marriage include in community of property, out of community of property (without accrual), and out of community of property (with accrual). For Estate Duty purposes, a spouse is someone who was, at the time of death of the deceased, a partner of the person in a marriage or customary union recognised in South African law, in a union recognised as a marriage in accordance with the tenets of a religion, or in a same-gender or heterosexual union that the Commissioner for the South African Revenue Service (SARS) is satisfied is intended to be permanent.

Marriages in community of property, generally don’t have prior contractual arrangement exists, apart from the marriage. The spouses don’t have two distinct estates, but each have a 50% share in all the assets (acquired before or during the marriage) in the joint estate. Spousal debts incurred in one spouse’s name bind the other and create a joint liability. A spouse cannot bequeath assets of the other without permission, and the surviving spouse has the right to reject (repudiate) the Will after death of the surviving spouse. Donation or inheritances that’s conditional that it should not form part of the joint estate, may also be excluded from the joint estate. On death of a spouse, the surviving spouse will have a claim of 50% against the value of the joint estate, which reduces the deceased estate value by 50%. The deceased estate is divided after all debts are settled (excluding burial costs and estate duty, as these form part of the obligations of the deceased).

Marriages out of community of property without accrual requires an antenuptial contract (ANC) drawn up before the marriage which stipulates the values of each spouse’s estate when getting married. In terms of the ANC, property owned by spouses before marriage remain the property of that spouse. Spouses control their own estates,  although spouses must contribute to household expenses according to their means. Estates relating to marriages out of community of property without accrual is the easiest to administer, as there is no accrual. Estates relating to marriages out of community of property without accrual, or partners in religious unions or domestic partnerships, are dealt with separately and have no debts owed from one to another, unless in case of a maintenance obligation, claimed under the Maintenance of Surviving Spouses Act.

Marriages out of community of property are subject to accrual unless expressly excluded by the ANC. Accrual regulates the growth of each spouse’s estate from date of marriage. If the first dying spouse has a smaller accrual, a claim will be against the surviving spouse, unless the spouse inherits more than the amount of the claim. If the entire estate is bequeathed to someone else, administration is complicated if the surviving spouse cannot settle the claim.  Marriages out of community of property with accrual, excludes inheritances or donations received during the marriage from accrual. Donations from one spouse to the other are excluded from the calculation of each spouse’s accrual, and are not included in the recipient’s growth, whilst the donor’s accrual is reduced by the donation. Spouses married out of community of property can create a joint Will, bequeathing their estates separately to their beneficiaries. The surviving spouse may have an accrual claim against the estate, which will be a liability against the estate that must be deducted before the distributing the estate to the beneficiaries.

Religious marriages do not legally recognise the partners as spouses (except under tax law), no community of property exists, and each party has the right to bequeath assets independently. South African courts have extended the claim under the Maintenance of Surviving Spouses Act to parties in religious marriages.

A person nominated to receive an inheritance, whether testate or intestate, may adiate (accept) or repudiate (renounce) the inheritance. Adiation can be express or implied through the acceptance of the benefit. Repudiation must be express and the Master will request proof. SARS ruled (13th of August 2013) that repudiation does not give rise to donations tax consequences and does not trigger donations tax or a disposal for CGT purposes. The estate duty will generally remain the same unless the repudiation benefitted the surviving spouse, with a resultant reduced estate duty.

Massing occurs when two or more persons combine their estates (or their undivided half‑shares of the joint estate if married in community of property) into a joint estate, and the Will prescribes how the massed estate must be dealt with on the occurrence of a specific event, usually the death of the first dying testator. A beneficiary may adiate or repudiate a benefit. Adiation is the acceptance of a benefit from a deceased estate in terms of testate or intestate succession. Repudiation is the rejection of a benefit to inherit from a deceased estate either under testate or intestate succession. Adiation normally does not require further formalities, although repudiation must be in writing. Obligations attached to adiation will require written execution. Two forms of massing exist, namely “statutory massing” and “common law massing”. In terms of statutory massing, the Master may, if one of two spouses, whether married in or out of community of property, dies, and the Will of the deceased did not provide to the contrary, and the major heirs and any claimants against the estate consent, and it appears that no person interested would be prejudiced, authorize the executor (subject to security given for payment of minors’ shares and conditions as the Master may determine, to make over some or all property of the deceased, or the whole or a part of that portion of his property in respect of which he has made no testamentary provision to the contrary, to the surviving spouse at a value made by an appraiser or another person approved by the Master, and to frame his distribution account on the basis of that value. Common law massing greatly resembles statutory massing. Two or more persons may join estates and dispose of the joint estate without granting the survivor a limited interest in the massed assets. The survivor may be awarded something else or nothing. Such construction will not qualify as “statutory massing” as the survivor obtains full ownership of an asset and not a limited interest. This is often termed “common law massing”, and the surviving testator would have to elect whether to adiate or repudiate. Common law massing could also have the effect that the survivor receives nothing from the massed estate.

The marital regime can have unintended consequences for the surviving spouse and requires careful consideration when drawing up a will, entering into a specific regime, or massing estates.

 

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Marital Regimes, Estates, and Taxes