Skip to main content

The Administration of an Insolvent Deceased Estate: When Liabilities Outweigh Assets

Dealing with the passing of a loved one is an emotionally challenging experience, and managing the administration of their estate can add complexity to an already difficult time. In some cases, the deceased’s estate may turn out to be insolvent, meaning that the debts and liabilities left behind outweigh the available assets. 

Understanding the Basics

Before we delve into the specifics, let’s clarify a few key terms:

  • Deceased Estate: This refers to the total assets, property, and liabilities left behind by a person after they pass away.
  • Insolvent Estate: An estate is considered insolvent when the debts and liabilities of the deceased surpass the total value of their assets. In simpler terms, there isn’t enough in the estate to cover all the debts.
  • Executor or Administrator: The person responsible for managing the deceased’s estate is typically called the executor (if there is a will) or administrator (if estate is below R250k). Their primary duty is to ensure that the estate is administered correctly and in accordance with the law.

The Steps in Administering an Insolvent Deceased Estate

  1. Identifying the Assets and Liabilities:
    1. The first step in the process is to identify all the assets and liabilities of the deceased. This includes their property, bank accounts, investments, debts, and any outstanding obligations.
  2. Notifying Creditors:
    1. Once the assets and liabilities are known, the executor must notify all creditors of the deceased about the death. Creditors then have a specified period to submit their claims against the estate.
  3. Prioritising Debts:
    1. In cases of insolvency, not all debts are treated equally. Some debts may have higher priority, such as administrative costs, and secured debts (e.g., a mortgage on a house). These will be settled first from the available assets.
  4. Selling Assets:
    1. If there are not enough liquid assets to cover the debts, the executor or administrator may need to sell some of the deceased’s assets to generate the necessary funds.
  5. Notifying Authorities and Creditors:
    1. According to Section 34 of the Administration of Estates Act (AEA), the executor is obligated to notify creditors, the South African Revenue Service (SARS), and the Master of the High Court if the estate’s liabilities surpass its assets. This notification outlines the estate’s status and informs creditors that unless the majority in number and value of all creditors instruct the executor in writing within a specified period (usually not less than 14 days) to surrender the estate under the Insolvency Act 1936 (Act 24 of 1936), the executor will proceed to liquidate all assets.
  6. Distribution of Proceeds:
    1. After selling all assets and collecting debts due to the estate, a Liquidation and Distribution Account (“L&D Account”) is drafted and lodged with the Master’s Office for confirmation. The L&D Account dictates the order of preference for distributing the proceeds according to the Insolvency Act.
  7. Payment to Creditors:
    1. The proceeds are used to pay off the estate’s debts. If there’s not enough money in the estate to cover all the debts, creditors may need to write off their claims.

Life Insurance Policies and Insolvent Estates

Life insurance policies held by the deceased for nominated beneficiaries do not become part of the insolvent estate. The proceeds from such policies belong to the beneficiaries and are not accessible to creditors of the deceased estate. However, if there are no nominated beneficiaries for a life policy, the payout becomes part of the deceased estate and is distributed to the estate’s creditors.

Avoiding Cash Shortfalls

Cash shortfalls in an estate can have negative consequences for beneficiaries. Ensuring that an estate has sufficient liquidity to cover administration costs and outstanding liabilities is essential. Solvency is not enough; estates need adequate cash reserves to settle immediate costs and liabilities without having to sell assets meant for inheritance.

In the event of a cash shortfall, the executor may need to sell non-liquid assets, such as properties, to raise funds. This can have unfortunate consequences, especially for surviving spouses and children who may lose important assets.

To avoid such complications, families should maintain a clear understanding of their estate’s assets and liabilities and consider using life insurance policies to cover potential cash shortfalls. Thorough estate planning with a professional financial adviser is crucial to ensure that loved ones are cared for and receive their intended inheritances without sacrificing essential assets.

In conclusion, the administration of an insolvent deceased estate is a complex process that requires careful attention to detail and adherence to legal requirements. Understanding the order of priority for debt settlement and the implications of insolvency on taxes and life insurance policies is essential. Thorough estate planning can help prevent unnecessary complications and protect the interests of beneficiaries during a challenging time.

What happens to my company if I die?

Death is inevitable, but it can also be unpredictable. If you are a business owner, you may wonder what will happen to your company if you die unexpectedly. Who will take over the management? How will your assets be distributed? What will happen to your employees and clients? Who will inherit your shares and assets? How will your death affect your employees, customers, partners, suppliers, and other stakeholders? These are some of the questions that you need to consider and plan for in advance, to ensure that your legacy lives on and your family is protected.

Business succession planning is the process of preparing for the transfer of ownership and management of your company in the event of your death, retirement, disability, or exit. It involves identifying and developing potential successors, setting clear goals and expectations, creating a legal and financial framework, and communicating the plan to all relevant parties. Business succession planning is not only important for you as a business owner, but also for your company and its future.

Without a proper succession plan in place, your company may face various risks and challenges, such as:

  • Loss of leadership and direction: If you die without appointing a successor or a team to take over your role, your company may suffer from a lack of leadership and direction. There may be confusion, uncertainty, or conflict among your employees, managers, or board members about who is in charge and what to do next. This may affect the performance, productivity, morale, and culture of your company.
  • Loss of value and reputation: If you die without transferring your ownership or shares to someone else, your company may lose its value and reputation. Your shares may be subject to estate duty or inheritance tax, which may reduce the net worth of your company. Your heirs or beneficiaries may not have the same interest or expertise in running your company as you did. They may also have different goals or visions for your company than you did. This may affect the quality, service, innovation, and customer satisfaction of your company.
  • Loss of continuity and stability: If you die without ensuring that your company can operate smoothly and independently without you, your company may lose its continuity and stability. Your company may face operational disruptions or difficulties due to the absence of your knowledge, skills, experience, or relationships. Your company may also face legal or financial challenges due to the lack of proper documentation or agreements. This may affect the cash flow, profitability, growth, and sustainability of your company.

To avoid these risks and challenges, you need to get good legal advice from experts who understand the complexities and implications of business succession planning. AED Attorneys specialises in estate planning and administration, as well as property matters. We can help you with:

  • Drafting or reviewing your will or trust to ensure that it reflects your wishes and intentions for your company
  • Setting up a buy-sell agreement or a shareholders agreement to regulate the transfer of ownership or shares in your company
  • Valuing your company and its assets and liabilities to determine the fair market value and tax implications
  • Identifying and developing potential successors for your role and responsibilities in your company
  • Creating a transition plan and timeline for handing over your role and responsibilities to your successors
  • Communicating your succession plan to all relevant parties such as your family, employees, managers, board members, customers, partners, suppliers, and other stakeholders

Examples of what could go wrong if you do not get good legal advice

You may encounter some problems or complications that could jeopardise the future of your company. For example:

  • You may draft a will or trust that is invalid, unclear, incomplete, or outdated. This could result in disputes among your heirs or beneficiaries over the interpretation or execution of your will or trust. It could also expose your estate to claims from creditors or other parties who may challenge the validity or legality of your will or trust.
  • You may fail to set up a buy-sell agreement or a shareholders agreement that protects your interests and rights as an owner or shareholder of your company. This could result in conflicts among co-owners or shareholders over the valuation or sale of shares in the event of death. It could also affect the continuity and stability of your company if there is no clear or agreed-upon process for transferring ownership or shares in the event of death.
  • It could reduce the value and attractiveness of your company if there is no guarantee or assurance for potential buyers or investors that they can acquire your shares or ownership without any hassle or dispute
  • It could create tax or legal liabilities for you or your estate if there are any discrepancies or inconsistencies between your will or trust and your buy-sell agreement or shareholders agreement.

To avoid these risks, one of the most important steps is to draft a will and set up a trust. A will is a legal document that specifies how you want your estate to be distributed after your death. A trust is a legal arrangement that allows you to transfer your assets to a trustee, who will manage them for the benefit of your beneficiaries. By creating a will and a trust, you can avoid the lengthy and costly process of probate, which is the court-supervised administration of your estate. You can also reduce the tax burden on your heirs and ensure that your wishes are respected.

Another crucial step is to appoint a successor for your business. This can be a family member, a partner, a key employee, or an outside party. You should choose someone who has the skills, experience, and vision to run your business successfully. You should also communicate your succession plan to your staff, clients, and stakeholders, so that they know what to expect and how to support the transition. You should also update your contracts, agreements, and insurance policies to reflect your succession plan.

It is important to consult with a professional legal service that specializes in estate planning and business succession. AED Attorneys offers a family-centered, open and friendly legal service to people who need understanding and sympathy in dealing with the administration of estates, as well as displaying competence and efficiency when handling property matters. We can help you draft your will and trust, administer your estate, transfer your property, and advise you on the best way to structure your business for tax purposes, and ensure that it complies with the relevant laws and regulations.

By planning ahead, you can ensure that your company survives and thrives after your death. You can also protect your family’s financial security and peace of mind. Don’t leave it to chance or fate. Contact AED Attorneys today and let them help you create a lasting legacy for your business.

What will happen with my Cryptocurrency when I die?

There are more than 800 cryptocurrencies that you can use to make purchases online, send money to friends and family, or get paid for your work. But what happens to your wallet when you pass away?

As cryptocurrency grows in popularity, you need to make sure you bring these into your estate planning, make a trusted person aware of the fact that you own such currency, and how to find they can find it. After your death the fate of your cryptocurrencies will depend on several factors, such as whether you have made provisions for their transfer or disposal in your will or other legal documents. In South Africa, cryptocurrencies are not yet explicitly regulated, and there is no specific legislation governing the inheritance of cryptocurrencies. However, cryptocurrencies can be considered assets or property, and their distribution can be governed by South Africa’s laws of succession.

The executor of your estate will also be responsible for managing and distributing cryptocurrencies according to your will. If you have not made any specific provisions, your cryptocurrencies may be treated as part of your estate and distributed according to the laws of succession. It is best to make provisions for the transfer or disposal of your cryptocurrencies in your will or other legal documents to ensure that they are handled in accordance with your wishes. You need to ensure that your bitcoin is identifiable and accessible for your executor and beneficiaries. The ‘keys’ are crucial for transferring ownership or spending your bitcoin. It is therefore important that the keys need to be protected and practically dealt with by your executor. If a key is lost or no longer accessible, then, in essence, you will have lost your bitcoin. You may want to consider storing your private keys and other relevant information in a secure location and informing your beneficiaries of their existence to facilitate the transfer of your cryptocurrencies.

If you have inherited cryptocurrency from someone, there are a few steps you should take to ensure that you have control over the assets and that they are secure:

  • Familiarise yourself with cryptocurrency: If you’re not familiar with cryptocurrency, it’s essential to educate yourself on the technology and how it works. You can start by researching the specific type of cryptocurrency you inherited, how it’s stored, and how it’s traded. Cryptocurrency is a digital currency that creates a new way to pay and receive money, using encryption techniques to regulate and verify the transfer of funds. Encryption aims to provide security and safety, by implementing cryptographic methods that involve the solving of complex mathematical problems and stored in digital wallets. You save virtual coins in your digital wallet, on your phone or computer. This also makes it easy to transfer money anywhere in the world because there are “no borders between countries” where cryptocurrencies are concerned. The first decentralised cryptocurrency was Bitcoin, and was soon followed by many other cryptocurrencies, such as Litecoin, Ethereum, Monero, and Zcash.
  • Secure your cryptocurrency: Once you understand how the cryptocurrency works, you should ensure that it’s secure. You can do this by setting up a secure wallet, which is a digital storage system for your cryptocurrency. Make sure to keep your private keys safe, and never share them with anyone.
  • Determine the value of your cryptocurrency: To understand the value of your cryptocurrency, you can check online exchanges or consult with a financial advisor. You should also be aware of any tax implications associated with your inherited cryptocurrency.
  • Decide what to do with your cryptocurrency: You can hold onto the cryptocurrency as an investment, trade it for another cryptocurrency or traditional currency, or use it to make purchases.
  • If your financial advisor was not aware of this when assisting you with your estate planning and the drafting of your will, it could increase the cost of executors’ fees and estate duty. This could also impact negatively on any liquidity calculations performed during the estate planning process. Because of the anonymous nature of cryptocurrencies, it could be difficult for your executor to trace your holdings and properly account for them unless you have ensured that your executor and/or family members are aware of your holdings and how to access them. Backing up your wallet on an external hard drive and transcribing all access details for the wallet is a practical option to ensure that your executor and loved ones have access of your cryptocurrency.

Get in touch with AED Attorneys to explain the legalities with you, and to make sure that you update your will to include your cryptocurrency. Cryptocurrency will be assets in your estate and can be dealt with to an extent in your will.

AED Attorneys understands that every situation is unique, and although they strive to ensure that the information contained herein is accurate at the time of publishing, it cannot be guaranteed to be without errors or omissions. As a result, AED Attorneys, its employees, independent contractors, associates or third parties will under no circumstances accept liability or be held liable for any innocent or negligent actions or omissions in this article, which may result in any harm or liability flowing from the use of or the inability to use the information provided.

I am named as the legal guardian of my brother’s children. What are my obligations?

When your brother asked you if he could name you as the guardian of his newborn, you felt proud and excited beyond words.  But have you considered what it actually means in terms of our law to be a guardian?

If you are named as the legal guardian of your brother’s children in his will, it means that you would have legal responsibility for the children’s care and upbringing, should both parents pass away. This would include making decisions about the child’s education, healthcare, and general welfare, as well as providing for the child’s basic needs, such as food, clothing, and shelter. In addition to these responsibilities, being named as the legal guardian would create financial obligations, which would depend on a number of factors, such as the age, needs and expenses of the children, and the financial resources that you have available.

Usually children are entitled to receive financial support from their parents’ estate, such as from life insurance proceeds or other assets. However, if these resources are not sufficient to cover the children’s needs, you as the guardian may be required to provide additional financial support, depending on the applicable laws and court decisions.

In South Africa, guardianship is governed by the Children’s Act of 2005 and the Mental Health Care Act of 2002. These laws impose certain parental rights and responsibilities upon parents and guardians. A guardian would be appointed by the court to make decisions on behalf of a minor or incapacitated adult, who is known as the ward. Guardianship refers specifically to the legal relationship between a guardian and a minor, or an incapacitated adult. Guardianship of minors refers to the legal relationship between a guardian and someone younger than 18.

On a day-to-day basis, the care of a child means the safekeeping and protection of that child, provision of daily needs (food, shelter), emotional and financial support. As their guardian you will be responsible for the maintenance, care and upbringing of the children, and will have the authority to make decisions on their behalf. Your role will be to assist the child in all ways, including medical treatment and legal, administrative, and contractual matters.  It can also include refusing consent when it comes to a child’s marriage, adoption, removal or departure from South Africa and even an application for a passport or consenting to the sale of a child’s immovable property.

Legally, the High Court is the upper guardian of all children in South Africa, so if someone believes that a guardian is not fulfilling their required duties, under certain circumstances the High Court can intervene and terminate guardianship. The best interests of the child are always of the highest importance so the child’s well-being and ability to thrive as it applies in your particular situation, would be taken into consideration. Since families and situations are different, decisions are made on a case-by-case basis, and factors such as the relationship between you and the child would also be considered.

Remember that being named as a legal guardian in a will does not necessarily mean that you are obligated to take on this responsibility. If you do feel that you will not be able to care for the child, you may decline the appointment as guardian, and the court would then look for an alternative guardian for the child. It is advisable to obtain the services of a legal professional to guide you through the process especially if you have children of your own, or are not sure what the legal implications would be. AED Attorneys can assist you to ensure that every child’s interests are taken into consideration and that your documents are updated to make provision for a potential new addition to your family.

AED Attorneys understands that every situation is unique, and although they strive to ensure that the information contained herein is accurate at the time of publishing, it cannot be guaranteed to be without errors or omissions. As a result, AED Attorneys, its employees, independent contractors, associates or third parties will under no circumstances accept liability or be held liable for any innocent or negligent actions or omissions in this article, which may result in any harm or liability flowing from the use of or the inability to use the information provided.

Child Maintenance Will 

When you become a parent, you automatically have the obligation to look after the child, as set out in article 27(2) of the Convention on the Rights of the Child (1989). This is known as “a common law duty” and is set out in more detail in Section 15(3)(a) of the Maintenance Act (99 of 1998). The primary duty of parents would be to provide financially for their children from birth until the child becomes self-supporting, regardless of whether the child was born lawfully or out of wedlock. If one of the parents dies, the surviving parent is primarily responsible for raising the child. In principle, the obligation of a parent to support a child only ends in the instance of the child’s death (and not by the parent’s death), since a child has a right to claim maintenance from the deceased parent’s estate. Such a claim has priority above any other bequests.

If the deceased parent’s estate is not enough to cover the child’s support, or if there is no estate and the remaining parent is unable to support the child, the duty of support could be extended to the child’s grandparents. South African law places an obligation on siblings to support each other. This means that if the remaining parent or the grandparents are unable to support the child and there is not enough in the estate either, the siblings will have to support the dependent child. A sibling must be destitute when claiming support from siblings, and the extent of the duty will depend on the respective means of the siblings.

A guardian could be appointed by the court to make decisions on behalf of the child. In South Africa, guardianship refers to the legal relationship between a guardian and a minor (or incapacitated adult). Guardianship of minors refers to the legal relationship between a guardian and someone under the age of 18. The guardian would be responsible for the maintenance, care and upbringing of the child and has the authority to make decisions on their behalf.

South African law recognises the right of every child to an adequate standard of living. This means that appropriate measures (such as grants) must be made available to assist parents and other people responsible for the maintenance of the child according to this said right to an adequate standard of living, which also applies where either one or both parents have passed away and there is no other responsible and financially able person to support the child.

There is no single or specific law that authorises courts to grant an order that would oblige the state to provide support to children in need of maintenance. The implication is that government institutions have discretion over the decision to provide children’s grants. However, art 27(4) of the Convention on the Rights of the Child does oblige state parties to “take all appropriate measures to secure the recovery of maintenance for the child from the parents or others responsible for maintenance”. This means that Government could use both national and international measures to secure the recovery of maintenance for needy children. For this purpose, the maintenance laws and maintenance courts can assist in the implementation and enforcement of maintenance orders. Legislation include Case Law and:

  • The Constitution
  • Convention on the Rights of the Child
  • The Children’s Act 38 of 2005
  • The Maintenance Act 99 of 1998

Section 15(1) of the Maintenance Act states that child maintenance is the common law obligation of both parents (section 15(3)(a)). Maintenance will be distributed between the parents in accordance with their respective financial means.  The following four requirements should be met:

  1. The court should have the authority to hear the matter;
  2. There must be a legal duty for child maintenance;
  3. The child to be maintained must be in need of support; and
  4. The person responsible for the maintenance must have the means to do so.

If one of the above requirements is not met, the court will not grant an order of maintenance.

The Constitution provides that every child has the right to parental or family care, or to alternative care if the child had to be removed from the family environment. It also states that a child has the right to basic nutrition, shelter, basic health care services and social services, with the best interests of the child are of paramount importance in every matter concerning the child. The criteria for determining the best interests of the child will apply in each instance, including a child’s right to maintenance.

The Convention on the Rights of the Child was ratified by South Africa in 1995. Article 3 provides that the best interests of the child shall be a primary consideration in all actions where children are concerned, whether undertaken by public/private social welfare institutions, courts of law, legislative bodies or administrative authorities. This means that special maintenance grants from the state children who are in need of support may be eligible for.

In instances where a child has a maintenance claim against the estate, the Maintenance Act does not provide for such a right/claim and cannot be relied on. Under such circumstances, children whose parents have passed away will not have protection under the Maintenance Act. These children will, however, be automatically protected according to general South African law, in which case a maintenance claim can be lodged against the executor of the deceased parent’s estate.

The Children’s Act covers almost every aspect relating to children. It sets the principle of “best interests of the child” and describes the parental responsibilities and rights a person may have in respect of the child, including the right to care for the child and to contribute to the maintenance of the child.  The Children’s Act empowers the children’s court to issue a contribution order against the parents of the child, which functions in effect the same as a maintenance order. This Act read with the Maintenance Act stipulates that both parents have an obligation to support their children in accordance with their respective financial means. The Children’s Act further brings South Africa’s child care and protection law in line with the Constitution.

In the instance where a child is claiming maintenance from a deceased parent’s estate, or should a dispute arise between the surviving parent and the executor representing the deceased parent’s estate about the amount of maintenance to be paid, the matter will have to be resolved by an independent professional before it goes to trial. Ultimately, after considering all relevant circumstances, the court will base its decision on what it believes is in the child’s best interests. We recommend that you obtain the services of a legal professional to guide you through the process. AED Attorneys can assist you in getting the paperwork right, handling the estate and ensure that the child’s interests are taken into consideration.

AED Attorneys understands that every situation is unique, and although they strive to ensure that the information contained herein is accurate at the time of publishing, it cannot be guaranteed to be without errors or omissions. As a result, AED Attorneys, its employees, independent contractors, associates or third parties will under no circumstances accept liability or be held liable for any innocent or negligent actions or omissions in this article, which may result in any harm or liability flowing from the use of or the inability to use the information provided.

What is a Probate Process? 

The English noun “probate” derives directly from the Latin verb probare, which means to try, test, prove, or examine.  In legal terms, probate is the process completed when someone leaves assets to distribute after their death, such as possessions, real estate, bank accounts and financial investments. Probate is the general administration of a deceased person’s will or the estate of a deceased person without a will. England and South Africa have very similar probate processes, and South Africa is recognised under the UK’s Colonial Probate Act. In South Africa the terminology is slightly different in regard to certain probate documents. For example, the equivalent of the British “Grant of Probate” is called a “Letter of Executorship”.

A Letter of Executorship is issued by the Master of the High Court, when an estate has a value above R250 000 and serves to confirm the appointment of the executor. Under normal circumstances, the Master can take up to 6 weeks to issue an appointment letter provided that all the correct and relevant documents have been submitted.

A Letter of Authority confirms the appointment of the Master’s Representative and can be issued for an estate with a value less than R250 000, according to Section 18(3) of the Administration of Estates Act. A Letter of Authority empowers a person to administer the deceased estate without following the full procedure set out in the Act, leading to an informal and more cost-effective estate administration process will be followed.

An executor is commonly named in the will or an administrator, if there is no will, to complete the probate process. This involves collecting the deceased’s assets to pay any remaining liabilities on their estate and distributing the assets to beneficiaries.  The probate process, which formally allows the distribution of a decedent’s assets, can be time consuming, but when you have a valid will in place, the probate process can usually move more quickly than without a will. The process can be time consuming and may leave your heirs with higher court costs and legal fees than would be the case if you had a will.

You have a few options, like establishing a trust, having a Living Will, granting Power of Attorney, and setting up a Health Care Proxy to consider.

  • A Trust is an entity with legal authority to manage your assets and distribute them according to your wishes. You will appoint a trustee to oversee the trust.
  • A Living Will acts as a type of healthcare directive to instruct your doctors and loved ones on how to handle medical decisions, should you ever become incapacitated.
  •  A Power Of Attorney is a document authorises someone to act on your behalf and is used in cases where you are unavailable or unable to make decisions.  A ‘durable’ power of attorney means it survives your incapacity.
  • A Health Care Proxy is also known as as “a health care power of attorney”, and allows you (as a patient) to appoint an agent to make health care decisions on your behalf, should that become necessary.

Distribution of your possessions and assets could be relatively uncomplicated if your spouse is the sole beneficiary, but if you wish to give some money to a few charity organisations and then have the balance divided among relatives and friends, you will need to involve a competent legal professional to ensure that your wishes are carried out without ambiguity.

Apart from potentially speeding up the probate process, a will has the following benefits:

  • Assign guardianship. A will allows you to decide who takes responsibility for your children and pets.
  • Tax implications. The value of what you give away can help minimize estate taxes.
  • Peace of mind. With a will in place, family conflict can be minimised.

Remember that a will should be revisited from time to time, especially in cases where life events change your circumstances. These would include at least the following:

  • Acquiring or selling a large asset (a vacation home, valuable artwork, etc.)
  • When you get married or divorced
  • Having a child, or when your children leave home or pass away

Everyone can benefit from a will, regardless of their assets. Not everyone needs a complex will or formal estate plan, but if you have fairly extensive assets or complex plans for distributing your property, you may want to seek out professional help to draft the documents. Individual financial circumstances and preferences vary widely and often don’t match up to pre-determined templates or forms that are freely available on the internet so it is best to work with attorneys that are experienced in their field. The team of experts at AED Attorneys can advise your family on the process, assist you in getting the paperwork right and give you peace of mind that your last wishes will be carried out as you have intended.

AED Attorneys understands that every situation is unique, and although they strive to ensure that the information contained herein is accurate at the time of publishing, it cannot be guaranteed to be without errors or omissions. As a result, AED Attorneys, its employees, independent contractors, associates or third parties will under no circumstances accept liability or be held liable for any innocent or negligent actions or omissions in this article, which may result in any harm or liability flowing from the use of or the inability to use the information provided.

Letter of Instruction in Estate Planning: What It Is & Why You Need It 

For those unfamiliar with the process, estate planning seems like “just another difficult and arduous legal procedure”. The thought of distributing your property when you are no longer there, is difficult to imagine. There is an easy way to ensure that even the most complex inheritance documents translate accurately and are represented as intended: A Letter of Instruction.  

A Letter of Instruction, also called a Letter of Intent, has the purpose of clearly communicating the intentions of the deceased to the executor (or anyone else who may need to interpret the contents). Such a document supplements the will as a step-by-step guide on how to proceed with estate planning or clarify some detail that was left out of the will.

For example, anyone who receives a Letter of Instruction upon death should know how to proceed with handling of the estate. The final Letter of Instruction should outline the executing the will and also specify who will receive specific or sentimental items. The Letter of Instruction serves as a key to translate the will.

In addition to supplementing a will, the letter also serves as a way for you to express your last wishes in a more personal format. The Letter of Instruction does not have to follow the same rigid structuring as many of its legally binding counterparts, as it has no legal authority in itself, and is not a public document. Because a Letter of Instruction is more personal, such a document usually provides some comfort for the family and simplify the inheritance process for any heirs who may not be familiar with the legal terminology associated with estate planning. Although the executor does not require a Letter of Instruction in order to proceed, such a document will serve as a guide to follow in instances of ambiguity.

Since this is a document without any legal ramifications, there is no prescribed format for a Letter of Instruction. Some contain detailed instructions on how to proceed with the Will, while others simply provide general guidelines to follow, for instance what to do with sentimental items, pets or donations.

The benefits of a well-crafted Letter of Instruction greatly outweigh the drawbacks of not writing one. The natural flexibility and non-legal nature of these letters imply that there is no right or wrong way to write them, but there are a few unwritten rules that you should take note of. Apart from a comprehensive list of all the assets in your possession and instructions for how the executor should disperse these assets, your Letter of Instruction should include the following:

  • A list of each account beneficiary and their contact information
  • Any papers pertaining to your marriage status and/or citizenship
  • Where to find important documents (tax returns, birth certificates, Title Deeds, etc.)
  • The contact information of creditors or policy holders (mortgage, car loan, insurance policies, etc.)
  • The contact information of previous attorneys, accountants, brokers, financial advisors, etc.
  • The date and your ID number
  • The location of any assets that are not easily accessible (including safe deposit boxes and their keys)
  • The login credentials pertaining to any financial accounts you may have (passwords, PIN numbers, account numbers, etc. So make sure the letter of instruction is in good hands.)

A Letter of Instruction looks somewhat like a Will in the sense that they both delegate instructions on what to do with assets and who gets them. However, a Letter of Instruction is not a legal document while a Will is enforced by law. For this reason you should not include the distribution of any assets in a Letter of Instruction that are not already included in the Will. Your Letter of Instruction may be incorporated to enable understanding of the process better and can include burial arrangements or guidance on the memorial service. The addition of a letter of instruction to your Will could expedite the estate planning process and, in addition, you can rest assured that your wishes will be carried out exactly as you have intended.

Most people do not know how to write a letter of instruction (or may feel uncomfortable doing so) and feel more confident if you enlist the services of a qualified professional, such as AED Attorneys for guidance. We know exactly where discrepancies are most likely to arise and are more than equipped to help you address them. AED Attorneys can assist you in getting the paperwork right, and handling the estate.

AED Attorneys understands that every situation is unique, and although they strive to ensure that the information contained herein is accurate at the time of publishing, it cannot be guaranteed to be without errors or omissions. As a result, AED Attorneys, its employees, independent contractors, associates or third parties will under no circumstances accept liability or be held liable for any innocent or negligent actions or omissions in this article, which may result in any harm or liability flowing from the use of or the inability to use the information provided.

Can you inherit debt? What happens to the debt in a deceased estate?  

Many people are concerned that they may be liable for their spouse’s debts if the spouse dies and the liabilities of their estate exceed the assets. The short answer is no: heirs do not inherit the debt. If the estate is insolvent all the assets of the estate become liquidated and divided among the creditors. It sounds relatively straight forward but there are certain exemptions and practicalities that one should be aware of. An estate includes all the assets and liabilities, including the debts, property, vehicles, furniture, and the money in your bank account. The assets are used to pay off your outstanding debt before heirs receive their share of the inheritance. In brief, debt is handled as follows:

  • The executor of the estate’s main task is to trace the assets and pay off all debts and liabilities before distributing the remainder to the beneficiaries as stated in the will.
  • If an individual has debt on their assets when they die (e.g. a student loan, vehicle, or house), the loan or financing agreement must still be honoured. Their heirs are not directly liable for the debt, but creditors can prosecute the estate for the full payment (unless the loans were assured). Assets can be used to pay the outstanding amount, but persons who have signed surety for the deceased can become responsible for the debt.
  • When a taxpayer dies, the executor of the estate is required to submit the outstanding tax returns up to the date of death of the deceased person. The executor needs to ensure that the necessary documents are furnished to SARS to be updated.
  • Secured debts are debts that are secured against certain assets, for example when money is borrowed and the property is used as security.  If a debt was not insured (eg credit cards and personal loans), there is no specific asset that can be taken back and sold and the bank has to get a court order that valuables from the estate may be repossessed and sold to pay off the debt.
  • If spouses or business partners have co-signed for debt, it is the responsibility of all parties whose names are listed on the account to settle the debt. If one of the partners dies, their estate can be used to pay off part or all of the debt. If the deceased’s estate has insufficient assets, it will be liquidated and the other account holder(s) will be liable for all outstanding debt.
  • If you are a guarantor on a loan, it will become your responsibility to make the repayments.
  • If you were married within community of property and your deceased partner’s estate is insolvent (i.e. your joint estate), all assets of the estate will be liquidated so that the proceeds can be divided between the creditors. You shall therefore also lose everything from the joint estate, but at least you won’t inherit the debt or have to pay anything toward the deficit.
  • Once the executor has finalised all the administration in the deceased estate, the remaining assets, after paying all the debts, will be distributed to the beneficiaries.

AED Attorneys shall ensure that there are no ambiguities in your will and that your estate is distributed exactly as you have planned.

AED Attorneys understands that every situation is unique, and although they strive to ensure that the information contained herein is accurate at the time of publishing, it cannot be guaranteed to be without errors or omissions. As a result, AED Attorneys, its employees, independent contractors, associates or third parties will under no circumstances accept liability or be held liable for any innocent or negligent actions or omissions in this article, which may result in any harm or liability flowing from the use of or the inability to use the information provided.

Usus, Habitatio

What is Usufruct, Bare Dominium, Usus, Habitatio and their Differences?

In South Africa we have 11 official languages but this helps little when it comes to legal terms! People are often not sure what the meaning is of Latin words such as Dominium, Usufruct, Usus and Habitatio. Usufruct, Usus and Habitatio are known as “personal servitudes”, which in turn is a limited real right in favour of a person, granting that person the right “to do something” on someone else’s property. Let us explain:

What is Bare Dominium?

A bare dominium, is property without a right of use (usufruct). This means that the owner of the property can only sell it with the consent of the usufruct so as not to infringe on the usufructuary‘s use rights.

What is a Usufruct?

Usufruct  is a combination of two Latin words: usus (use) and fructus (fruit) which means “use and enjoyment.” Usus denotes the right to use something directly without damaging or altering it, and fructus denotes the right to benefits that result from the use of the property. A usufruct is a legal right granted to an individual or party for a temporary right to use someone else’s property and generate income or profit in doing so. This is a limited right found in many mixed and civil law jurisdictions. A usufructuary is a person who has rights on a property through a usufruct (as explained above), and is allowed to use and enjoy the income resulting from the use of the property but it does not mean that person has ownership.

What is Usus?

Usus (Use) grants a person (and/or members of his family) the right to use another’s property, but without altering the essential characteristics of that property.

What is Habitatio?

As is the case with usus, habitatio (or residence) gives individuals and their families the right to live in someone else’s home without changing the essential characteristics of the property. In contrast to usus however, habatio allows property owners to lease properties and residence terminates upon expiration of a fixed term or death of a beneficiary.

It still sounds Greek to me, so what is the difference?

  • A bare dominium is ownership without a right of use (usufruct). You can sell only with the consent of the usufructuary, otherwise you will have to disenfranchise him.
  • Usufruct: You may use the property of someone else to your gain, but you will not be allowed to acquire ownership of the property itself. An example is where a husband bequeaths a residential property to his children in his will, but stipulates that his wife should enjoy usufruct until she dies. This way the husband ensures that his wife still has the use and enjoyment of the property. As usufructuary you may not do anything detrimental to the property, but you may use it to your benefit, provided that the property is used in the manner it was planned to be used (for instance farming).
  • Usus: usus is similar to a usufruct but your rights are more restricted. You may use movable property and you and your family may occupy it if it is immovable. You may also “use the fruits of the property” as long as it is not detrimental to the property itself. You may not sell or lease the property or benefit from its fruit. However,  should the house be too large for you, you may let a portion of it for rent. Combining a usufruct with usus gives you full ownership and use of the property (i.e., owner of the property in a more general sense).
  •  Habitatio: You and your family the right to live in someone else’s home without changing the important qualities of the property. The habitatio ends when a fixed period has expired or on the death of the holder of the right.

We recommend that, before you buy or rent a property, you first review the title deed to establish whether there are any rights of habitation or other limited real rights registered against it. Even better – obtain the input of a legal professional!

AED Attorneys understands that every situation is unique, and although they strive to ensure that the information contained herein is accurate at the time of publishing, it cannot be guaranteed to be without errors or omissions. As a result, AED Attorneys, its employees, independent contractors, associates or third parties will under no circumstances accept liability or be held liable for any innocent or negligent actions or omissions in this article, which may result in any harm or liability flowing from the use of or the inability to use the information provided.


https://adattorneys.co.za

What happens to my overseas assets if I die intestate in SA or testate?  Laws of succession in other countries.

Globalisation caused the divide between countries to decrease as people can now easily communicate across the globe with a single click of a button. This has resulted in more people investing in cross-border transactions, as well as more workers migrating from country to country.

There are specific rules in different countries that govern distribution of assets upon death. Global investors need an estate plan with a well-coordinated approach since emigration has been on the rise increasing the number of South Africans with assets spread across the globe.

It’s important to have a will in place which states how your assets would be distributed upon your death. You should consider having a separate will for your worldwide assets. To avoid any complications, it’s important to make sure your draft will is in compliance with the laws of each country. For example, even though you may have a will for your assets in Mediterranean countries such as Portugal and Italy, the law in these countries automatically splits assets 50-50 with spouses and then divides the remaining 50% equally to any children of the family. 

Even if you have an executor for your estate, they may not know the appropriate succession laws for assets outside of South Africa. In cases when an executor does not feel like they have enough experience to deal with assets in a different country, the executor can appoint solicitors in that country to help.

It is also important to remember that having a separate will for your worldwide assets still necessitates reporting these assets for estate duty purposes in your country of tax residency.

So what happens to your overseas assets if you die intestate in South Africa?  The laws of succession differ from country to country and your assets will be distributed based on the law specific to each country.

In the UK, only married or civil partners and some other close relatives can inherit under the rules of intestacy.  Married partners or civil partners inherit under the rules of intestacy only if they were legally married or in a civil partnership at the time of death.  If there are surviving children, grandchildren or great grandchildren of the person who died and the estate is valued at more than £270,000, the partner will inherit:

  • all the personal property and belongings of the person who has died, and
  • the first £270,000 of the estate, and
  • half of the remaining estate.

In Australia an intestate estate will be divided up between the surviving married or de facto spouse and children. If there is no surviving immediate family, the assets may be allocated to other family members including parents, grandparents, aunts, uncles or cousins.

Mauritius is one of the jurisdictions where forced heirship rules apply albeit on a limited basis in relation to immovable property only. These rules consist of establishing a reserved and unreserved portion of assets. The reserved portion is then allocated to the children of the deceased, and this portion may not be infringed by any testamentary provision. The reserved assets are divided as follows:

  • One half (50%) of the estate if the deceased leaves one child.
  • Two thirds (66%) of the estate if the deceased leaves two children.
  • Three quarters (75%) of the estate if the deceased leaves three or more children.

At death, in case that the testator did not have a will in place, the legal order of inheritance, in descending order of priority, is as follows:

  • The descending line and the surviving spouse
  • The favoured ascending line (father and mother) and favoured collateral line (siblings and children of predeceased siblings)
  • The ordinary ascending line (grandparents, great-grandparents)

The surviving spouse is legally considered an heir to the deceased, although in some cases they may not be a protected heir. This means that their share of the inheritance can be transferred at any time to another beneficiary. However, the surviving spouse also inherits rights as co-owner over the matrimonial home and furniture, until his or her death.

In the absence of any protected heirs, the deceased’s estate will vest in the Mauritian State.

It is prudent to only trust an expert in international succession law with assistance when doing estate planning to avoid complications when your will needs to be executed.  The absolute necessity to have a will, goes without saying.

AED Attorneys understands that every situation is unique, and although they strive to ensure that the information contained herein is accurate at the time of publishing, it cannot be guaranteed to be without errors or omissions. As a result, AED Attorneys, its employees, independent contractors, associates or third parties will under no circumstances accept liability or be held liable for any innocent or negligent actions or omissions in this article, which may result in any harm or liability flowing from the use of or the inability to use the information provided.