Surviving Spouses – What You Should Know About Tax and Estate Duties

matrimony

When the definition of a “spouse” was introduced into the Income Tax Act No. 58 of 1962, the Estate Duty Act, and the Transfer Duty Act in 2001, it brought specific tax implications for spouses.

How does South African law define a spouse?

In terms of the definition of a “spouse” under South African law, it refers to a person who;

is the partner of another person in a marriage or customary union recognised by the laws of South Africa;

people in a partnership recognised as a marriage by any religion; and 

people of the same sex or in a heterosexual union which has satisfied the SARS Commissioner about its permanency.

What taxes become due when a spouse dies?

Spouses enjoy a certain amount of leniency from SARS when it comes to donations between them and property transfer duties. Should their marriage break-up or one of the spouses die, the remaining spouse will not be liable for transfer duty on any property they jointly owned.

Also, Section 4q of the Estate Duty Act (Act 45 of 1955) stipulates that the value of all property bequeathed to the surviving spouse, either in respect of a Will or by intestate succession, is deductible from the gross estate of the deceased.

What Capital Gains Tax must a spouse pay?

When one spouse passes away, estate duty is not payable on any asset left to the remaining spouse. Neither is Capital Gains Tax payable on an asset’s disposal from one spouse to another. This is because the spouse who is the recipient is considered to have acquired the asset at a base cost equal to that of the deceased spouse.

What happens if the surviving spouse has not been provided for in the Will?

In instances where the surviving spouse has not been sufficiently provided for, they are entitled to claim from the deceased estate in terms of the Maintenance of Surviving Spouses Act 27 (1990).

What happens to the surviving partner if the couple was not legally married?

However, it is important to realise that the above exemptions only apply to partners who fall under the legal definition of a spouse. The decision as to whether the remaining unmarried partner will receive any pension fund benefits (if applicable) leaves them at the mercy of the retirement fund trustees. As per the Pension Funds Act, trustees must identify the deceased member’s dependants so that the funds may be fairly distributed.

Increasingly, many people choose to rather co-habit instead of formalising their union in a legal marriage under South Africa’s laws. Although there may be clear indications that partners can be considered as spouses in terms of the legal definition, the administration will prove challenging under the Fiscal Acts when one partner dies.

Examples of this would be such as when two people have been living together for many years yet have no intention of marrying each other, and one of them dies. There is usually strong evidence to prove that they were spouses by the legal definition under these circumstances. If established, they may be entitled to some of the financial benefits when their co-habiting partner passes away.

Therefore, it would be advisable for partners living together to record a Co-habitation Agreement to avoid any disputes arising in the event of a break-up or a death. In addition, both parties should also draw up their own Will wherein it states what each partner is to inherit from the other upon one of them dying.

How to prove a Life Partnership when one co-habiting partner dies

If no Co-habitation Agreement exists when one partner passes away, then the onus will be on the surviving partner to qualify as a spouse in the eyes of the SARS Commissioner. Three affidavits will be required from different parties confirming that the relationship existed for some time. Besides the three affidavits, the following may also prove useful as supporting documentation to establish the life partnership:

  • Co-habitation Agreement
  • Legal Will
  • Proof of joint ownership of fixed property or other assets
  • Proof of medical aid with the partner registered as a dependant
  • Any policies mentioning the partner as a beneficiary
  • Joint bank account

What is the impact of the Intestate Succession Act, 1987 (Act 81 of 1987)

If a partner or spouse dies without a Will, the estate falls under the law of intestacy, which means that the Executor  [AD1] will divide the estate, according to a set formula, among any surviving children[AD2]  and spouse first. If there are no children, then the estate will be given to the legal spouse, and if there is no spouse, then it falls to the deceased’s parents[AD3] . In this case, the surviving partner will not be able to inherit as a spouse, unless he or she was married to the deceased.

Failure to leave a Will behind may leave the surviving spouse or partner in a predicament, should the parents or children seek to take possession of the deceased’s assets.

AED Attorneys provides professional advice and assistance with the drawing up of Wills or Co-habitation Agreements which will help prevent most disputes should a spouse or partner pass away.

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.


 [AD1]executor

 [AD2] and spouse

 [AD3] add:  In this case a person that only lived with a partner will not be able to inherit as a spouse.

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