What is collation and what effect will it have on your estate?

Many parents see it as a privilege and a part of their parental duty to assist their children with funding for education, the purchase of a vehicle or a home, or to start a business in their lifetime.  We love our children and of course we only want the best for them!  However, what many parents are not aware of, is the South African common law presumption of collation (collatio bonorum) and the impact thereof on a Will. 

Let’s look at a practical example: Joe has three children – John, Jack and Mary.  During his lifetime he assists his son John with a cash amount of R2 000 000 to purchase a house. Prior to this gift to John, Joe’s estate is estimated to be worth R10 000 000. When Joe passes away his estate is deemed to be worth R8 000 000 and his will stipulates that the estate should be divided equally between John, Jack and Mary.  This does not sit well with Jack and Mary.  They feel that equal distribution of the estate is unfair because John received a substantial financial benefit from his father while he was still alive and that the distribution of the estate should be adjusted proportionately.  Collation is the formal process that Jack and Mary can revert to in this instance.

Collation is rooted in the belief that a testator will want his/her estate to be distributed equally among children or descendants. This means that if an heir received a substantial financial benefit from a testator during the testator’s lifetime, collation may be applied to the heir’s inheritance and the value of the inheritance may be adjusted accordingly.  To determine the division of the inheritance, one must add the value of all of these “substantial financial benefits” to the value of the original estate. The net sum then needs to be divided between all the heirs according to their share in the original estate.

Collation only applies to the testator’s descendants who share as heirs in the residue of an estate and it is applied to your will automatically by operation of law.  If you do not have a will, it will automatically be applied to your intestate heirs.  Let’s go back to our practical example mentioned earlier.  If you leave your estate in equal shares to your three children – John, Jack and Mary – and John received a considerable financial contribution from you to purchase a house which Jack and Mary did not, collation will be applied to offset the financial contribution against Johan’s inheritance.  Other typical examples include funding for tertiary education, start-up capital for a business, settlement of debts, funding of large medical expenses, etc.  The size of the financial benefit is usually assessed in relation to the size of the testator’s estate.

If you do not want collation to apply to your will, it is imperative that you stipulate your wishes clearly in your will.  An example of such a stipulation would be “I direct that my children need not collate any of the financial contributions they received from me during my lifetime and I remit collation so far as they are concerned.”  Similarly, if it is your wish for one of your heirs to collate, this should also be clearly stipulated. An example: “I record that during my lifetime I gifted to my son, John, an amount of R2 000 000 to enable him to purchase a house and I direct that he collates that sum with my estate before he is paid his inheritance in terms of my will.

Collation is another example of why it is of utmost importance to use an estate specialist when drafting your will and doing estate planning.

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.