If you have ever thought of employing this tactic, you may want to think again. Omitting your other half from inheriting under your will may result in unintended and detrimental financial consequences for your deceased estate and consequently on your heirs.
In South Africa, estate duty is payable on any estate worth more than R3,5 million (20% duty up to R30 million and 25% thereafter). So, if your estate is worth R5 million rand, R3,5 million will be deducted from this value, and 20% duty will be paid on R1,5 million, which amounts to R300 000.
However, assets bequeathed to surviving spouses are not subject to estate duty in the hands of the first dying spouse. The liability for estate duty is ‘rolled over’, becoming payable only on the death of the second spouse. It follows, therefore, that leaving assets to your spouse could save your estate a significant amount in estate duty.
This relief is further enhanced if you leave the entire residue of the estate to your spouse. Such a bequest will not only relieve your estate of any estate duty liability, but enable the full unused deduction (referred to an ‘abatement’ in legal terms) of R3,5 million to be rolled over to your spouse.
On your spouse’s subsequent death, a double abatement (R7 million) will then be deducted from his/her nett estate.
Capital gains tax
A person is deemed to have disposed of his/her assets on death. This is because the death results in a change of ownership of those assets from the deceased to his/her estate.
Capital gains tax (CGT) is therefore triggered and becomes payable by the deceased estate.
As with estate duty, assets bequeathed to surviving spouses are not subject to CGT. The gains on these assets are disregarded, as the surviving spouse will be deemed to have acquired the assets for a price equal to their base cost (not at their market value as with all other bequests).
In other words, the surviving spouse steps into the shoes of the first spouse and the liability is postponed and becomes payable on the death of the second spouse.
It follows, therefore, that failure to bequeath assets to your spouse could result in CGT being payable by your estate.
Maintenance of Surviving Spouses Act
The Maintenance of Surviving Spouses Act provides that if a marriage is dissolved by death, the surviving spouse has a claim against the deceased’s estate for the provision of reasonable maintenance until death or remarriage, to the extent that the surviving spouse is unable to provide for his/her own maintenance from his/her own means and earnings.
The claim should be lodged with the executor of the estate of the first spouse. The purpose of this Act is to provide relief for spouses who are left destitute, whether deliberately or inadvertently, by their deceased spouses.
In other words, in the event of death, the obligation to maintain your spouse may be transferred to your deceased estate if your spouse does not have the means to provide for himself/herself.
Such a claim against your deceased estate could put undue pressure on your estate and result in some of your bequests not being affected.
All of this highlights the importance of seeking professional advice before drawing up your will. There are plenty of estate planning techniques such as the use of limited interests and trusts which can be employed to address concerns regarding your family members.
In short, simply excluding your spouse from your will could backfire. The fallout could cripple the liquidity of your estate resulting, for example, in the forced sale of assets.
The material is not intended as and does not constitute financial or any other advice. The material does not take into account your personal financial circumstances. For this reason, it is recommended that you speak to an accredited broker or financial adviser to consider all your options and draw up a plan to achieve your financial goals.