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WILLS – PART 6 – PROTECTION OF BENEFICIARIES AND ASSETS

Last week I consulted with a client whose predicament is a good illustration of the importance of protecting your beneficiaries and assets in your will.  I have set out the facts below and have changed the parties’ names for obvious reasons.

At the time of drawing their wills Mum and Dad had 3 major children; Jack, Jill and Jane. Jane struggled financially and lived with her parents.  Mum and Dad told Jack and Jill that they had drawn wills in which the first dying parent left their entire estate to the survivor, and the survivor left their entire estate, including the house, to Jane.  They assured them that Jane had, at the same time, drawn a will leaving her entire estate to Jack and Jill. The family believed this was a secure arrangement.

Dad died and Mum inherited his estate.  Sometime later Mum died and Jane was the sole heir to her estate.  Jane died only a few months after Mum and before the administration of Mum’s estate had been finalised.  On Jane’s death Jack and Jill discovered that she had executed a later will leaving her entire estate to someone else and effectively disinheriting Jack and Jill.

What could or should Mum and Dad have done better to ensure that on Jane’s death their estate passed on to Jack and Jill?  The answer is that they should have created a limited interest in their wills, and in fact there are a number of ways of doing this.

  1. Usufruct

One option was to leave their entire estate, or even just the house, to Jack and Jill subject to a usufruct in favour of Jane.  In this case Jack and Jill will own the assets, and Jane will be allowed to use them either for a certain time (eg. 10 years) or for the rest of her life.

Jane holds a personal servitude over the assets but will never own them. Jane can live in the house or collect the rent from tenants and must pay the rates and municipal charges and keep the house in the same condition in which she received it.  Jane will be paid the interest on any investments but will not have access to the capital, nor will she have the power to sell or mortgage the immovable property without the consent of Jack and Jill.

  1. Fideicommissum

A second option was to leave their entire estate, or just the house, to Jane subject to the condition that after a certain time (eg. 10 years) or on her death, it will devolve on Jack and Jill. In this case Jane will own the assets but cannot sell them, give them away or leave them in a will to anyone else. Jane’s ownership will end either after 10 years or on her death, and at that point Jack and Jill will become the owners.

It is also possible to create a fideicommissum residui, in which case Jane would be free to do with the assets as she pleased during her lifetime, and Jack and Jill would inherit only what remained on her death.  There are also solutions which fall somewhere between a fideicommissum and a fideicommissum residui.  If you want to include such a condition in your will I recommend that you discuss your exact requirements with a professional so that your intention can be correctly worded.

The law presumes that a testator does not want to unduly burden his beneficiaries so it is important, if you want to create a usufruct, fideicommissum or fideicommissum residui, that the wording in your will is clear and correct.

In the case of both the usufruct and the fideicommissum the Master, or Jack and Jill, may ask Jane to provide security (insurance) that she will deliver the assets to Jack and Jill in the same condition in which she received them.  If you do not want Jane to provide security then this must be specifically set out in your will.

  1. Massing

If Mum and Dad were worried that after the first of them had died the survivor might change their will, they might have been advised to execute a joint or mutual will in which, on the death of the first dying, they massed either part or the whole of their estates into one single estate and set out in the will what must happen to the assets on the death of the first dying of them, and also what must happen to the assets on the death of the survivor.  I will apply the consequences of this to our case.

On Dad’s death Mum has the choice to either accept the massing (adiate) or repudiate it.  If Mum adiates then she receives a limited interest in Dad’s estate, is bound by the terms and conditions of their joint or mutual will, and cannot make a later will in respect of those assets which form the massed estate.  (If Mum owns assets which do not form part of the massed estate she can make a later will which will apply only to those assets.)

If Mum repudiates the terms of the will she will keep her own assets and will have the power to make a later will different to the joint will, but she will not inherit from Dad.

The decision to adiate or repudiate is irrevocable, and because the decision has such far-reaching consequences, the Master requires the surviving spouse’s decision to be in writing, signed by two witnesses, and attested by an attorney who confirms that the he/she has explained the consequences of the survivor’s choice to them, and that the survivor understands them.

If you decide to mass you and your spouses’ estates in a joint or mutual will then be aware of the following:

  1. There are tax consequences which you should investigate and understand
  2. There is a legal presumption against massing so your will must be clear that you intend massing your estates, and your will must clearly define the limited interest which will be created on the death of the first-dying spouse and also what should happen to those assets on the death of the survivor.

I personally do not recommend massing of estates unless the clients have very particular circumstances which require it.  My reasons are that the protection massing is supposed to afford will be lost if the survivor repudiates the terms of the will, and a concern that, on the death of the first dying, the survivor might be incapable of making a decision to either adiate or repudiate.

If the solutions offered by massing seem to suit your circumstances, then read the brief section on Will Trusts below as you may well find this more appropriate.

  1. Trust

The fourth option Mum and Dad could have chosen was to create a will trust.  Had they done so none of the children would have been responsible for the assets as a trustee, nominated by Mum and Dad in their will, would either own and control, or just control (bewind trust) the assets for the benefit of Jack, Jill and Jane.  In the part of the will which creates the trust Mum and Dad could have specified what Jane may receive from the trustee and what Jack and Jill may receive.  They could prescribe, for example, that Jane may live in the house rent free provided she pays the rates and municipal charges, and they could set the level of maintenance the trustee must pay to Jane. They could further state that the trust must terminate on Jane’s death and then direct how the trustee must distribute whatever remains of the trust assets to Jack and Jill, or even to grandchildren, on termination of the trust. The will could also prescribe whether or not, and if so under what circumstances, the trustee can sell or mortgage the immovable property.

This is the penultimate part of this series on wills.  Next week we will wrap up by considering the special case of minor beneficiaries, some legal rules you need to be aware of, providing for alternative beneficiaries, and some additional clauses you may want or need to include in your will.  If you have missed of the previous parts to this series you can find them on our Face book page, or on our website www.randles.co.za under the Randles News tab and then click on the Social Media link.

By Joanna Mayne – Director (Attorney, Conveyancer, Notary Public and Mediator)

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