I am sure that after reading last week’s article you decided on who your beneficiaries would be and began drafting your will, but then got stuck.
There are many different ways to benefit your beneficiaries. You may want to leave them a particular item only, or your whole estate. You may want to protect their inheritance or impose conditions on it. All of these choices are available to you but have consequences you should be aware of. This week we will look at some conditions you can impose in your will, and next week we will look at different ways to protect your beneficiaries.
Let’s begin with some terminology. If you want to leave a particular item or a specified sum of money to one of your beneficiaries, this is called a legacy or special bequest and the beneficiary is known as a legatee. Your heir/s is the person/s who inherits the residue of your estate. The residue is whatever assets are left after all your debts, the costs of administration and the legacies have been distributed.
By way of example; your will might read something like this:
1. I leave the sum of R10,000.00 to my niece Sandy and my car to my grandson John.”
I leave the residue of my estate to my 3 children, Penelope, Mavis and Daniel.”
The R10,000.00 and the car are legacies and Sandy and John are legatees. Penelope, Mavis and Daniel are your heirs and they will jointly inherit everything else that you own – your home, shares, investments, bank accounts etc. – or whatever remain thereof after your debts and estate administration expenses have been paid.
The order of entitlement is as follows: firstly your assets are used to pay the costs of administration of your estate, then your creditors are paid, thereafter the legatees receive their legacies and finally, if there is anything left over, it is paid or awarded to your heirs.
What would happen if John’s car was purchased via hire-purchase agreement, there is no life policy ceded to the bank, and the loan has not been fully repaid? The law presumes that a testator wants his legatees to receive their legacies unburdened. The executor must therefore use the money in the estate to settle the outstanding balance on the hire-purchase agreement and give John free ownership of the car. If you want your legatee to pay up any outstanding debt on the item you bequeath to them, you must clearly state this in your will.
Some interesting facts about legacies:
If the testator sold, lost or destroyed the asset while he was alive, the legatee will receive nothing.
If the legatee bought that asset from the testator while he was alive, he can claim repayment of the purchase price from the executor.
If the legatee cannot or does not inherit for any reason (see previous articles in this series) the asset will form part of the residue of the estate and will be awarded to the heirs.
You can make your legacies subject to different kinds of conditions, provided they can be fulfilled and are not illegal or immoral.
If fulfilment of the condition depends on chance – “I leave the sum of R10,000.00 to my niece Sandy provided Donald Trump wins the American presidential election in 2016” – it is called a casual condition. A casual condition is fulfilled if the chance event happens; whether this is before or after the testator’s death. If the event does not happen the legacy will fail.
If the condition requires the legatee to do or achieve something, either positive or negative, it is called a potestative condition. “I leave my car to my grandson John provided he is selected to a KwaZulu Natal soccer team.” The condition will be fulfilled if and when John is selected to the said team; whether this is before or after the testator’s death. If John does not make the team, the legacy will fail.
A negative potestative condition requires the heir or legatee to stop doing something eg. “I leave the sum of R10,000.00 to my niece Sandy provided she stops smoking for a period of at least 12 months from the date of my death.”
A Modus is where you state what the legatee must use his legacy for. It is not a condition and the legatee has only a personal obligation to use the legacy for that purpose. “I leave the sum of R10,000.00 to my niece Sandy for her to use as a deposit on a car”. A modus is an expression of the testator’s wish.
This makes it possible for you to leave an asset, or your entire estate, to one person subject to the condition that they pay a certain sum of money to someone else. It is a useful tool if you have one valuable asset in your estate which you want to leave only to one child. “I bequeath my house to my daughter Penelope, provided that she pay the sum of R100,000.00 each to her sister Mavis and her brother Daniel.” This is a bequest price. If Penelope accepts the benefit then she has a legal obligation to pay the R100,000.00 to each of her siblings and they, in turn, have a personal right to claim the payment from Penelope.
We will consider what happens if Penelope does not or cannot pay the bequest price in a later article on the importance of alternative provisions in your will.
When do your beneficiaries acquire a legal right to their inheritance?
Generally speaking an heir or legatee acquires the right to claim their inheritance on the date of the testator’s death. Legally speaking we say that the bequest “vests” in the beneficiary on date of death. In reality the beneficiary will only receive ownership of their inheritance once the administration of the estate has been finalised.
For simplicity sake I will use the first example of John above to show why this is important. On date of death the car vests in John. If John dies a few months later but before the car is actually registered on his name, the car is nevertheless an asset in John’s estate and will vest in John’s heirs.
If the bequest is conditional, as discussed above, it will only vest in the beneficiary once the condition is fulfilled. I refer to the example of the car being left to John subject to the condition that he is selected to a certain soccer team. If John dies before being selected to the team, then the car will fall into the residue of the testator’s estate and will be awarded to Penelope, Mavis and Daniel. If, however, John was selected to the team before he dies, then the car will be an asset in John’s estate and will go to John’s heirs.
A modus and a bequest price are not conditions, and in both these instances the benefit “vests” in the beneficiary on date of death.
There are certain rules for interpreting wills. If your will is not clearly drawn and there is doubt as to whether the legacy is a conditional bequest or a modus, the court will presume that it is a modus.
By Joanna Mayne – Director (Attorney, Conveyancer, Notary Public and Mediator)