Property transactions can feel complicated and stressful at the best of times. When they’re happening after the death of a loved one, they can be even more overwhelming. David Jacobs, Gauteng Regional Manager for the Rawson Property Group, explains what your options are for passing a property (or properties) on to your heirs, and how you can pave the way for a hassle-free inheritance process.
Common ways to pass a property on to your heirs after your death
“There are three main ways that people typically dispose of their properties as part of their estate,” says Jacobs. “All of them require forethought and planning, and the establishment of an up-to-date and indisputable will. Nominating an executor who is up to the task of shouldering any complexities is also a smart move for minimising stress for your beneficiaries.”
1. Direct transfer to a beneficiary
If you plan to pass your property on to an individual – your spouse or child, for example – you can specify that the title deed is transferred directly into their name on your passing. This can also be done for multiple beneficiaries, who would then become co-owners of the property, but Jacobs warns that this can cause complications when deciding who gets to live there or whether to sell.
“It’s also important to realise that there are delays and costs involved when transferring a property into a beneficiary’s name,” says Jacobs. “For example, although there is no transfer duty, conveyancing costs, deeds office fees and other disbursements would apply, and the transfer can only be completed once certain estate formalities have been concluded. This can take several months, during which municipal rates and taxes will still be payable. It’s a good idea to plan to have cash available in your estate for this purpose.”
2. Deceased sale with profits distributed to heirs
An alternative to transferring your property on as a whole asset is to instruct your executor to sell it after your death and add the proceeds to your estate. This can make it easier to split the value of your property between multiple heirs, particularly if none of them are likely to want to live in your home.
“Unlike a direct transfer, a sale can be actioned as soon as your executor has been formally approved and appointed by the Master of the High Court,” says Jacobs. “However, should the sale be concluded quickly, the proceeds will still be held by the estate until certain formalities have been met. You’ll also need to plan to have cash available in your estate to cover bond cancellation fees, clearance certificates and rates and taxes up until transfer, but the transfer costs will be paid by the purchaser, so you don’t need to worry about those.”
3. Property placed in trust before death
Placing your property – or properties – into a trust before you die is often regarded as one of the most efficient and minimally traumatic ways to ensure your legacy can be enjoyed for generations. This is because trusts do not form part of your estate at all – they are considered immortal legal entities in their own right. Read more on buying property via a trust.
“Setting up a trust and transferring your property into its ownership does incur some upfront costs,” says Jacobs, “but the resulting reduction in estate duty – achieved by ‘removing’ a major asset from your estate calculation – is usually significant.”
By nominating your heirs as beneficiaries of the trust that owns your property, Jacobs says they can enjoy its benefits – including any rental income – without having to worry about dealing with sales, transfers, estate duty or capital gains tax. When it’s time to plan their own estates, they can also use the trust as a vehicle to pass your property on to the next generation in an equally simple and cost-effective manner.
“One of the positives is that trusts are not frozen when you die, like other assets,” adds Jacobs. “This makes them very useful not only for bequeathing property, but also to provide accessible cash for your spouse or other dependents while your estate is being concluded. However, keep in mind that trusts do pay tax at a higher rate than most individuals, so it’s wise to limit their liquidity to the bare essentials.”
Regardless of how you’d like your property handled when you die, a well-thought-out will is an essential component of planning any estate. The Rawson Property Group highly recommends consulting with an experienced attorney when deciding on the optimal strategy for your estate plan and putting the necessary processes and documentation in place.