Splitting heirs ll

2012-03-06 00:00

IN a previous note on testation, we posed the question of how a farmer, owning one indivisible asset (a farming enterprise), could benefit his children fairly and provide for his spouse on his death.

In the previous example our farmer was married out of community of property. What if he were married in community of property? Remember that the Subdivision of Agricultural Land Act 70 of 1970 (”the Act”) forbids increasing the number of owners of farmland (the Act does make one exception by regarding a couple married in community of property as one person).

This means that such a farmer (and his spouse) has/have but three options when it comes to dealing with agricultural land owned by him/them. They are:

1. Leaving the enterprise to his spouse. This can obviously only be an option if his spouse is still energetic enough and willing to farm for her own account.

2. Massing his Estate. For our purposes, massing may be described as the process whereby two persons, in a joint will, dispose of both the estate of the first dying of them, but also (part of) the estate of the survivor.

In our example, the farmer and his spouse would bequeath their farming enterprise to an heir.

On the death of the first dying, the survivor would accept (abate) the terms of the will and dispose of the farming enterprise to an heir (often in exchange for a usu­fruct). Massing is a simple but problematic exercise. Technically, the survivor donates her share of the enterprise to the heir, which raises the spectre of donations tax. Most problematic is the possibility that the survivor could change her mind, which then ruins the plan.

3. Selling the farming enterprise to an heir, a company or a trust whilst alive. This is probably the safest way of solving certain problems, especially if a trust is used as a vehicle, because of the flexibility it provides. This option does however have the downside of bringing forward transfer costs that would normally only be incurred after death.

As in our previous article: Estate planning on the above scale is not for the uninitiated.

Do make sure your advisor is skilled in the field.

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