How many of us understand the process of a simultaneous death of partners (married or not). This is quite a reality considering that couples generally travel together.
How does one calculate estate duty and capital gain tax? What about succession? Do we plan for this? Have you nominated guardians for your minor children? Who will manage their finances, wants and needs, religious upbringing?
We briefly look at some of these issues.
Does it at all differ when there is simultaneous death?
A will may have a survival clause or no survival clause:
‘in the event that my spouse and I die simultaneously or my spouse does not survive me by more than 30 days, then my assets/ residue will devolve upon my children / or other.”
The survival period is the preference of the testator/rix and generally a 30 day survival period is the accepted norm..
- Perhaps from a succession point of view, there would not be much of an issue as clearly the substituted beneficiaries will inherit if all goes well. But if one forgets substitution or, the will has not been updated and substitutes have predeceased, one can have full or partial intestacy.
If the spouse does not survive and dies within the 30 days, anything that had been bequeathed to the spouse – which could be substantial – will clearly not go to the spouse. It will be distributed to the substituted heirs or legatees.
Estate Planning effect.
- Capital Gain Tax. Assets are no longer disposed of to the spouse, no rollover as spouse is deceased. These are now assets that will attract capital gain which, was potentially not calculated into the liquidity needed in the deceased estate.
- Estate duty again, because there is no surviving spouse, are we able to utilise the roll over – Section 4q deduction. Assets will not be distributed to the spouse. Increased duty that will be levied. Additional liquidity required that was not catered for during the lifetime of the deceased.
So, we have an increased capital gain tax as well as estate duty in BOTH estates and of course we have executor fees in both estates as well!
After all these additional costs, will there still be sufficient liquidity in the estate to cover taxes and costs and, does the net value sufficiently cater for dependents, especially if they are minors – may not inherit much! Perhaps assets have to be sold to generate liquidity to cover all these other unintended expenses!
No survival clause
This is complex so will keep it simple: A will could have: I leave my assets/ residue to my spouse… failing her… – this is a substituted beneficiary. If the spouse is not alive at the time, the inheritance will devolve to the other nominated beneficiary.
When does a legacy fail?
Failure of legacy
A legacy will fail in the following situation amongst others:
‘If the legatee should die before the legacy passes to him/her’
The word ‘passes’ in this context means ‘vesting / vested’. Now this is where the vesting issues come in –
- Where the rights to a legacy are unconditionally fixed and certain – the right to the legacy will normally vest in the legatee on the death of the testator
- Where the rights to a legacy is conditional or contingent- it will vest only when the condition on which it depends, is fulfilled
Why would this be important for planning? Lets look at a simple example:
Mr dies and Mrs lingers on for 16 days after Mr dying.
If point 1 above is applied: Should Mrs die after the death of Mr but, before the right to the legacy where the legacy is unconditional, then the legacy is ‘inherited’ by Mrs and will be transferred to her heirs.
If point 2 above is applied: Should Mrs die after the death of Mr but, before the right to the legacy where, the legacy is conditional and not yet fulfilled when Mrs dies, then the legacy will lapse and cannot be transferred to Mrs heirs – so Mrs does not inherit from Mr.
Succession aside – what about capital gain tax and section 4q?
In point 1 above – it will pass onto Mrs first which will allow Mr’s deceased estate a roll over for capital gain tax and a 4q deduction for estate duty – some savings!
In point 2 above, because the legacy fails – there is nothing that will devolve upon Mrs so there will be capital gain tax as well as estate duty!
Additional taxes! Not sure when we do estate planning and expenses that all these additional costs are accounted for.
A legacy will also fail in the following situation
‘if the legatee has predeceased the testator’’
I am sure we can debate who predeceased who –but will we always be able to tell? Car accident? Who died that second before the other?
This means that, where a couple die simultaneously, the one does not inherit from the other. Substituted heirs will inherit and one assumes that the testator has catered for substitution! If not, then full or partially intestate.
The fact that we potentially do not plan for simultaneous death is the reason for this article. If we are not understanding the impact of additional expenses and no liquidity in the deceased estate to cover these, it could have devastating consequences!
I must add a note where the couple who have died are married with the accrual system.
ACCRUAL :– MATRIMONIAL PROPERTY
Accrual is calculated and paid at the end of the marriage. When one of the spouses die, the accrual of both spouses must be calculated and the appropriate sum must be transferred to the spouse whose estate shows the lower accrual.
Does a spouse forfeit their accrual claim on simultaneous death?
Chapter 1 Section 3 of the Matrimonial Property Act:
‘at the dissolution of a marriage, subject to the accrual system by divorce or by the death of one or both of them…’
The above clearly indicates that the spouse with the smaller accrual has a claim against the one with the bigger estate irrespective of whether they have died simultaneously or not.
The accrual claim – whether in assets or in cash – will then clearly be administered as per the will of the spouse with the smaller claim.
This means that for estate duty purposes, the accrual claim will either be included as deemed property or a S4 (1A) deduction. There would however not be any section 4q deduction as mentioned before.
From a capital gain tax perspective, there would be a roll over only if and on the asset which was disposed of to the spouse as part of the accrual claim. But an accrual claim is not against an asset but a monetary claim. Possibly, capital gain will be incurred.
These are my thought patterns on the subject – would be keen to hear from any of you who would like to add to this article, share thoughts, agree or disagree?
Looking forward ….