Death, Divorce,Wills and Ex-spouse

Death, Divorce,Wills and Ex-spouse

In terms of Section 2B of the Wills Act 7 of 1953, if there is an existing will and either spouse dies within 3 months of the date of divorce, the ex-spouse will not receive any benefits allocated to him/her in terms of the will.  If, however, the ex-spouse dies 3 months after the date of divorce, the ex-spouse will receive the benefits allocated to him/her in terms of the will.

This rule is to allow divorced spouses a 3 month period within which to amend their wills.  If the will is not amended after this 3 month period, the presumption is that the deceased intended for his/her ex-spouse to receive any benefits bestowed upon her in terms of the will.

Redistribution claims by a spouse against a deceased estate

In Gunter v the Executor in the estate of the late Christian France Gunter the issue was whether the Plaintiff’s claim for redistribution in terms of Section 7(3) of the Divorce Act 71 of 1979 (hereinafter referred to as “the Act”) was extinguished by the death of her husband, prior to the divorce had been finalised, but after litis contestatio.  It was stated that divorce is a personal action which automatically comes to an end if one of the spouses die prior to the finalisation of the divorce.

Similarly, a claim for redistribution is a personal right which only a court granting an order of divorce has the discretion to consider.  It is trite that marriage dissolves upon death of one of the parties.  Similarly, any ancillary relief to a divorce would no longer be competent is the marriage relationship no longer existed.

It was held that the Plaintiff’s claim for redistribution in terms of Section 7(3) of the Act was extinguished by the death of her husband, irrespective of whether litis contestatio had taken place.

Maintenance of an ex-spouse on a deceased estate

In terms of Section 7(2) of the Divorce Act:-

“… the court may, …make an order which the court finds just in respect of the payment of maintenance by the one party to the other party for any period until the death or remarriage of the party in whose favour the order is given, whichever event may first occur.”

It is clear from the wording of the aforementioned Act that the payment of maintenance is linked to the life of the spouse receiving such maintenance, and not to the life of the spouse upon whom such obligation is placed.

Kruger v Goss and another (603/08) [2009] ZASCA 105

This was an appeal case in which the question of whether an order for rehabilitative maintenance (maintenance for a specified / limited period of time) in terms of a final order of divorce is enforceable against her ex-husband’s estate.

As stated above, in terms of Section 7(2) of the Act, the payment of maintenance is NOT linked to the life of the spouse liable to pay such maintenance, but rather to the life of the person receiving the maintenance.  The court held that this decision should not be viewed in isolation and must be read with common law.  In terms of common law, the duty of support between spouses is dependent on a matrimonial relationship.  Death or divorce therefore brings that matrimonial relationship to an end.

An exception to the aforementioned rule is a provision in terms of the Maintenance of Surviving Spouses Act 27 of 1990, which allows widows / widowers to be maintained from their deceased spouse’s estate, in certain circumstances.

The provision of this Act altered the common law to a certain extent, in that, in terms of section 2(1):-

“If a marriage is dissolved by death after the commencement of this Act the survivor shall have a claim against the estate of the deceased spouse or the provision of his reasonable maintenance needs until his death or remarriage in so far as he is not able to provide therefore from his own means and earnings.”

A spouse is always free to bind his/her estate to pay maintenance post his/her death.  This can be done by either adding a provision to your will stating that your estate must pay maintenance to your ex-spouse, or such a provision should be included in a Deed of Settlement, upon divorce, which is then subsequently made an order of court.  This was not the case in the aforementioned matter.

The appeal court found that, should the First Respondent’s claim succeed, it may have “undesireable consequences” on the deceased’s estate.  Particularly in that the legitimate claims of dependants and/or minors may be diminished or excluded in light of the First Respondent’s claim.  It was also stated that it could not be that before the Maintenance of Surviving Spouses Act came into being that divorced spouses were in a more favourable position than widowed ones.

The court further found that the final order of divorce did not prevent the First Respondent from approaching the maintenance court to vary the terms of the rehabilitative maintenance order, thereby placing a greater burden on the deceased’s estate.  Furthermore, the final order of divorce did not exclude remarriage of the First Respondent.

The appeal was upheld and the original court order, ordering the executor to pay the claim by the First Respondent was set aside and dismissed. https://za.linkedin.com/in/liesl-rae-fischer-7b287b196

Is it beneficial to set up a trust for estate planning purposes?

Is it beneficial to set up a trust for estate planning purposes?

Estate planning involves the effective structuring of assets so that they may be transferred to the people nominated by you, in your will, without paying unnecessary taxes or estate duty.  Proper estate planning will also reduce uncertainties regarding your estate upon your death.

Estate planning in your personal name

One of the major disadvantages of your estate devolving in terms of a will is that your entire estate is frozen upon your death, including bank accounts and any bank accounts held jointly.  Therefore, if you have a spouse and/or minor children dependent on you, this method would not effectively cater for their needs whilst your estate is wound up, which could take several months.

In terms of Section 4A of the Estate Duty Act 45 of 1955 (hereinafter referred to as “the Act”), each persons’ estate is entitled to an exemption on assets of up to R3.5 million.  Estate duty of 20% is levied on assets that exceed the R3.5 million exemption, except where assets are transferred to a surviving spouse.

Section 4A(2) of the Act allows for the surviving spouse, who subsequently passes, to utilise the remainder of the exemption of the first-dying spouse, if any.  Therefore, if for example the first-dying spouse only utilises R2 million of his/her exemption, the balance of R1.5 million will be added to the second-dying spouse’s exemption.  The second-dying spouse will therefore have an exemption of
R5 million available to him/her.

Where spouses die simultaneously, the spouse with the smallest estate will be deemed, for the purposes of Section 4 of the Act, to have died first.

Trusts

There are several advantages of establishing a trust for estate planning purposes.  One of the most notable is that the trust does not “die” when you die.  Therefore your estate is not liable for estate duty.

Further to this, all growth on assets of a trust is similarly not subject to estate duty as the growth on such assets is attributed to the trust.

A further advantage of a trust is that the assets are not frozen upon death and the trust can therefore continue to support your dependants upon your death.  This is often considered as a major advantage as it could take several months to wind up a deceased estate.  During that time, your dependants will not have access to assets like, for example, bank accounts.

Furthermore, the assets of the trust can be protected from creditors. This is only the case if the trust is not an alter ego, as held in First National Bank v Britz and Others [2011] ZAGPPHC 119; 54742/09
(20 July 2011).  If a trust is being used merely to protect assets from creditors in your estate and you are in control of the trust and its assets, it may be found that such trust is an alter ego and the court can declare that such assets are in fact personally held by the founder and should therefore fall within their personal estate.

Conversely, a trust also places many duties on the trustees.  A high level of responsibility is placed on trustees and they are expected to act diligently, carefully and independently, in the interest of the beneficiaries and in accordance with the trust deed.  Trustees can be sued for not carrying out their duties properly.

Furthermore, trust administration can be costly and time consuming as proper records must be kept and tax returns submitted.  Trustees are expected to be meticulous with documentation of transactions by the trust, bearing in mind that their objective is to act in the interest of the beneficiaries.

Testamentary Trusts

Testamentary trusts (mortis causa) are the most common form of trusts used in estate planning as they only come into existence after the death of the testator.  These trusts are especially beneficial where a testator wishes to protect minor children or dependants who are not capable of managing their own affairs.

A testamentary trust is formed by the testator inserting a trust clause into his will, which serves the same purpose as a trust deed.

The trust is administered by trustees appointed in the will and usually comes to an end after a predetermined period or event, for example when a minor child attains the age of majority.

Assets that form part of a deceased estate may be moved to this trust by trustees who are appointed in the deceased’s will.

Summary

Choosing the most effective way to plan your estate depends on your personal circumstances.  As seen from above there are several pros and cons to each model and it is up to you to decide what is best suited for your personal circumstances.

Estate planning in your personal name attracts estate duty at 20% of assets over and above the R3.5 million exemption.  Should your estate be in excess of R3.5 million you may wish to consider a trust or a testamentary trust.  Further, upon death, the estate of the deceased is frozen pending finalisation.

A trust places many onerous duties on the trustees.  Running a trust is costly and there is always a risk that such a trust could be set aside if it is proven to be an alter ego of the founder.

A testamentary trust is only created upon the death of the testator – there are therefore no costs involved with the trust prior to the testator’s death.  There is therefore also no risk that this trust could be set aside on the basis of it being an alter ego.  Further, your dependants can continue to utilise the trust assets while your estate is wound up.  You also have the benefit of not paying estate duties. https://www.linkedin.com/in/liesl-rae-fischer-7b287b196/?originalSubdomain=za

Inherited Business Assets in Russia: Problems and Risks

Inherited Business Assets in Russia: Problems and Risks

Russian legislation does not provide any specific regulations to protect business assets after the death of testator which leads to impossibility to inherit business as a whole complex. There are risks of losing the business till the heirs accept the inheritance. For more details please follow…

What Problems One May Face with Inherited Business Assets in Russia?

In accordance with the Russian laws the inheritance comprises all the assets owned by the testator by the moment of death. If the inherited estate includes the business assets (shares, participatory shares in Russian or foreign legal entity) the heirs and the business itself may face a number of difficulties. Russian laws do not take into account the following points:

  • type of assets;
  • place of their location;
  • number of heirs;
  • heirs age, social, cultural, educational background.

Moreover, there is no definition of “Business” in Russian law so it is impossible to inherit the business as a whole complex but only via transferring to the heirs separate elements of it.

Also Russian laws provide only standard instruments for inheritance issues – inheritance by operation of law and making a will. Trusts and foundations are not recognized in Russia (but of course Russian persons may be settlers and beneficiaries of such institutions established under the foreign law).

The facilities of the instruments allowed by law are limited. For example, it is impossible to inherit the beneficial rights to the assets and the spouse’s share (The property acquired by the spouses during their marriage shall be their joint property according to the Family Code of the Russian Federation. The shares of the spouses are considered as equal, unless the alternative is provided by marriage contract.

The freedom to transfer the business assets under will is limited by the right of the following forced heirs:

  • minor or disabled children of the testator;
  • disabled spouse and parents;
  • disabled dependants of the testator

The forced heirs shall inherit at least half of the share each of them is entitled to in the case of legal succession.

This half of the share cannot be inherited in accordance with the provisions of the will. Also the testator cannot indicate in the will the following items:

  • the conditions for the heirs to be considered as the owners of the inherited business assets (for example attaining of a certain age, receiving the education) or
  • to give the instructions to the heirs on the manner of managing the assets in future.

So there is a high risk that the inherited business assets will be transferred to the heirs not in accordance with the wishes of the testator or be transferred to the persons who actually do not have required professional skills for managing business.

Risks Arising within Six Months Period of the Inherited Business Assets Acceptance

The heirs are entitled to accept the estate (inherited business assets) within six months period from the death of the testator (in some cases this term may be prolonged). And the estate shall be considered to be owned by the heirs from the moment of the testator’s death. But in practice the heirs cannot exercise their right to manage the business assets, i.e.:

  • attend the general meetings of shareholders;
  • receive dividends, etc

until they have received the certificate confirming their rights. The confirming certificate shall be issued by the notary who deals with the inheritance case upon expiration of six months period from the testator’s death (except for the cases when the notary is entitled to issue the certificate earlier).

So the uncertainty in shareholding structure exists during the mentioned six months, i.e. it may be difficult to clear up in advance the following:

  • who are the heirs;
  • whether the heirs have the intention to accept the inherited business assets or not.

Due to it the company which shares are being inherited may have the following difficulties and risks:

  • difficulties in convening and holding the general meeting of the shareholders for taking decisions and solving urgent problems (as there is no information on the persons entitled to participate in such meeting);
  • if nonetheless the general meeting was held there is a high risk of contestation of the taken decisions in future. The contestation may be provided by the new shareholders upon receiving the notary certificate.

This problem is relevant not only to the heirs of the business, but also to the management (members of the BoD, CEO) as there are no persons who can give the necessary instructions and make decisions.

Also it is worth mentioning that the period of uncertainty in shareholding structure may last for a very long time, i.e.:

  • heirs may not be aware that the estate includes business assets;
  • heirs may not inform the company on the fact of acceptance of the estate and receipt of the notary certificate;
  • the company or the shareholders alive do not have the access to the following information:
    – to the inheritance case,
    – to the information whether the will exists or not,
    – to the provisions of the will.

The situation becomes critical if the diseased was not just the shareholder of the company but also the CEO. In this case the company’s activity will be actually paralyzed as there are no corporate bodies entitled to take decisions required in day-to-day dealings of the company.

Managing the Inherited Business Assets on Behalf of the Heirs

If the estate includes shares and other assets to be managed, it is possible to establish the fiduciary management of the inherited business assets for the period until the heirs accept the estate and the notary issues the certificate confirming the rights of the heirs. The conditions of such fiduciary management are:

  • to be established by the notary or by the executor of the will;
  • exists only until the heirs accept the estate and not longer than nine months from the death of the testator if the management was established by the notary.

So it is recommended for the persons having business assets to make a will and indicate in it the authorities of the will executor. It will help to avoid the situations when:

  • the notary is not interested in execution of a fiduciary management agreement and does nothing, or
  • the notary enters into agreement with persons/companies not being professionals (as the activity of such managers is not licensed and there are no formal requirements for them), or
  • the heirs contest the inheritance issues in court for more than six or nine months, and
  • there is no authorized person to manage the assets during proceedings in the case in court.

Anyway in case the inherited business assets require managing after the heirs acceptance of the estate (for example in case the heirs are minors) then the business of the diseased may face a lot of problems as the transactions with the property of minors may need the approval of the tutorship authority.

Whether the Consent of Other Shareholders is Required for Transferring Shares of Inherited Business Assets to the Heirs?

Articles of Association of a limited liability company may provide that the participatory share in such company can be transferred to the heirs of the diseased only with the written consent of other participants of the company.

So in theory the rights of the heirs to receive a participatory share may depend on the will of other participants.

Under the practice of Russian courts the participants can approve or not the heir to be a new member of the shareholder structure only upon expiration of the six months period from the testator’s death. This may prolong the period of uncertainty in the shareholder structure.

The participants may give their consent by issuing one of the following documents depending on the provisions of Articles of Association:

  • Minutes of the general meeting of the participants to be signed by all of them (the share of the diseased shall not be taken into consideration);
  • Consent to be executed as a single document signed by all the participants;
  • Written statements to be signed by each participant.

The heir is considered to be a new member of inherited business assets shareholder structure automatically if the participants remain silent within 30 days from the receipt of request for approving of the heir to be a new member of the shareholder structure.

If the participants of the company deny the heirs right to receive the diseased share in the Authorized capital, the shares shall pass to the company itself. In this case the company is obliged to:

  • divide the shares between the existing participants of the company or,
  • dispose the shares to the third parties within one year if it is not prohibited by the Articles of Association.

In this case the heirs are entitled to receive the compensation for the shares. The shares cost  should be calculated on the basis of the last accounting statements of the company prepared prior testator’s death. https://www.alrud.com

Succession in Russia

Succession in Russia

Succession in Russia is possible by will and operation of law. The freedom of will is limited. To acquire the estate the heirs shall accept it. Succession in Russia is the only way to transfer property in case of death. The only way to change the order of succession established by law in Russia is to make a will. The freedom of will is limited by compulsory heirship rules and spouse’ part in the joint property. For more details please follow…

Order of Succession in Russia in Compliance with Domestic Law

Succession in Russia is the only way to transfer property in the case of death. Deceased’s estate (property, rights and obligations) shall pass to other persons by universal succession, i.e. in an unchanged, single form at the same time. It is an important fact that heirs have no right to waive part of inherited property. For example, it is impossible to accept deceased’s assets and to reject debts.

Rights and liabilities which are connected with the personality of the deceased shall not be included in the estate. In particular it will be the following rights:

  • the right to alimony,
  • right to damages for harm inflicted to the person’s life or health, and also
  • rights and liabilities prohibited for succession by law,

For example, rights arisen from the following agreements shall not be inherited:

  • gratuitous use agreements,
  • agency agreements,
  • contracts of commission agency.

The following personal incorporeal rights shall not be included in the estate:

  • right to the name,
  • right of authorship,
  • other personal non-property rights and intangible wealth.

Inheritance includes both properties situated in Russia and abroad. Whereby if testator’s last abode is situated abroad, only real property (immovable), situated in Russia, will be inherited by Russian law.

Succession in Russia may be provided by will and by operation of law. In the case of succession by operation of law all legal heirs, who are called upon to inherit in compliance with the priority, shall inherit in equal shares. The order of succession may be changed by composing a will which has a priority under succession by operation of law.

Inheritance by Will as the Way of Structuring of Succession in Russia

The will as the way of structuring of Succession in Russia shall be created personally and contain dispositions of only one person. It cannot be created through a representative and it cannot be created by two persons or more . As a general rule, the will shall be made in writing and attested by a notary. Failure to observe these rules causes the invalidity of the will.

The deceased can dispose of his/her property or a portion thereof by means of one or several wills . A will may contain dispositions relating to any property, in particular, a property that a testator might acquire after issuing a will .

The testator has the following rights:

  • to transfer property at his own discretion to any persons,
  • to define in any way the shares of the heirs in the inheritance,
  • to deprive of the inheritance several or all legal heirs, not explaining the reasons for such deprivation,
  • to include into the will other orders.

Nevertheless, irrespectively of the provisions of the will the following compulsory heirs excluded from the will automatically gain at least half of the share each of them is entitled to in the case of legal Succession in Russia :

  • minor or disabled children of the testator,
  • disabled spouse and parents,
  • disabled dependants of the testator.

Spouse’s Right to ½ Part of the Deceased Property

The property acquired by the spouses during their marriage shall be their joint property according to the Family Code of the Russian Federation . The shares of the spouses in their joint property are considered as equal, unless the alternative is provided by marriage contract. Therefore, in case the spouses do not agreed otherwise, the deceased’s spouse automatically gains half of jointly owned property. The second part of this common joined property shall be divided between all heirs by will or by operation of law.

Inheritance Acceptance as the Step of Succession in Russia

Inheritance acceptance is the important step of Succession in Russia. To acquire the inheritance the heirs shall accept it. There are two methods of inheritance acceptance :

  1. filing an application to the notary who maintain the inheritance case and
  2. making implicative actions.

The implicative actions will be made if the heir:

  • has commenced possession or administration of assets of the inheritance;
  • has taken measures for preserving assets of the estate, protecting it against third persons’ encroachments or claims;
  • has made expenses on his account towards maintenance of assets of the estate;
  • has paid the testator’s debts or received from third persons amounts of money payable to the testator.

The term for inheritance acceptance consists of 6 months after the date of the testator’s death. The heir may accept the assets after this term in two cases:

  1. reinitiating the term for inheritance acceptance by the court order
  2. without applying to the court if other hers have no objections.

The inheritance by minors has some special features:

  • assets to be transferred to the minors may be accepted by their legal representatives (for example by the parents alive),
  • in certain cases the disposal of the property owned by minors cannot be performed without preliminary consent of the guardianship agency. https://www.alrud.com