Need HELP understanding property inheritance

[dazzazzad]

Heya,

So my circumstances are that as an only child I will inherent my parent's property when they pass (they're in their 70s) - I live on the property in a separate cottage. My dad bought the property and built the home 4 decades ago.

I'm a bit (well completely) clueless as to how the inheritance would work given the fact that they had some financial problems and now I support them and their only real assets are the property and a car.

As I understand it (might be totally wrong) - 20% of the value of the property would need to be taken from my parents assets (where there is none) and then the property would be transferred into my name with no tax implications. But if they don't have assets to liquidate, except the house itself, to pay that 20% - would I have to pay it?

That could be a R2 million bill, which would be...challenging. Really need to have an idea of this so I can plan accordingly.

Thanks MyBB brain trust!

 

[Harmonic]

Why don't you speak with your parents and clear it all up insteading of asking randoms what to do when they die?

 

[DapperDanMan]

when they pass (they're in their 70s)

You assumed they'll pass at the same time?
(Or is there an unmentioned, unmentionable planned drowning?)

and then the property would be transferred into my name with no tax implications.

To minimise (estate/transfer) tax, take a look at how Capital Legacy goes about it.

Have you thought about your Estate Plan?

No one, I have no Will. I think the law says it goes to next of kin Leave all your stuff to MYBB on condition they give it away as a prize. "To enter, simply look at Pineapple Smurf's profile, and quote the comment you enjoyed the most"

mybroadband.co.za

.

Capital Legacy - Will and Cover - Claims Process

I thought it would be of some use to others if I document the process of Capital Legacy administrating the will and estate of my Mother who passed away recently. I might miss a detail or two here or there so bear with me. Feel free to ask any questions I will try and answer as best I can. I also...

mybroadband.co.za

 

[dazzazzad]

Why don't you speak with your parents and clear it all up insteading of asking randoms what to do when they die?

My parents don't know. Financial planning was not their strong suit, hence my having to support them now because they had no savings.

I'm asking here in case someone is familiar with the topic and can explain how it works so we can plan accordingly.

 

[dazzazzad]

You assumed they'll pass at the same time?
(Or is there an unmentioned, unmentionable planned drowning?)

Dark joke but actually a good point, I didn't consider what would happen if my mom passes first - the property is in her name I believe. Another thing to plan for.

Thanks for the links, I'll take a look.

 

[Arthur]

Things that affect what happens, so you need to find out first:

* How are your parents married - COP or with Antenuptial Contract? If the latter, details matter.

* Do they each have a will? If so, what do the wills say? If not, the rules of intestate succession apply.

 

[chrisc]

Speak to an Estates Planner. Your assumptions are completely wrong and you need to get your facts straight.

Look for Proactive Wills and Estates. Paula Bongers will give you expert advice

 

[Arthur]

Oh, other relevant things to find out:

* Is there an existing mortgage on the property? Outstanding balance? If so, that will have to be settled before anything is transferred.

* Total value of the estate (things they own). At a certain threshold, death duties might become payable.

* Do they own any other fixed property or investments that attract capital gains tax (CGT)? Depending on the details, this might have to be paid.

* Remember, municipal rates and taxes will still have to be paid without interruption. Wise to make provision for that.

 

[dazzazzad]

Oh, other relevant things to find out:

* Is there an existing mortgage on the property? Outstanding balance? If so, that will have to be settled before anything is transferred.

* Total value of the estate (things they own). At a certain threshold, death duties might become payable.

* Do they own any other fixed property or investments that attract capital gains tax (CGT)? Depending on the details, this might have to be paid.

* Remember, municipal rates and taxes will still have to be paid without interruption. Wise to make provision for that.

First thing I did when my dad's company went under was sort out the remaining mortgage. I pay the rates so can keep paying no problem. Your second point is what worries me and I need to find out - I contacted Paula on the recommendation above so hopefully she can help us plan properly.

 

[dazzazzad]

So I just spoke to Paula and my fears were actually fairly accurate. She says over and above 3.6 million my inheritance of the property would be taxed at 20% of the value of the property. So I need to prepare for a 1-2 million payment - a bond could help, or selling the property.

*edit*
Okay a further email added some context. Seems 3.5 million is per spouse so only over and above 7 million. But the executor's fees will be a lot and then also conveyer fees, waiting for details on those.

 

[SafariTin]

So I just spoke to Paula and my fears were actually fairly accurate. She says over and above 3.6 million my inheritance of the property would be taxed at 20% of the value of the property. So I need to prepare for a 1-2 million payment - a bond could help, or selling the property.

*edit*
Okay a further email added some context. Seems 3.5 million is per spouse so only over and above 7 million. But the executor's fees will be a lot and then also conveyer fees, waiting for details on those.

You mentioned that when your dad's company went under you sorted out the remaining bond. This creates the impression that you either settled the bond with your money or that you have been making the instalment payments. Thus it sounds like part ownership of the property should already lie with you. Perhaps investigate a manner in which you could have that partial ownership legally recognised prior to their deaths. Not sure whether contracts could take care of this without the need of transferring ownership. Alternatively, speak to someone about putting loan agreements in place between you and your parents, in order for their debt to you to be settled if it ever came to the property needing to be sold. No point in paying estate tax on the full value of the asset (the house) if you already own a part thereof.

 

[Nerfherder]

Why don't you speak with your parents and clear it all up insteading of asking randoms what to do when they die?

Because they probably wouldn't know what the best plan of action would be either ?

Many here have had to deal with the same thing. So can give sound advice.

 

[Nerfherder]

Heya,

So my circumstances are that as an only child I will inherent my parent's property when they pass (they're in their 70s) - I live on the property in a separate cottage. My dad bought the property and built the home 4 decades ago.

I'm a bit (well completely) clueless as to how the inheritance would work given the fact that they had some financial problems and now I support them and their only real assets are the property and a car.

As I understand it (might be totally wrong) - 20% of the value of the property would need to be taken from my parents assets (where there is none) and then the property would be transferred into my name with no tax implications. But if they don't have assets to liquidate, except the house itself, to pay that 20% - would I have to pay it?

That could be a R2 million bill, which would be...challenging. Really need to have an idea of this so I can plan accordingly.

Thanks MyBB brain trust!

So my uncle had a similar thing with my grandparents - but there were other siblings which made it slightly different.

He lived on the property and they lived in the granny flat. Over the years he upgraded and maintained the house, so it was agreed that he would get the house before they passed.
He took transfer of the house as part of early inheritance, so there was a sale and then he let them live on the property until the died.

I would recommend taking ownership before they die, either by purchasing for a small amount or them just transferring to your name. Transfer is not free but might be a lot less than sorting it out in the estate.
So figure out how much they would need to survive, get rid of any debt etc and get them to sell the house to you. Then they stay there, you get a small bond (or not ?). You have the house in your name and look after it, then after they go, you can either rent it out or sell without having to wait for the estate to settle.

Do they have any income ?

 

[Nerfherder]

So I just spoke to Paula and my fears were actually fairly accurate. She says over and above 3.6 million my inheritance of the property would be taxed at 20% of the value of the property. So I need to prepare for a 1-2 million payment - a bond could help, or selling the property.

*edit*
Okay a further email added some context. Seems 3.5 million is per spouse so only over and above 7 million. But the executor's fees will be a lot and then also conveyer fees, waiting for details on those.

this is why I say sort the house out before they go. Remember that they wont pass at the same time, one will go and then you have to sort out the estate and transfer to the remaining parent... then that parent will go and you will have to do the same (so pay twice)

 

[SafariTin]

So my uncle had a similar thing with my grandparents - but there were other siblings which made it slightly different.

He lived on the property and they lived in the granny flat. Over the years he upgraded and maintained the house, so it was agreed that he would get the house before they passed.
He took transfer of the house as part of early inheritance, so there was a sale and then he let them live on the property until the died.

I would recommend taking ownership before they die, either by purchasing for a small amount or them just transferring to your name. Transfer is not free but might be a lot less than sorting it out in the estate.
So figure out how much they would need to survive, get rid of any debt etc and get them to sell the house to you. Then they stay there, you get a small bond (or not ?). You have the house in your name and look after it, then after they go, you can either rent it out or sell without having to wait for the estate to settle.

Do they have any income ?

Yes, this is what I was eluding to as well. There may be considerations in how SARS would deal with the transaction if the sale is not at "fair value".

And if the accurate value is used, there may be donations tax if the parents give him their part of the house too.

Hence why I suggested looking at partial transfer of ownership or loan agreements.

FAQ: What happens when a disposal of property is considered "inadequate"? | South African Revenue Service

If any property has been disposed of for a consideration which, in the opinion of the Commissioner, is not an adequate consideration, that property is treated

www.sars.gov.za

 

[AlmightyBender]

So I just spoke to Paula and my fears were actually fairly accurate. She says over and above 3.6 million my inheritance of the property would be taxed at 20% of the value of the property. So I need to prepare for a 1-2 million payment - a bond could help, or selling the property.

*edit*
Okay a further email added some context. Seems 3.5 million is per spouse so only over and above 7 million. But the executor's fees will be a lot and then also conveyer fees, waiting for details on those.

Hmmmm I'm not sure that sounds right.

You would be paying 20% Estate Duty on any value ABOVE R3.5m estate value, i.e. the first R3.5m is exempt from any estate duty.

Example if the house and car together are worth R4m then you would pay a duty of R100,000
R4m-R3.5m=R0.5m (taxable estate value)
R0.5m x 20% = R100,000

For you to be expecting a bill of R1m it would imply that the entire estate is worth R50m plus... is that correct?

 

[Nerfherder]

Yes, this is what I was eluding to as well. There may be considerations in how SARS would deal with the transaction if the sale is not at "fair value".

And if the accurate value is used, there may be donations tax if the parents give him their part of the house too.

Hence why I suggested looking at partial transfer of ownership or loan agreements.

FAQ: What happens when a disposal of property is considered "inadequate"? | South African Revenue Service

If any property has been disposed of for a consideration which, in the opinion of the Commissioner, is not an adequate consideration, that property is treated

www.sars.gov.za

Ya, I think the solution is somewhere here. There is probably a min value they can sell to him for. Ultimately he will inherit it back... and own the house so it can work for him.

Also @dazzazzad how are you supporting your parents at the moment ? Like do you pay bills for them or buy them food ?
If you buy the house from them then they could potentially use that money to live off, instead of you supporting them.

 

[Neuk_]

So my uncle had a similar thing with my grandparents - but there were other siblings which made it slightly different.

He lived on the property and they lived in the granny flat. Over the years he upgraded and maintained the house, so it was agreed that he would get the house before they passed.
He took transfer of the house as part of early inheritance, so there was a sale and then he let them live on the property until the died.

I would recommend taking ownership before they die, either by purchasing for a small amount or them just transferring to your name. Transfer is not free but might be a lot less than sorting it out in the estate.
So figure out how much they would need to survive, get rid of any debt etc and get them to sell the house to you. Then they stay there, you get a small bond (or not ?). You have the house in your name and look after it, then after they go, you can either rent it out or sell without having to wait for the estate to settle.

Do they have any income ?

Would transferring in to the OP's name not also have tax implications? Something like donations tax as the limit for donations between family members is only R30k per year from what I recall.

 

[Nerfherder]

Would transferring in to the OP's name not also have tax implications? Something like donations tax as the limit for donations between family members is only R30k per year from what I recall.

Its R100k but yes. They need to find out what the min amount is they can sell it for.

 

[Neuk_]

Its R100k but yes. They need to find out what the min amount is they can sell it for.

Aah, yes, sorry, R100k is correct. When my Nonna passed my dad had put her flat in his name when it was bought but used her money and it took a long time to sort everything out with SARS who wanted tax returns despite her never working in SA.