The short answer
Agreement amongst the five siblings is key to dealing successfully with inheriting your late brother’s properties. It is only the executor who has the right to deal with the deceased estate.
The whole question
My siblings and I need advice on how to manage the process of inheriting two properties from our late brother, the pros and cons of renting or selling the properties, the tax implications, and whether we can issue our brother’s tenants with a new or revised contract or not.
The long answer
I am assuming your brother’s death was reported to the Master’s Office within 14 days as required. Once a death is reported, a deceased estate comes into being. That means that your brother’s bank accounts are frozen and no one may sell or dispose of any of the assets. The Master will appoint an Executor if the estate is worth more than R250,000 (or your late brother might have named an executor in his will), or a representative with the Letter of Authority if the estate is worth less than R250,000. It is only the executor (or representative with the letter of authority) who has the right to deal with the deceased estate. Let’s assume it’s an executor in your late brother’s case as there are two properties.
The executor must open a new bank account in the name of “Estate of Late Mr X” so that your brother’s bank account is closed and the bank must transfer the money to the new “Estate Late Mr X” bank account. The executor will need to provide the bank with the following documents:
Letter of Authority or Letter of Executorship
Appointed Representative’s or Executor’s ID
Being appointed as the executor does not give that person any rights over the property. Their duty is to wind up the deceased estate, which means first paying all the debts and then seeing that the rightful heirs inherit.
There is a complex procedure to be followed by the executor when winding up a deceased estate. Mohammed Moolla, a magistrate in Wynberg, explains the process in a 2022 De Rebus article, which I summarise below:
Once the letter of executorship has been issued, the executor must put a notice for debtors and creditors in the Government Gazette and in one or more of the newspapers in the area in which the deceased person had lived for at least a year before they died. The notice calls on everybody who has a claim against the estate to lodge their claims not less than 30 days and not more than 3 months after the notice is published in the Government Gazette. Those who owe debts to the estate must pay them within the same period.
Liquidation and distribution account (L&D)
After the last day of the notice period and within six months of the letter of executorship being issued, the executor must give the Master an account of how the estate must be liquidated and distributed, supported by vouchers.
Inspection of the accounts
Once the Master has examined the account and issued a memorandum about any queries, the executor must again put a notice in the Government Gazette and one or more local newspapers, this time advertising that the Liquidation and Distribution Account (the L&D account) will lie open at the Master’s office for anyone who is interested in the estate to read.
Objections to the accounts
Anyone interested in the estate can lodge an objection to the L&D account and must give their reasons for objecting. The Master will deliver these objections to the executor, who must reply to the Master regarding these objections within 14 days of receiving them.
The Master must consider the objection and the comments of the executor and if the Master finds the objection is well-founded or the L&D account is incorrect, he can instruct the executor to amend the account.
Anyone who objects to the Master’s decision can apply within 30 days to the High Court for a court order to set the Master’s decision aside.
Distribution of estate
When that has all been done, the executor must immediately pay the creditors and distribute the estate amongst the heirs, according to the L&D account. The executor must give the Master all the receipts from creditors and heirs.
Looking now at the properties you and your siblings have inherited: in terms of the Administration of Estates Act of 1965, when someone dies, their property needs to be transferred to the person or persons named in the will by the executor who liaises with the conveyancing attorney and the Deeds Office. That would be you and your siblings.
In terms of the existing rentals, the rentals will be paid to the executor of the deceased estate until the estate is wound up and the properties are transferred to your names. The tenants would not have to move out unless they failed to renew the lease when it was due for renewal, and until such time, the rental that they paid to your brother could not be revised, as it has been agreed in the lease they hold. What generally happens is that you and your siblings simply take over as the legal successors to your brother, and split the income between you.
If you decided to sell one or both of the properties, the new owners would have to let the existing lease run its course before higher rentals could be negotiated and the tenants would have the right to stay until their lease was up for renewal.
An article by Just Money quotes Lizl Budhram, advice and product strategy manager at Old Mutual Personal Finance, suggesting the following steps to prevent a tense situation arising between siblings who co-inherit property:
Step one is to take a careful look at the will and to make sure all the provisions of the will are considered and understood.
Step two is for the siblings to have a conversation to discuss their preferences and plans regarding the co-owned property. The siblings should agree about what they would like to do.
Lastly, the siblings should have a detailed conversation with the executor to express their preferences and requirements.
This could include selling the properties and splitting the income or renting out the properties and splitting the income, or one or more of the siblings staying in the properties and paying rent to the others.
Budrham says that if siblings inherit property together and decide to sell, they can ask the executor of the estate to do so before ownership is transferred to them. They will then effectively inherit the proceeds of the property.
Fitzanne Estate website says: “After the property has been sold, the signed agreement of sale is given to a conveyancer who will handle the property transfer. The Conveyancer shall obtain the consent of all the heirs in the Estate and deliver the same to the Master of the High Court with other documents in support thereof.
The Master will review the paperwork before making a decision regarding the sale. Unfortunately, the Master’s office does not have a set turnaround time…”
In terms of tax, the South African Revenue Service website says that if you inherit a house, there is no tax on the actual inheritance. “You don't have to pay tax on what you inherit as it's not included in your gross income, however, the estate of a deceased is subject to a 20% tax called estate duty. This means that tax is paid on the estate before it goes to the beneficiary or beneficiaries, and the beneficiaries don't have to pay tax any more on what they receive. Normally the executor of the estate is responsible for paying the estate duty.”
Private Property website says that "estate duty is the name for inheritance tax in South Africa, which is a property tax payable on all estates with a net worth in excess of R3,500,000. The tax rate in South Africa for estate duty is 20% of properties worth up to R30 million and is 25% of properties worth more than this."
Even if estate duty is not payable, the executor must notify SARS that the person is deceased by sending an email to SARS.
The executor will calculate the estate duty payable when preparing the liquidation and distribution account. The executor must complete the Estate Duty Return (Rev267) and must submit the return, together with the liquidation and distribution account to the Master of the High Court as well as to SARS.
SARS also says that the value of the house on the day you inherited it will be the base cost for Capital Gains Tax purposes. “When you eventually dispose of this property, it will be subject to Capital Gains Tax.”
I hope all this information has been helpful. Perhaps the main point to bear in mind is that agreement amongst the five siblings is key to dealing successfully with inheriting your late brother’s properties.
Wishing you the best,
Answered on Sept. 14, 2023, 2:04 p.m.
Please note. We are not lawyers or financial advisors. We do our best to make the answers accurate, but we cannot accept any legal liability if there are errors.