The hidden costs of letting a child inherit your home

It is common for children to inherit a family home on the passing of their parents. However there are costs involved in bequeathing a property to a child that need to be considered, and the decision should be weighed against alternatives, such requiring the property to be sold into the deceased estate.

If you bequeath your home to a child in your will, the executor of your deceased estate will be responsible for ensuring that the property is transferred into the name of your child. In the case of more than one child, you may stipulate that the property be shared among them, in which case the property will be transferred into the names of the co-owners.

Note: the costs of transfer are not the responsibility of the heirs; the costs need to be paid by the estate (unless there is a liquidity problem, as discussed below). If an heir goes on to sell the property after inheriting it, the costs pertaining to regular property transactions would apply.

Costs of transfer

Importantly, there is no transfer duty on the transfer of a property through inheritance, regardless of the relationship of the heir to the deceased person. However, there are other costs related to the transfer. These include conveyancing fees based on the market value of the property, deeds office fees, and rates and levy clearance certificates.

At current conveyancing and related rates, these costs on a R3-million property would be roughly R62 000, according to the South African Legal Network’s property transfer costs calculator. The conveyancing attorney’s fee would be about R54 600, the deeds office fee about R2 400, and further charges about R5 000. On a R5-million property, these costs would total about R87 000.

Other liabilities for the estate

While not related to the property transfer, there are other liabilities and costs the executor must take care of in winding up the estate. These include:
• Debt: The executor must settle all debts owed by the estate, including the balance of a possible mortgage bond on the property. Cancellation of the bond will entail a bond cancellation fee.
• Estate duty: The estate may be liable for estate duty if the total net value of the estate, including the property, exceeds the exemption threshold (currently R3.5 million). It is calculated on the value exceeding the threshold, at 20% on the first R30 million and 25% on any amount above that.
• Executor fee: This fee, to a maximum of 3.99% (including VAT) of the gross value of the estate (before deductions for tax and other liabilities), is paid from the estate. The executor may also claim 6.84% (including VAT) of income earned by the estate during the winding-up period.

Liquidity in the estate

If there is sufficient liquidity in the estate in the way of cash and liquid assets to cover all liabilities, including the transfer costs, once the estate’s Liquidation and Distribution Account has been approved by the Master of the High Court, the transfer to the heir should proceed relatively painlessly. 

However, if there is insufficient liquidity in the estate to cover liabilities, the executor will be forced to sell assets, which may include the property itself. In this case there are the following options for the executor and heirs:
• Liquidate other assets, such as investments, or vehicles, to preserve the property.
• Sell the property: this requires the written consent of the heirs or approval from the Master.
• Accept contributions from heirs: if the heirs wish to keep the property, they can pay the shortfall themselves. This may entail taking out a bond against the property.

Alternative strategies

In your estate planning, instead of bequeathing your home directly to your children, you may consider the following alternatives:

• A deceased sale of the property into your estate: You can stipulate in your will that the executor sells the property and adds the proceeds to your estate. This makes it easier for multiple heirs to share in the value of the property, particularly if none of them is likely to live in your home.

• Placing your property, among other assets, into a trust before you die: A trust does not form part of your estate, and you can nominate your children as beneficiaries of the trust.

For the full implications, including tax implications, of each strategy, it is vital to enlist the services of a professional financial planner or fiduciary expert.

References:

“Property must-knows and considerations” (Private Property)

“The Hidden Cost of Inheriting Property: When “Bitter-Sweet” Turns Just Bitter” (Lodene Grobler, LinkedIn post)

“Transferring Immovable Property from a Deceased Estate: Understanding the Process” (Bathandwa Nomtshongwana, Fairbridges)

“Ensuring liquidity in an estate and the importance thereof” (ASL Attorneys)

“Consumer education: The cost of death” (FISA)