Lindsey specialises in the drafting of wills, administration of estates (including estate planning) and administering trusts and curatorships. Lindsey holds both a Bachelor of Laws (LLB) and Bachelor of Journalism from Rhodes University as well as a Master’s in Commercial Law (LLM) from the University of Cape Town.

Blog | Challenging your right to bequeath your assets as you wish

On 10 June, legal academic Prof Pierre De Vos argued in his blog post, Constitutionally Speaking, that there is a need to reform the laws of succession both in South Africa and on a global scale.

“Nothing is certain except for death and taxes” is one of the most common phrases heard in the legal field of succession today, and rings true worldwide. Globally, taxes are levied on a person’s estate when he or she passes away. In South Africa estate duty is imposed on estates with a net value greater than R3.5 million. This duty is levied at 20% on the first R30 million and at a rate of 25% for amounts above R30 million.

The rationale behind the levying of this type of ‘inheritance tax’ is that it enables the government to utilise the funds collected for the betterment of South Africa and its citizens.

In the blog post, Prof De Vos argues that the current system of wealth distribution in South Africa needs to be reviewed as it only “increases inequality and makes it more persistent across generations”.  This is so because it is a way for white people, to retain wealth, he argues.

The notion of passing assets from generation to generation is not a racial differentiation though, and a majority in South Africa and in developed countries accept such a bequest as a natural wish and entitlement of the testator.

It is not the first time this type of discourse has been open for discussion in South Africa. In 2016, the Dennis Davis Tax Committee released a report on the proposed regulatory changes to be made to the South African tax system with a particular focus on the trust and succession landscapes. The Committee recommended, for example, that the section 4(q) inter spouse abatement (which allows bequests between spouses to be exempt from estate duty) to be withdrawn. This abatement often results in payment of the tax being postponed until the death of the surviving spouse. The reasoning behind the proposal was that many families in South Africa are unfairly excluded from enjoying this relief, for example those characterised as single parent families or families supported by grandparents, children or other relatives and friends. Information released by Statistics SA in 2017 shows that 67% of white children reside in nuclear families (2 parents), while 21% of African children reside in such families. Furthermore, the statistics show that 23% of white children reside in households without parents, compared to the 66% of African children.  This results in some enjoying the benefits of protecting their wealth in terms of section 4(q) while the vast majority do not.

De Vos acknowledges that while the passing of inheritances down familial lines not only serves to benefit white people, but black people too. But, he argues, it has – as a result of history – given white people a massive head start.

So how do you change a system which is ingrained in the ethos of a country and, furthermore, the world? De Vos recognises that the road to change will not be an easy one. He notes that it would mean having to ensure a complete overhaul of the current legal system, starting with amending the Constitution and the right to property. There would obviously be immense opposition given that people currently enjoy the right to distribute their property to whomever they please on their death.

De Vos suggests that in South Africa a new system could be implemented whereby the right to freely distribute your property on your death will not longer exist, with exceptions being made, for example, in respect of surviving spouses, minor children and those dependent on the deceased. De Vos is also mindful of the need to ensure that the less fortunate members of society are not impacted by such a tax. He proposes that an inheritance tax could be levied on a sliding scale: “…For example, the scale could provide for an inheritance tax of, say, 10% to kick in on any amount of more than R100 000 in an estate, and then gradually increase until everything over, say, R1 million in an estate, could be taxed at 100%.”

De Vos acknowledges that changes of this nature would also need to be made globally to ensure that, practically speaking, it seamlessly integrates with the global financial system. He is, however, careful to advise that his blog post does not serve to provide a conclusive and all-encompassing report on how to amend the current system of succession; instead it serves to open the discourse on the issue and try to create change with a view to successfully addressing the staggering racial inequality in our country and globally.

The blog post has received a lot of comment. In a Financial Mail report this week, Judge Dennis Davis, chair of the Davis Tax Committee, said the suggestions were ‘absurd’.  Judge Davis cautions that one cannot lose sight of the needs of a spouse or children after the other spouse passed away. In addition, he states that the level of abuse would be enormous and that there is no precedent for such a tax anywhere in the world. The Judge said that his committee argued rather that the tax levied on deceased estates could be lifted. ‘We could tax people who leave estates of large amounts, say R200m and more, by a rate of 50%, (estates of) R10m-R200m at 35% and the first R10m free. But even here we would need to make allowances’.

Thabo Legwaila, the tax ombud, says De Vos’ proposal is ‘absolutely not workable’. ‘What this suggests is the total abolishment of inheritance over R100 000 – a total expropriation of the estate once a person dies,’ he says. Legwaila says for it to work, you would also have to tax donations from parents to children at 100%. ‘Now, what kind of a society system would that create? This would disturb the natural instinct of a parent to provide for their children, both during their lives and beyond,’ he says. (As it stands, people can inherit up to R3.5m tax-free, there’s a 20% tax on estates up to R30m, and a 25% tax on sums above that.)

This is indeed food for thought, but we believe a radical change in the current system of allowing a testator to bequeath his assets to his nearest and dearest is unlikely to gain much ground in the near future.