A reader’s father-in-law, who is married in community of property, wants to know if he should give a property to one of his sons as a donation or simply leave it to him in his will.
He would like to find out the cost implications of the various options.
The father-in-law is married for a second time, in community of property, and owns a property valued at R500 000 that he is considering giving to a son from his first marriage.
See the reader’s question here.
The first aspect to consider is that the property is quite likely to be owned in undivided half shares by the spouses married in community of property.
This means that the father-in-law may only donate his own undivided half share to his son.
For the son to become owner of the property in its entirety, both spouses would have to agree to donate their half share to him.
The cost implications of such a transaction are that each spouse may donate R100 000 per tax year without attracting donations tax.
Assuming they had not made any other donations and each half share is valued at R250 000, R150 000 of such half share will be subject to donations tax, levied at 20 per cent.
There will also be transfer costs to register the property in the son’s name.
At this value there will not be any transfer duty but, for properties of higher value, transfer duty may also be applicable.
The father-in-law may also choose the route of bequeathing his half share to his son in terms of his will.
At death, there will be no donations tax, but depending on other bequests made by the testator and the value of his overall estate, estate duty may be levied at the rate of 20 per cent.
There will once again be a fee for the transfer of the half share to the heir, but no transfer duty.
The practical effect of such a bequest is that in the event of death the son will then own his half share, together with his father’s surviving spouse.
If the surviving spouse agrees, she may donate her portion, which will have the donations tax implications.
Should the father-in-law indicate in his will that he wishes to bequeath the whole property to his son, this may be construed as an instruction to his executor to acquire the other half share from his surviving spouse.
This would presumably be done on a commercial basis, with the estate purchasing that half share and allowing the estate to transfer the full property to the son.
It should, however, be noted that the surviving spouse is not obliged to sell her half share and this may result in co-ownership.
It is clear that both options will require some interaction between the co-owners of the property, which will ultimately impact on the resultant transaction, regardless of the father-in-law’s wishes.
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