A reader has approached our panel of experts with several questions regarding the property inheritance of smallholdings.
The reader owns a smallholding of which the value has grown extensively. The property is registered in the reader’s name, but three parties are sharing the property by agreement.
At the time of purchase the property included one house and one outbuilding. The number of buildings on the property has since been expanded to include two more houses, an office and nine horse stables.
The concerns of the reader pertain to what should happen to the property when she dies. She questions whether a percentage split on the value of the property, or the appreciation of certain sections of the property, is necessary in case the parties should choose to sell.
The reader asks whether the property can be divided in a specific way and she mentions some possibilities that she is considering.
One option is that the original house and one outbuilding, along with the remaining land, be divided between the three parties, while the second party’s house or the value thereof remains the property of that party. This will leave the reader’s house, additional buildings and improvements in the care of the reader’s beneficiary.
She also offers the counter suggestion of establishing a percentage point system to ensure fairness of property value division, and thus avoid any rivalry issues.
According to Property Poser’s legal experts, the property or its subdivision is dependant on whether the smallholding is zoned for agricultural purposes.
If the property in question is classified as agricultural land, it will not be possible to transfer the property into the name of more than one person as it is in contravention of the Subdivision of Agricultural Land Act.
The transfer of an agriculturally zoned property to more than one person is regarded as a subdivision of the property and as such, in contravention of the act. This act may be repealed in the near future, but the position is currently still that the consent of the minister of agriculture must be obtained before the property may be advertised for sale, or transferred to any party.
If the reader decides to sell the property during her lifetime, she may pay out a portion of the proceeds to the other parties, proportionate to the financial contributions that they made to increase the value of the land by erecting the relevant buildings on the sections that they are using.
The reader should obtain expert legal advice in this regard and a contract must be drawn up by all the parties involved to ensure that everyone’s financial interests are secured.
The reader should also consider drawing up a will wherein a testamentary trust is created. She can then specify who the beneficiaries of the trust are and she may stipulate in what manner the trustees must make the land available for use by the beneficiaries.
Another alternative is that she may register a company or a close corporation of which the parties all own shareholding or members’ interest, as the case may be, proportionate to their share of the value of the property. The reader may then bequeath the property to the company or the close corporation.
Upon her death, the property will be registered in the name of the company or the close corporation and the land may then be used by the shareholders/members in the manner as they may decide upon and in a manner that reflects their percentage shareholding.
The reader should obtain more comprehensive estate planning advice from an estate planning specialist. Not only does the administration of a trust, company or close corporation carry administration costs, but there are also tax implications that must be taken into consideration.