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Inherited assets in estate administration present a specific legal question: do inherited assets received during the deceased’s lifetime form part of the estate now being administered?
ALSO READ: Accrual claims and estate administration: statutory timelines and notice publication
Do inherited assets form part of the estate under ANC?
The answer is complex. Under ANC without accrual, inherited assets the deceased received during marriage remain the deceased’s separate property. These inherited assets pass through the deceased’s estate according to their will or intestacy law.
Under ANC with accrual, inherited assets are typically excluded from accrual calculation. The surviving spouse’s accrual claim doesn’t increase because the deceased inherited. But these inherited assets do form part of the deceased’s estate for distribution purposes.
Documenting inherited assets in estate administration
Inherited assets in estate administration create documentation challenges. The estate administrator must prove that specific assets were inherited, not acquired through work or savings. Evidence includes inheritance documents from the previous estate, bank transfer records showing the inheritance was received and documentation showing the inherited asset’s acquisition.
According to Tasneem Mahomed, director at Engelsman Magabane Incorporated, “inherited assets in estate administration often confuse beneficiaries. They assume inherited assets pass automatically to the original inheritor. But inherited assets, once received, become part of the estate and are distributed according to the will.”
Valuing inherited assets at date of death
Inherited assets in estate administration must be valued at the deceased’s date of death. The current market value is what matters for distribution purposes, regardless of the value when the asset was originally inherited.
If the deceased inherited a house twenty years ago worth R200,000 and that house is now worth R2,000,000, the inherited asset is valued at R2,000,000 in estate administration. The increase in value is part of the estate, not part of the accrual. In ANC with accrual estates, inherited assets are typically excluded from accrual, so the appreciation is not accrual either.
Inherited assets and beneficiary disputes
Inherited assets in estate administration complicate the beneficiary distribution. If the deceased inherited substantial assets and has other children who received nothing comparable, those other children may feel they’re inheriting less fairly.
But estate administration law applies distribution according to the will or intestacy law. If the will specifies equal distribution and one beneficiary receives an inherited house while another receives cash, the distribution is still technically equal, assuming values are equal. Fairness is subjective and beneficiaries often dispute inherited assets distributions.
Recording inherited assets in the Liquidation and Distribution Account
Inherited assets in estate administration must be accurately described in the Liquidation and Distribution Account. The Account should note: “Inherited house at 42 Main Street, received 25 June 2005 from the estate of the deceased parent, current value R2,000,000.”
This documentation in estate administration is crucial. It allows beneficiaries and the Master’s Office to understand the source of assets. Without clear documentation, beneficiaries may assume inherited assets were accumulated through other means and dispute their inclusion in the estate.
Inherited assets, capital gains tax and base cost
Inherited assets in estate administration affect tax. If the inherited asset appreciated significantly, capital gains tax may be owing at the deceased’s date of death. The estate administrator must calculate capital gains and ensure SARS is paid.
However, inherited assets receive a new base cost when they pass through estate administration. The inherited house that was originally valued at R200,000 but is now worth R2,000,000 has a new base cost of R2,000,000 for future tax purposes. This step-up in base cost is tax favourable for beneficiaries who subsequently sell inherited assets.
Inherited assets from a previous estate: trusts and conditions
Inherited assets in estate administration sometimes trigger disputes with previous estate beneficiaries. If the inherited asset was received from a previous estate under specific conditions or trusts, those conditions may flow through to the current estate.
This is particularly relevant if the previous inheritance included a testamentary trust. A testamentary trust created in the previous estate may have required that inherited assets be preserved for specific beneficiaries. When the first inheritor dies, the current estate administration must respect these trust provisions.
Bridging two estates
Inherited assets in estate administration create complexity because they bridge two estates. The current estate administrator must liaise with records from the previous estate to document the source, terms, and tax treatment of inherited assets. This overlaps closely with how ANC without accrual estate administration treats separate property.
To minimise confusion in inherited assets estate administration, the estate administrator should request documentation from the previous estate administration. Letters of Executorship from the previous estate, the previous L&D Account, and the previous estate’s tax returns clarify the source and basis of inherited assets.
Estate administration is deadline-driven, document-heavy and detail-sensitive. Every deceased estate notice has a purpose, with dates, information and numbers that have to be correct. Every publication record must be accessible when the attorney, executor, estate administrator or Master’s Office needs to verify it. Legal Notice Publishing handles the full process. Contact jana@legalnotice.co.za for a quote.
For legal advice, contact Engelsman Magabane Incorporated: Phone: 053 832 8134 or 053 832 8135. Email: admin@engelsman.co.za.
*This article was written by Engelsman Magabane Incorporated and forms part of the Estate Matters series on Legal Notice Publishing. It is intended for general information only and should not be relied on as legal advice. Readers who require advice specific to their circumstances can consult Engelsman Magabane Incorporated directly.
