The Transaction Support Centre (TSC), an action-research housing advice office in Khayelitsha, Cape Town has been in operation since July 2018 and has seen more than 160 clients with various housing-related issues.
By Illana Melzer and Jessica Robey on behalf of the Centre for Affordable Housing Finance in Africa (CAHF) | Images by CAHF
The most common issue of the TSC relates to problems with title deeds which typically arise from informal cash sales, primary transfer issues and deceased estates, the latter is the topic of this case study.
Winding up a deceased estate is a difficult process for any household but it can be particularly stressful for low-income households that are unable to afford the legal costs involved. Fortunately, in line with existing regulations, low-value estates that fall below a specified threshold can be administered through a quick and affordable process.
However, because of rising property prices, many low-income households which stand to inherit subsidy houses may no longer be eligible for this process. This case study describes the experience of an unemployed client who had to wind up an estate where the value exceeds the current threshold.
Deceased estates in South Africa
Legislation pertaining to the administration of deceased estates in South Africa is contained in the Administration of Estates Act 66 of 1965. Section 18(3) of the Act states that where the value of the estate falls below a threshold determined by the Minister of Justice from time to time, the Master of the High Court can appoint a person or persons (known as the Master’s Representative), to administer the estate without having to follow the full procedure as set out in the Act.
Figure 1: Simplified illustration of deceased estate process
That threshold was set at R250 000 in 2014, when the Minister increased it from R125 000. In practice this means that qualifying estates (also known as ‘small estates’) do not need to appoint an Executor, which typically is a qualified attorney, to formally wind up the estate by means of a Liquidation and Distribution Account.
Instead, the ‘small estate’ can be administered in line with the directives of the nominated Master’s Representative. This translates into significant savings in terms of time and legal fees for beneficiaries, as outlined in Figure 1 and Table 1.
Table 1: Key differences in deceased estate processes
Many of the deceased estate cases at the TSC fall below the threshold and are considered ‘small estates’ and can be administered in line with the simple and cost effective S18(3) deceased estate process.
However, as demonstrated in this case study, some clients do not qualify as the current value of their government-subsidised houses exceeds the R250 000 threshold, which has significant and immediate implications for heirs.
The case of our client
Nomsa is 40 years old and currently unemployed and approached the TSC for assistance with transferring her deceased grandmother’s property into her name. Her grandmother received a government subsidised house in Khayelitsha in 1997 where she lived until her death in 2018.
Her grandmother did not have a will, and in line with the rules of intestate succession, ownership of the property would pass to Nomsa’s mother, the sole heir of the deceased estate. However, Nomsa’s mother lives in the Eastern Cape and would like Nomsa, who lives in the property in Khayelitsha, to take title of the property and has therefore renounced her rights to the estate.
According to the City of Cape Town’s 2018 valuation roll, the 160m2 property is currently valued at R363 000, a 6.8% increase from the 2015 valuation of R340 000. While the property is a valuable asset and source of wealth for our client, its high value creates two immediate problems for her.
The first is that the estate cannot be dealt with in terms of the S18 (3) process as described above and Nomsa therefore needs the assistance of a legal professional to wind up the estate.
The second problem is that Nomsa has no access to subsidised legal assistance.
While Nomsa’s low income makes her eligible for legal aid, according to the consultant we spoke to, Legal Aid will only take on an estate transfer where the heir is a minor, and even then, it will refer the conveyancing component of the estate onto Pro Bono. While Pro Bono does provide access to free conveyancing services to lower income households (excluding disbursements), this only applies where properties are valued at below R300 000 in Cape Town.
Nomsa therefore needs to fund more than R20 000 in legal fees including R11 500 for an attorney to wind up her grandmother’s estate and about R11 000 in conveyancing fees to transfer the property into her name (see Table 2 for a breakdown of the costs).
Table 2: Approximate legal costs to wind up estate and transfer property into client’s name.
While Nomsa will be ‘asset-rich’ when she takes transfer of the property, she is currently ‘income-poor’, which means she cannot afford the legal costs to make the transfer happen. The value of the property precludes Nomsa from accessing the benefits of the S18(3) provision as well as subsidised legal assistance through Legal Aid and Pro Bono. Ironically both institutions exist to assist people just like Nomsa who would like to transact through formal mechanisms but do not have the financial means to do so.
This case study highlights the story of one client, but we do not think Nomsa’s situation is unique. Government’s subsidised housing programme has transferred a potentially valuable housing asset to more than 1.8 million poor households. As more subsidy (or RDP) properties transact on the resale market and as banks and other lenders increase the provision of mortgage finance in more affordable segments of the market, prices of RDP houses are likely to rise, particularly in urban centres like Cape Town.
The value of housing assets owned by subsidy beneficiary households is likely to exceed the ‘small estate’ threshold and the threshold for subsidised legal services even though their incomes, and ability to afford such services, may remain unchanged. While heirs who wish to sell inherited properties can use the proceeds of a sale to fund legal fees, those who wish to retain the asset may not be able to formalise ownership.
Clearly there is a need to rethink ‘small estates’ in South Africa and how thresholds are determined for access to subsidised legal services. At a minimum, if qualifying thresholds are based on estate values, then these amounts need to consider property price inflation and property market performance. As noted, the small estates threshold was last updated in 2014 from R125 000 to its current value of R250 000. Had the threshold been updated annually in line with national house price inflation, it would currently be about R312 000. If the threshold was aligned with provincial property price inflation, the quantum for the Western Cape would be around R356 000.
Nomsa’s case clearly demonstrates that an asset value threshold can result in income-poor households being unable to access legal services necessary to realise their inheritance. Clearly, household income should also be a factor when determining qualifying criteria.
This issue requires the urgent attention of the Department of Justice and the legal industry at large. If not resolved, more deceased estates are likely to remain unresolved, reducing the reach of formal property market mechanisms and neutralising the potential value of housing assets; banks and other lenders cannot lend against the asset and prices will not increase beyond a price affordable to cash buyers. Beyond this, the impact on heirs is significant, they must either find a way to pay for legal services they cannot afford or forego formal registration of inherited property.
Sources and notes to the article can be found on the CAHF website:
http://housingfinanceafrica.org/tsc-case-study-5-winding-up-an-estate/
