Financial adviser in South Africa explains how to divide a family home among heirs
In South Africa, owners of a family holiday home worth about R20 million have been advised to transfer the property to the child who lives in the country and is likely to use it, while providing an equivalent inheritance from other assets for the heir living abroad. This approach was proposed by independent financial adviser Kenny Meiring in an article by Daily Maverick.
Risks of joint ownership
In the example under consideration, a couple have two adult children, one of whom lives abroad and is unlikely to return to South Africa. The house has been passed down through the family for generations and is valued at approximately R20 million.
According to the adviser, a formally equal division of property may create different practical circumstances for the heirs. The child who remains in South Africa will be able to use the house regularly, while a share in South African real estate may be less useful to the child abroad. If that child wants to receive the value of their share, the other child, in the example given, would need to find about R10 million to buy it out. If such funds are unavailable, the family could potentially have to sell the house.
Joint ownership would also require the heirs to agree on local charges, maintenance, insurance, repairs, rentals and use of the house during holidays. In Meiring's view, such issues may become a source of family conflicts.
More current news is available on the UA.News Telegram channel Telegram.
How to equalize the inheritance
The adviser recommends first assessing the other assets in the estate. If the child abroad, for example, receives R6 million in investments, cash or other property, a further approximately R14 million would need to be provided to equalize this with the value of the house.
For this purpose, Meiring suggests considering a properly structured offshore life insurance policy denominated in dollars. In his view, such an instrument may provide the heir with liquid funds abroad and potentially offer tax advantages when the estate is administered in South Africa. In his calculation, a R14 million policy payout that would otherwise be subject to estate duty at a rate of 20% could result in a difference of up to R2.8 million.
The adviser also noted that good health makes it easier and cheaper to obtain additional insurance cover than at an older age. Deteriorating health, he said, may make insurance more expensive, limited or unavailable.
