Kayley Leverton | Senior Associate | Gillan & Veldhuizen Inc. | mail me |
There is something wonderfully optimistic about the word inheritance. It carries a sense of something gained without effort, simply handed down. A holiday home by the sea. A share in a property. Perhaps an investment that has been in the family for years. Then comes the small print.
The holiday house is shared with your siblings. One wants to use it every December. Another wants to rent it out. You would rather sell it. The property needs a new roof, and the plumbing is failing. The rates are due. Nobody can agree on who pays for what. Nobody has enough cash to buy each other out.
Suddenly, the gift looks rather different. An inheritance is still an asset with all the responsibilities that come with ownership. People tend to focus on what they are receiving, but where an asset is inherited jointly, they also need to understand what co-ownership actually entails. And therein lies a potential inheritance time bomb. You inherited it, but you do not have to keep it.
You inherited it, but you do not have to keep it
The first misconception is that because Mom or Dad left the holiday house equally to three children, those children must own it together indefinitely. They do not.
Nobody can be forced to remain a co-owner against their will. The terms of the will must always be considered because it may contain specific conditions dealing with the inheritance or what should happen if the heirs cannot agree. But as a general principle, a person does not have to remain in co-ownership.
In fact, an heir does not have to accept an inheritance in the first place. An inheritance can be rejected. This may be worth considering when the supposed asset comes with substantial liabilities or obligations. Once the inheritance has been accepted, however, the question becomes how to exit the co-ownership.
With immovable property, this can become particularly complicated. Co-owners generally own undivided shares in the whole property. Owning 50% of a house does not mean one sibling owns the kitchen and lounge while the other gets the bedrooms and pool.
Usually, the sensible starting point is negotiation. Can one sibling buy out the other? Can everyone agree to sell? Is there another commercially workable arrangement? When agreement becomes impossible, however, South African law provides a remedy with a rather formidable name: the actio communi dividundo.
These are precisely the circumstances in which sibling co-ownership disputes can turn an inheritance into a prolonged family and financial problem.
Latin to the rescue
Despite the name, the principle behind the actio communi dividundo is relatively straightforward. It is a remedy available to a co-owner who no longer wants to remain a co-owner of a particular asset. The person can approach the court to terminate the co-ownership, usually through the sale of the asset and distribution of the proceeds according to the shares held.
It does not necessarily require a spectacular family fallout worthy of its own television series. The fundamental principle is that a person should not have to remain in co-ownership against their will.
That said, arriving at court should not be Plan A. An applicant would ordinarily need to explain the circumstances that led to the application. This includes the attempts made to resolve the matter and why alternatives, such as one party buying out another, have not worked.
The court then has wide discretion to find a fair and practical solution. It could order the asset to be sold and the proceeds divided according to the respective ownership shares. It could provide for one party to buy out another. Alternatively, it could make another appropriate order based on the circumstances.
The parties can put forward their preferred solutions and explain why they believe these would be fair. But ultimately the court has a wide discretion. It can even make an order that was not specifically requested if it considers that appropriate.
Understanding this process can be particularly important when families face sibling co-ownership disputes. A disagreement over an inherited property does not necessarily mean the co-owners must remain locked into the arrangement indefinitely.
When sentiment meets a valuation
Family property brings an additional complication: emotion. One sibling fondly remembers childhood Christmases at the seaside cottage. Another sees a valuable asset sitting largely unused. A third simply cannot afford the rates, maintenance and insurance.
Putting a price on the property can therefore become another source of friction. An estate agent’s valuation may provide a starting point when one co-owner wants to buy another out. If agreement still cannot be reached, a sworn appraiser can be appointed to determine a value. However, the financial implications extend beyond the selling price.
A co-owner also inherits the responsibilities of ownership. If one sibling stops contributing towards municipal charges, for example, the problem does not necessarily remain that sibling’s problem.
The city doesn’t care which co-owner hasn’t paid their share. The co-owners can, jointly, be held liable for the unpaid debt. In practical terms, the others may have to settle what is owing and then recover the defaulting co-owner’s portion back from them.
The same practical tension can arise around maintenance, insurance, levies and other expenses. That dream holiday home can therefore become an expensive exercise in group decision-making.
Not all inherited assets are created equal
The issue becomes even more interesting when the inheritance has a commercial dimension.
A rental property may be producing income. A commercial building could house the family business. Agricultural property comes with its own particular legislative restrictions and succession-planning considerations.
A family business may also be owned through a company rather than through direct co-ownership of its underlying assets. The legal structure matters.
Where a business operates through a company, for example, an heir may inherit shares rather than an undivided share in a particular property. How those shares can be sold or transferred will then depend on the company’s memorandum of incorporation, shareholders’ agreement and other applicable requirements.
Agricultural land presents another set of considerations. South African legislation restricts the ownership of agricultural land to one person or entity without the necessary consent.
This is one reason succession structures involving companies or trusts, redistribution arrangements or even the sale of the land may need consideration well before the estate is wound up.
In other words, “I leave the farm to the children” may sound wonderfully equitable around the dinner table. Yet it can become considerably more complicated when translated into law. And then there is perhaps the ultimate example of an inheritance with baggage: timeshare.
What sounds like the gift of an annual holiday may come with ongoing levies, contractual obligations and an asset that is not necessarily easy to dispose of. If you don’t want an inheritance, you can repudiate it. Ideally, that decision should be made as early as possible after becoming aware of the inheritance.
Accept first and ask questions later is not always the wisest strategy.
Estate planning is also dispute planning
Which brings us back to the person drafting the will. It is tempting to believe that dividing everything equally is automatically the fairest solution. Three children, three equal shares. Job done. Except equality on paper does not necessarily translate into a workable outcome in practice.
One child may live overseas. Another may want the family property preserved at all costs. One may have the means to maintain it, while another needs liquidity. One sibling may also be actively involved in the family business. The others may have no interest in it whatsoever.
Our previous commentary on agricultural succession has similarly highlighted the importance of establishing who actually wants to be involved in the operation and management of a family asset. This should happen before deciding how ownership should pass to the next generation.
This does not mean trying to control every decision your adult children will make after your death. Some people don’t like the idea of ruling from the grave, and that is understandable. Trying to dictate everything can become too restrictive. But honest, open and frank discussions with family members when the will is being drafted can make an enormous difference.
In conclusion
Where a potential conflict is already foreseeable, the will can also provide a mechanism for dealing with it. A testator could stipulate, for example, that if the beneficiaries cannot agree about who will occupy a property or what should happen to it, the property must be sold and the proceeds divided.
The point is not to predict every future family argument. Instead, it is to ask better questions while there is still time to answer them.
Who genuinely wants this asset? What happens if one beneficiary wants out? Who can afford it? Who wants to run the business? And, perhaps most importantly, what happens if everyone cannot agree?
These questions can help families address potential sibling co-ownership disputes before they become entrenched. Because sometimes the most thoughtful estate plan is not simply about deciding what to leave behind. It is about making sure the people who inherit it also have a practical way forward.
