A Silver Bullet: Deed of Donation Mortis Causa

Benjamin Franklin once wrote “‘In this world nothing can be said to be certain, except death and taxes’.

Whilst no one can argue this sentiment, it can be said that these two items are also intrinsically linked, which is especially evident in estate planning and processing.

As a financial advisor, estate planning is an essential step in providing a robust and considered service to your clients, though it can also be a minefield, when advising clients to understand the various options and strategies to consider, completing numerous forms and collaborating with legal experts.

For a deceased estate, the South African Revenue Service (SARS) confirms that when a taxpayer dies, all his or her assets on the date of death will be placed in an estate.  Once the Executor, the representative taxpayer of the deceased person’s estate, has finalised all the administration in the deceased estate, the remaining assets, after paying all the debts, will be distributed to the beneficiaries.

Much of the above-described process is administered through the Master’s Offices, a critical state custodian of estate administration and trust registrations within South Africa.  

However,  the current reality is that the timing of the administration, from reporting a death to payout to the beneficiaries after the final liquidation and distribution account has been approved by the Master’s Office, will in all likelihood be a longwinded and arduous process.  It takes on average 1-3 years for an estate to be finalised, leaving dependents, who can be at their most vulnerable, at the mercy of an administrative process over which they have very little control.

It's an unfortunate situation, seemingly due to a lack of technology, massive back logs and apparent corruption in one of the country’s most critical institutions.

Whilst it may appear that dealing with the Master’s Office is an inevitable part of the estate administration process, there exists a silver bullet, known as the donation mortis causa (“Deed of Donation Mortis Causa” or “DMC”).

The DMC is by its very nature an anomaly which completely bypasses the challenges of dealing with the Master’s Office and the administration of estates process as a whole, which results in capable assets being transferred into the hands of the deceased donor’s dependents when they need it the most.

Under South African Law, individuals domiciled in South Africa are able to nominate a beneficiary/ beneficiaries to receive the proceeds of an individual or joint personal investment account after their death by way of a DMC.  

This donation is a revocable gift made during the account owner(s)’s lifetime, and contrary to the death bed reference, the donation can be made on contemplation of their mortality as opposed to being in danger of imminent death. This is subject to any legal constraints such as making the DMC to avoid creditors.

Additionally, the account owner(s) retains full control of the investment account and its assets and can revoke or alter the donation at any point before their death.

Furthermore, within South African law and although the donated investment account is deemed part of the estate for purposes of calculating Estate Duty, it is not susceptible to executor fees and is exempt from Donations Tax.

The benefits of a DMC are clear: it’s simple to administer, has minimal set up fees and most importantly, the asset(s) under a DMC do not formally constitute as being part of the estate, thereby having the effect of circumnavigating the administration of estates process, which includes having to deal with the Master’s Office.  

A further benefit of a DMC is when your clients hold assets offshore is that it similarly dispenses the requirement for the completion of probate.  

Despite these apparent advantages, individuals would be wise to seek legal and tax advice for clarification and confirmation specific to their own personal circumstances, to make sure that a DMC is the appropriate solution for them.

As part of our custody and execution service, Capital International have developed a process to administer a Deed of Donation Mortis Causa for our South African clients, for both personal and joint Capital International investment accounts, at no additional cost.

Working closely with Ulrik Strandvik (CEO, GSR Law), a renowned tax expert with a broad legal background, to determine how exactly we can partner with financial advisors when assisting their clients to nominate a beneficiary/ beneficiaries.

As previously explained, the nominated beneficiary/ beneficiaries has no involvement or legal entitlement to the investment account during the account owner’s lifetime and the donation is both revocable and completely benevolent in nature.

The donation takes effect on the date of the death of last surviving account owner, when the right, title and interest of the Capital International investment account passes to the nominated beneficiary/ beneficiaries.

Once all relevant processing documents are received by the Capital International team, the process takes a minimum of 21 days.  Once complete, the beneficiary/ beneficiaries can choose to withdraw all funds or to retain these assets by opening an account with Capital International Limited in their own name.

The Collins dictionary describes a ‘silver bullet’ as something that provides an immediate and extremely effective solution to a given problem or difficulty, especially one that is normally very complex or hard to resolve.  By this very definition, the DMC is a silver bullet which eliminates the requirement to deal with the Master’s Office as well as mitigating Isle of Man probate should your client hold offshore assets.  

The process has no service fees and furthermore, can potentially aid in client retention with the nominated beneficiary/ beneficiaries having the option of retaining the services of the financial advisor through opening an account with Capital International.

Most importantly, it’s a simple process that provides access to assets at a vulnerable time, when it’s needed most.

For more information on Deed of Donation Mortis Causa and how Capital International may assist, please contact sarelationshipmanagement@capital-sa.com

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of Capital International Group Limited (Group)  and/or any of its subsidiary companies and as such are neither given nor  endorsed by the Group or any company within the Group. Information in this article does not constitute investment advice or an  offer or an invitation by or on behalf of any company within the Group to buy  or sell any product or security or to make a bank deposit. Any reference to past performance is not necessarily a guide to the future. The value of investments may go down as well as up and may be adversely  affected by currency fluctuations. The Group, its subsidiary companies, clients, and officers may have a  position in, or engage in transactions in any of the investments mentioned. Opinions constitute views as at the date of issue thereof and are subject to  change.

Capital International Limited is a subsidiary of Capital International Group Limited  and is licensed by the Isle of Man Financial Services Authority. Capital International Limited is a member of the London Stock Exchange. Capital  International, Capital International Asset Management, and Capital  International Investment Platform are trading names of Capital International  Limited.