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THE MATRIMONIAL PROPERTY ACT is clear: every marriage out of community of property - in terms of an antenuptial contract - is subject to the accrual system, except where the accrual system is expressly excluded by the antenuptial contract. If the marriage is dissolved by divorce or the death of either spouse, the spouse whose assets show no accrual or a smaller accrual acquires a claim against the spouse whose assets have the larger accrual. That claim will be for an amount equal to half of the difference between the accrual of the respective estates.
For couples married under the accrual system, the commencement asset values, as well as the asset values at the date of the death of the first-dying spouse, must be determined for both spouses. The accrual can then be calculated to determine whether it will be an asset or a liability in the deceased's estate.
The Master's Office takes the view that, where the surviving spouse has been appointed as the sole heir, the effect of the accrual system is only academic and there's no need to reflect any claim under it. It's satisfied that a note that no claim is being made should be inserted in the liquidation and distribution account.
However, for spouses with more complex wills incorporating trusts there may be a marked effect on the estate of a testator after an accrual claim has been taken into account. Assuming the antenuptial contract provides nil values for each party at the commencement of the marriage, and that there are no provisions in the contract altering the calculation of the accrual, then upon the death of the first-dying spouse the spouse with the smaller estate will have a claim to one half of the difference in the aggregate value of the estates.
Should the first-dying spouse have the larger estate, the accrual claim will therefore be a liability in his estate and the accrual claim will be paid out as a claim against the estate - that is, before any bequests and inheritances are paid in terms of the will.
Consider the example of Ben, who has an estate valued at R12m. His wife, Mary, has an estate valued at R2m. If Ben dies before Mary, the amount of R5m will have to be paid to Mary. The net value of Ben's estate will be R7m, less other claims and estate expenses. Should Mary die before Ben, Mary's executor will collect from Ben the amount of R5m. The actual value of Mary's estate would therefore be R7m.
Should commencement values have been included in the antenuptial contract the same principles apply, but the commencement values (adjusted for CPI increases) will be deducted from the combined date of death asset values to calculate the accrual in each estate.
Should Ben (with an estate worth R12m) decide that half of that amount would be sufficient for a testamentary trust to provide for their children, he would in effect only have bequeathed R3,5m to the trust. That's because Ben's estate, after the accrual claim, was worth only R7m.
On the other hand, Mary might assume that as her estate is worth only R2m, Ben wouldn't require any benefit from her estate, which would simply increase the estate duty payable on his death. By bequeathing her entire estate to a testamentary trust for the benefit of their children, Mary would in fact have bequeathed R7m to the trust. Ben would be left with a substantially reduced personal estate, which could have an effect on his income and his ability to manage his business or personal retirement planning.
There are also potential issues to consider that may arise from the application of accrual. For example, if the surviving spouse fails to institute an accrual claim, it may be deemed as a donation that may be liable to donations tax. Although donations between spouses are exempt from donations tax, it's unclear whether that exemption will apply where the donation is between the surviving spouse and the estate of first-dying spouse, as it could be argued the marriage (at that stage) has been dissolved.
A failure to institute an accrual claim may also constitute a waiver or forgiveness of a debt in terms of the Income Tax Act, which may give rise to a deemed disposal for capital gains tax purposes. That essentially means although there's been no actual disposal of an asset, the South African Revenue Service treats the waiver or forgiveness of the debt as a disposal and CGT will be payable on the value of the debt waived.
Therefore, the effect of accrual should be considered carefully when wills are drafted, especially if all (or most of) the assets are in the name of one party. The accrual may significantly reduce the estate of the spouse with the larger estate and significantly increase the estate of the spouse with the smaller estate.
As illustrated by the hypothetical example of Ben and Mary, the failure to take accrual claims into account when drafting wills for spouses married out of community of property incorporating the accrual system may result in unintended consequences and inadvertent hardships being placed on the surviving spouse. Most importantly, it's vital you consult a specialist to draft your wills.
