TSC Case Study 6: Small estates threshold makes deceased estates dead capital

The Transaction Support Centre (TSC) has been operational since July 2018 and since then has seen over 360 clients with various housing-related issues. The most common issue relates to problems with title deeds which typically arise from informal cash sales, primary transfer issues and deceased estates – the latter being the topic of this case study.  On the 28th of April 2020, the TSC joined with Khaya Lam and other civil society organisations in writing an appeal to the Minister of Justice to raise the small estates threshold to R600 000.  This case study provides background information in support of that appeal.

According to a recent analysis of property ownership records of properties in Khayelitsha undertaken for the TSC by Knowblet Data Sciences, 7 580 properties[1] (roughly 16% of registered residential properties in the area) are owned by deceased individuals.. Properties in deceased estates need to be transferred to recognised heirs as specified in a legal will. Where there is no will in place, as is common with TSC clients, the laws of intestate succession apply. These laws stipulate how a deceased estate is to be distributed between surviving heirs.

Deceased estates that fall below the Small Estates Threshold, currently set at R250 000, can be wound up by a person or persons appointed by the Master of the High Court at no cost to the estate as stipulated by Section 18(3) of the Administration of Estates Act, (Act 66 of 1965). Where the estate value (including residential property and any other assets) exceeds this threshold, the estate must be wound up by a lawyer at a standard cost of 3.5% of the estate value. Aside from being cheaper, the small estate process is also more convenient as estates can be reported at the local magistrate courts instead of the Master’s Office in the city centre.

Small estates make up approximately three quarters of all estates reported in the country, although there is no data on how many of these small estates would include residential property.[2]The small estate threshold is set by the Department of Justice (DoJ) and was last reviewed in 2015. It is not clear what data the DoJ uses to determine the threshold, nor what prompts a review of the threshold value. With rising property prices, more properties in lower income areas exceed this threshold making the costs associated with winding up a deceased estate prohibitive for lower income households.  Clearly this is an issue that requires urgent attention.

The process of winding up estates where no will is in place requires access to data on the next of kin who stand to inherit in line with the laws of intestate succession. While published documents indicate that the Master has developed a system to integrate directly with the Department of Home Affairs, it does not appear this system has been rolled out. Clients reporting an estate are required to complete and sign a Next of Kin or J192 Affidavit providing the names and ID numbers of relatives who might have a claim on the estate. It appears that this data is not independently verified by the Master by cross checking with the Department of Home Affairs despite integration with Home Affairs[3], which maintains official records of this data. Thus, the Master relies on the integrity of the signatory, leaving the process open to fraud.

As at February 2020 the TSC had logged 63 deceased estate cases, of which four matters have been resolved and 17 cases are currently being prepared for transfer.[4]The simplest of these matters was resolved in eight months. Delays in the process arise due to the significant backlog at the Master’s Office for important documents including Letters of Appointment and the J192 (next-of-kin affidavit). The process of following up on deceased estate matters at the Master’s Office is also onerous as all queries must to be logged in person; there is currently no system in place for applicants to track the progress of applications online and the Master’s Office does not send notifications when documents are ready for collection or when they have been posted. Implementing a simple notification system is entirely possible as the Master’s Office already captures the name and mobile number of the person reporting the estate on the Paperless Estate Administration System (PEAS)[5]which is has been rolled out at all 15 Master’s Offices across the country and at 278 Magistrate Courts[6].

While not unique to deceased estate matters, delays in the transfer process also arise where there are arrears on municipal accounts. These must be settled before the property can be transferred to heirs. To reduce delays arising from arrears in our pilot in Makhaza, the TSC negotiated a workaround solution with the City of Cape Town. This solution allows a rates clearance certificate to be issued prior to full settlement of debt, provided clients pay an initial deposit and commit to a payment plan to settle the remaining debt.  However, this workaround does not exist in other jurisdictions.

Deceased estate transfers may also be coupled with other title-related challenges, including informal transactions, no primary transfer, as well as misplaced or stolen title deeds which add further delays to the process.

The process followed to resolve deceased estate cases where the estate is valued at R250 000 or less is outlined below.

Deceased estate process: estate value <R250 000

Where the deceased estate exceeds the small estate threshold there are several statutory requirements that must be met. This includes the appointment of an attorney to wind up the estate, the advertisement of the estate for creditors in the Government Gazette and a local newspaper[7]for a period of 30 days, the preparation of a Liquidation and Distribution account (L&D), and the requirement for the L&D account to be kept open for inspection at the Master’s Office for a period of 21 days. The process to resolve deceased estate cases where the estate is valued above R250 000 is outlined below.

Deceased estate process: estate value >R250 000

Deceased estate document checklist

Winding up deceased estates

Case one: Mrs Vellem’s deceased estate

In May 2019, Mrs Vellem approached the TSC for assistance with transferring her deceased husband’s property into her name. Her husband died in 2009 and in the same year she was appointed as the executor of his estate which included the 175m²property in Khayelitsha. Like many other deceased estate cases on the TSC books, the property had remained registered in the name of a deceased partner for almost a decade.

Initially Mrs Vellem’s case appeared to be a relatively straightforward transfer and by August 2019 the transfer documents were signed and the transfer looked set to be completed within weeks. However, progress halted when we could not get the rates clearance certificate from the City. There was an amount of R1 200 outstanding on the municipal account. Our client, a state old age grant recipient earning R1 780 per month, could not afford to pay this amount in one instalment. The TSC assisted her to apply for indigent status with the City of Cape Town and to negotiate an arrangement to pay off the debt over time. Under normal circumstances, transfer cannot proceed until the rates clearance certificate is issued on full settlement of the debt. Given our client’s limited affordability this could take up to a year to resolve. In order to proceed with the transfer, the TSC proposed a workaround solution to the City that would see them issue the rates clearance certificate to our client prior to the final settlement of the debt subject to our client entering into a payment plan. The City agreed to pilot the workaround in November 2019 and by early February the conveyancers had reapplied for the rates clearance certificate. At the time of writing this report the outcome of the rates clearance was still pending.

Case two: Mrs Mabuya’s deceased estate

In April 2019, Mrs Mabuya approached the TSC for assistance with transferring her deceased mother’s property into her name. As with most deceased estate cases, the TSC requested the certified copy of the next-of-kin affidavit from the Master’s Office on behalf of the client. This document is critical to the process as it identifies the heirs to the deceased estate. On receiving this document, the TSC discovered that the client was not the only heir to her mother’s property; she is one of three siblings. For the transfer to proceed, Mrs Mabuya’s siblings would need to either renounce or donate their share in the property. Of the two siblings, one is alive and was willing to renounce. Mrs Mabuya’s other brother, however, is deceased. Based on the laws of intestate succession, the deceased brother’s claim passes to his surviving children. The deceased brother has one child and therefore the current intestate heirs to the property are Mrs Mabuya (the client) and the child of her deceased brother.

The child is nine years old. The fact that the child is still a minor presents two challenges for this case and ultimately for the client. The first challenge is that minors cannot renounce or donate their share of a property. Secondly, the Administration of Estate Act 66 of 1965 Section 80 places certain restrictions on the sale or transfer of property registered in the name of a minor, which may have implications for the client’s ability to sell or borrow against the property at a later stage, or at least until the child turns 18. Despite this, the alternative to not do anything and have the property remain registered in the deceased estate is not viable. After discussing this with Mrs Mabuya she agreed to proceed with the transfer of the property into both her and her nephew’s name. With one hurdle overcome, the TSC encountered another. The original title deed for the property is lost and an application for a new VA copy of a title deed costs between R1 200 – R 1500. Mrs Mabuya is currently unemployed and therefore unable to cover this cost. The TSC has therefore been forced to pend Mrs Mabuya’s case until a time when she can afford to replace the lost title deed, or when the costs are revised and lowered.

Case three: Nomsa’s deceased estate

Nomsa* (not her real name) is 40 years old and currently unemployed. In November 2018 she approached the TSC for assistance with transferring her deceased grandmother’s property into her name. Her grandmother had received an RDP house in Khayelitsha in 1997 where she had lived until her death in 2018. Nomsa’s grandmother did not have a will, and in line with the rules of intestate succession, ownership of the property passes to Nomsa’s mother who is the sole heir of the deceased estate. Nomsa’s mother lives in the Eastern Cape. She is happy to renounce her rights to the estate so that the house can be transferred to Nomsa, who is the current occupant.  The process of renouncing a right to an inheritance is relatively straightforward. It requires Nomsa’s mother to sign one document witnessed by one other person. Nomsa took the documents to her mother to sign in the Eastern Cape.

The primary challenge with this case is the value of the property. According to the latest valuation roll, the property is worth R363 000, exceeding the small estates threshold under which the Master of High Court can appoint an executor to wind up the estate at no cost. Standard legal costs to wind up this estate are 3.5% of the estate value (R12 705) plus disbursements for advertising in a national newspaper and the government gazette (R2 000) plus Master’s Office costs (R600). In addition, absent the TSC and its partner conveyancers who offer their services at no cost, there would be the costs of transferring the property from the estate to the client of R13 075 in line with prevailing tariff.

To assist Nomsa, the TSC investigated the possibility of accessing state subsidised legal assistance to wind up the estate through Legal Aid. However according to the consultant we spoke to, Legal Aid will only take on an estate transfer where the heir is a minor. ProBono.org could not assist with winding up the estate because the value of the property exceeds R300 000, their internal limit.

The TSC approached a lawyer who agreed to wind up the estate at a reduced fee of R9 500 plus disbursements of R2 600. We discussed the costs with our client who agreed to a payment plan, starting with an amount of R2 600 upfront to cover disbursements.

Winding up higher value estates is a long process. Where the estate is valued below R250 000, clients can report the deceased estate at their local Magistrate Court and the Letter of Authority (equivalent to Letter of Executorship) can be issued on the same day. In Nomsa’s case it took 83 working days for the attorney to receive the Letter of Executorship.

In addition, there is no need to prepare and advertise the Liquidation and Distribution (L&D) account. The preparation of the L&D account where the assets of the estate comprise a single property is relatively simple. However, lawyers must advertise the estate in the Government Gazette and a newspaper circulating the area.An initial advert calls for creditors in the estate to submit their claims within 30 days prior to drawing up the L&D account. Once the account has been drawn up, a subsequent advert notifies interested parties to review the L&D account at the Master’s Office for a period of 21 days. Only then can the attorney distribute the assets of the estate.

Nomsa’s case has been on our books for 339 working days, approximately 16 months. A summary of key milestones is presented below.

Key steps and timelines to wind up deceased estate and transfer property

As at early March 2020 the L&D account and transfer documents^[8] were signed by Nomsa and her mother in the Eastern Cape. ready for signature by Nomsa’s mother who lives in the Eastern Cape. The next step is for the signed L&D account to be submitted to the Master’s Office for inspection. Progress on this stalled due to the closure of the Master’s Office with to the nationwide lockdown, but with the recent reopening of the Master’s Office it is expected to be picked up again.  However, given the TSC’s experience with accessing certified copies of the next-of-kin affidavit (J192) from the Master’s Office, the timelines could vary significantly (anything from 21 to 70+ days). Given these uncertainties, it is difficult to predict how long it will take to resolve the matter. Another four to six months is a reasonable guess.

Optimising the process of winding up deceased estates will require the active participation of the Department of Justice (DoJ). As a first step, the small estates threshold needs to be reviewed, preferably with a mechanism to adjust this threshold automatically in line with property price inflation. In addition, the capacity of the Master’s Office and magistrate’s courts should be assessed and increased where required to improve the turn-around times on winding up deceased estates. The functionality of the Paperless Estate Administration System (PEAS) could also be enhanced to notify applicants when documents are ready for collection.

The TSC may be well-positioned to assist the Master’s Office with processing some requests and / or handling some components of the process. However, to date the TSC has had no direct engagement with the Department of Justice or the Master’s Office. Going forward, the TSC will therefore initiate formal discussions with these organisations to explore opportunities to collaborate and pilot new solutions.

In the long run, a fully digital estate administration process could enable estates to be reported online with data extracted automatically from the Department of Home Affairs databases removing the need for paper-based processes.

Recommendations relating to deceased estates

1.  Adjust the small estates threshold to enable heirs to transfer properties out of deceased estates and at the same time, allow for integration between the departments of Justice and Home Affairs to reduce the risk of fraud.

Primary stakeholders: Department of Justice and Department of Home Affairs

The threshold for small estates is currently at R250 000 and was last adjusted in 2015. Estates that exceed this threshold are significantly more expensive and complex to wind up. Since 2015, property prices have increased noticeably in some lower income areas, and it is not uncommon for subsidy properties to exceed this threshold. At the very least the threshold should be adjusted to align with property price inflation, with a mechanism established to review and adjust this threshold on an on-going basis.

Given that processes are paper-based and rely principally on affidavits where there is no will in place, the risk of fraud is high. Thus, at the same time as adjusting this threshold, the Department of Justice should prioritise improved integration with the Department of Home Affairs so that data on next of kin can be verified against official records.

On 28 April 2020, the TSC joined forces with other civil society organisations in a letter addressed to the Minister of Justice, Ronald Lamola MP, appealing for the threshold to be raised to R600 000.  While the letter was published in Politicsweb[9], we have not yet received a response.

2.  Assess and increase capacity and processes at the Master’s Office

Primary stakeholder: Department of Justice, Master’s Office

There are long delays at the Master’s Office, with the backlog so significant the office has been shut down on occasion. If the Covid-19 pandemic has a noticeable impact on the mortality rates, which all current experience suggests it will, the Master’s Office will come under increased strain.

A Paperless Estate Administration System (PEAS) has been in place since 2014. While this is a step in the right direction, its innovation was to enable paper documents to be scanned and stored digitally, rather than to eliminate paper documents in the first instance. Nevertheless, there may be an opportunity for the TSC to become an accredited partner of the Master’s Office so that documents can be digitally captured by the TSC, obviating the need for clients to go to the Master’s Office. In addition, beyond the current system, the TSC would be well placed to pilot and test further enhancements to the estates process, eventually leading to an entirely paperless and fully integrated e-government service launched by the Department of Justice together with the Department of Home Affairs.

The TSC will therefore initiate conversations with the Department of Justice and the Master’s Office in Cape Town to explore opportunities to collaborate.

[1]This analysis was undertaken by Knowblet Data Sciences by comparing deeds registry data and Home Affairs data. The analysis was undertaken free of charge as a service to the TSC

[2]In 2015, 146 779 estates were reported in South Africa of which 109 733 were small estates. Office of the Master of the High Court. A Guide. 2016. Pg 13. https://www.justice.gov.za/juscol/docs/2016-Guide-MOH.pdf

[3]A document published by the Department of Justice states; “Furthermore we have developed an integration system with the Department of Home Affairs, which allows the offices to extract details from a deceased directly from the database of Home Affairs. This ensures that details are captured correctly and curbs any fraudulent activities”. Office of the Master of the High Court. A Guide. 2016. Pg 13. https://www.justice.gov.za/juscol/docs/2016-Guide-MOH.pdf

[4]The total number of cases with deceased estates that need to be wound up is 107, of which 63 cases only involve the deceased estate being wound up while 44 cases involve multiple problems (e.g. informal cash sale & deceased estate).

[5]Despite the name the PEAS system is not paperless as all documents first need to be submitted as hard copies. The PEAS system captures the information contained on the hard copies and stores digital copies of all supporting documents. See: https://www.lssa.org.za/wp-content/uploads/2020/01/ICMS-MASTERS-PEAS.pdf

[6]The Department of Justice and Constitutional Development 2018/19 Annual Report. https://www.justice.gov.za/reportfiles/anr2018-19.pdf

[7]A newspaper circulated in the area the deceased lived

^[8]The property transfer process (instructing conveyancer and preparation of transfer docs) is initiated before the deceased estate process is finalised as a provision for the transfer cost and rates clearance must be included in the L&D account

[9]See https://www.politicsweb.co.za/documents/an-appeal-to-ronald-lamola–khaya-lam