A Cautionary Tale of Estate Planning Gone Wrong
08 July 2013
Posted by: Author: PwC
Author: PwC (Tax Synopsis June 2013)
Estate planning is a tricky and complex matter, replete with many pitfalls for the testator and his
professional advisers. Tax planning is of course an important dimension of estate planning, and a
close familiarity, on the part of the planner, with the Estate Duty Act, the Income Tax Act – and of
course the provisions of the Wills Act – is essential.
A realistic appreciation of the family dynamics of the testator is also important, as is an acceptance of the frailties of human nature. It is a sad reality that grief at the loss of a parent or other relative is often quickly overshadowed by avarice at the prospect of a windfall from the estate, coupled with jealousy toward those beneficiaries of the estate who seem to have been especially favoured. If a second spouse, step-children or in-laws are part of the picture, the potential for conflict and disputation is clear.
A badly constructed estate plan is a virtual guarantee that the testator’s most enduring legacy will be bitterness, resentment and perhaps a full-blown family feud.
An instructive case study
The decision in Taylor v Taylor 2012 (3) SA 219 (ECP) is a case study in a myopic and badly planned estate – indeed the very name of the case betrays a dispute between the members of the family. The reported judgment reveals that the testator, who died in 2006, had three children who were the applicants in this litigation. He also had a surviving spouse, who was apparently the step-mother of those children. A significant asset in the estate was a substantial house in Humewood, Port Elizabeth.
Reading between the lines of the judgment, it seems clear that the testator wanted his widow (his children’s step-mother) to be allowed to remain living in the house after his death, and for the two flats on the property to be rented out to generate income to cover the running expenses of the house, with any surplus being paid into a bank account for the benefit of the three children.
In the last year of his life, the testator became aware that he was suffering from terminal lung cancer and – so the judgment recounts – "this knowledge spurred him to undertake certain estate-planning exercises”. Some seven months before his death, he executed a will in which he bequeathed his fixed properties to his children, and the residue of his estate to his widow.
The will itself said nothing about the widow‘s being entitled to remain living in the house after the testator’s death. That aspect of his "estate plan” was recorded in what the judgment calls a "wish list”, that set out the testator’s wishes in this regard in some detail. The wish list was signed by him and dated, from which it appears that it was written some six months after he executed his will and about seven weeks before he died.
The judgment does not reveal whether the testator was guided in his estate planning by a professional in the field, or whether he took the task on himself, in relation to either the will or the wish list.
The dynamics of the family
If a professional had been involved, he or she would have immediately realised that the overall family scenario was difficult and delicate - a testator who had to balance the reasonable expectations of his children that they would inherit his estate, coupled with the necessity to provide financially for his surviving spouse for her lifetime.
Where a surviving spouse is also the mother of the testator’s children, the latter will usually accept that their inheritance must be deferred, wholly or substantially, until she dies. But where, as in this case, the surviving spouse is the children’s stepmother, and not their natural mother, tender feelings toward her on their part cannot be taken for granted.
Reading between the lines of this judgment, it seems that after the testator’s death, the children’s attitude toward his widow – their stepmother – was that they were prepared to concede in her favour only what was claimable by her from the estate as a matter of law, and no more.
The legal status of the testator’s wish list
The children’s attitude in this regard threw into sharp focus the legal status of the testator’s "wish list”. Was the benefit accorded to the widow by that wish-list, namely the right to live in the family home without bearing any of the household expenses, legally binding on the estate?
To that question the law gave a clear answer: the wish list would be legally binding only if it had been executed with the formalities required of a will (which it clearly was not, for it had not been signed by witnesses) or if the court was satisfied, as envisaged in section 2(3) of the Wills Act 7 of 1953, that the wish list "was intended to be his will or an amendment of his will”. Any other document of a testamentary nature would have no legal force or effect.
The language of the wish list
In the result, the court held that the language in which the testator’s "wish list” was expressed was not consistent with that of a will, in that it was replete with expressions such as "it is my wish” and "it is suggested that”, rather than directory instructions as to the devolution of his estate.
The court therefore concluded (at para  of the judgment) apropos the "wish list” that –
"the language employed by the deceased in this document does not demonstrate an intention on the part of the deceased to amend his last will and testament. On the contrary, what it would appear to indicate is that the deceased intended that his last will and testament should stand but that it was his desire, notwithstanding the bequests made therein, that his family should stand together when it came to the administration of his estate and the distribution of the assets and that these should be distributed equitably amongst all the parties involved. ... On this basis, and accepting that he had such trust in his family, it seems clear that his intention could only have been that the will was to remain extant as it stood ...”
The court went on to add that – "The fact that such trust on his part was, as it turns out, ill-founded, cannot alter the situation as to his intention at the time of executing this document”.
A moral obligation, but no legal compulsion
In short – regardless of any moral obligation – there was no legal obligation on the part of the testator’s children to respect or give effect to their late father’s "wish list”, and they clearly had no intention of doing so.
Consequently, the deceased’s fixed properties, including what seems to have been the family home, devolved on his children in terms of the will and they were under no obligation to allow their step-mother to live in the home for her lifetime or to use the rental from the flats on the property to pay the household expenses.