Redistribution agreements - I

1. Introduction
Transfers of land and cessions of real rights therein must follow the sequence of the successive transactions in pursuance of which they are made and it shall not be lawful to depart from any such sequence, save as is provided for in the Deeds Registries Act 47 of 1937 (hereinafter referred to as “the Act”), or in any other law or as directed by the court (section 14(1)(a) and (b) of the Act.)

Section 14(1)(b)(iii) of the Act, however, provides for a departure from this general rule, where a redistribution agreement is entered into between the heirs and legatees (including ascertained fideicommissary heirs and legatees) of the deceased, or between such heirs and legatees and the surviving spouse, inclusive of an holder of a personal servitude also being an heir (see RCR 12 of 2006). The redistribution can be with regard to the whole or any portion of the assets in such estate. Section 14(1)(b)(iv) provides further that it shall be lawful to introduce movable property not forming part of the estate for purposes of equalizing the division. The executor need not be a party to the agreement (see RCR 34 of 2005).

Hereinafter, the requirements for the conclusion of a valid redistribution agreement are considered in more detail. Examiners are warned that it is their duty to examine redistribution agreements (see section 3(1)(b) and RCR 22 of 2002). In this regard cognizance must be taken of the contractual capacity of the parties, etc. Where the agreement is ex facie faulty, the conveyancer concerned must be informed accordingly. A registrar cannot require the redistribution agreement to be redrawn solely due to the omission of the identity number and marital status. Documentary evidence may be called for where the identity numbers and marital status of the parties to the agreement are not apparent from the agreement (RCR 52 of 2010).

The Master must “accept” the redistribution agreement by placing an endorsement to this effect thereon (see RCR 68 of 2010). The mere fact that the Master has certified the agreement as true copy of the original will not suffice.

2. When is it lawful to enter into a redistribution agreement?
“A legatee’s interest under a will is limited to what has been given him thereunder and an executor must administer and distribute the estate of a deceased person in strict accord with the terms and directions contained in such person’s will, if any.”

This is a quotation from De Wet v De Wet 1951 (4) SA 212 (C). This case dealt with a will in which the testator directed that his farm should be sold by private treaty to the child of his who made the highest bid. In the event of none of the children bidding, the farm had to be sold by public auction. The proceeds in either event were to be divided among the children. The children waived their rights to purchase and agreed to an underhand sale of the farm. It was held that the testator’s express directions as to the manner of sale of the farm could not be varied by the children. The court would not interpose its sanction. A similar view was taken in the Appellate Division case of Bydawell v Chapman NO & Others 1953 (3) SA 514 (A): “Beneficiaries may contract to render to each other the fruits of devolution, if and when they mature or accrue, but cannot alter the devolution by contract.” Beneficiaries must have a vested interest (Leach &Others v Champion Estates Ltd 1956(3) SA 674 (O)).

From the above it is clear that heirs or legatees cannot enter into a redistribution agreement with persons who are not heirs or legatees, for example a trust, company or close corporation, albeit the heirs being trustees, directors or members of such persona.

3. Formative requirements for redistribution agreements
There exists no prescribed form for a redistribution agreement, however, from the wording contained in regulation 5(1)(e) of the Administration of Estates Act 66 of 1965, it is evident that such agreement must be in writing. Furthermore section 2(1) of the Alienation of Land Act 68 of 1981 also provides that if immovable property is involved in such redistribution, then it must be in writing.

Redistribution agreements pertaining to immovable property need not be signed by the contracting parties before two competent witnesses or a commissioner of oaths. However, where the agreement is signed outside the borders of the Republic of South Africa, the provisions of Rule 63 of the High Court Rules must be complied with, or the Hague Convention on Attestation, which provides for the proper authentication of documents executed outside the borders of the Republic of South Africa.

4. Assets which may be redistributed in terms of a redistribution agreement
From the wording of section 14(1)(b)(iii) of the Act it is clear that the redistribution agreement can be in respect of the whole or any portion of the assets of an estate. As already mentioned, section 14(1)(b)(iv) sanctions the introduction of movable assets not forming part of the estate of the deceased for purposes of equalizing the division. It is thus clear that all the immovable property forming part of the redistribution agreement must derive from the estate of the deceased.

The common law half share of a surviving spouse to a marriage in community of property is an asset which can be brought into a redistribution agreement, provided sufficient funds exist to pay estate debts.

It is permissible for certain heirs acquiring specific property from an estate to redistribute such property without reference to other heirs, and the conference of registrars regarded this as giving effect to the letter and spirit of section 14 (RCR 2 of 1951).

5. Foundation for a redistribution agreement
In the Klerck case (supra) on page 629 the following is averred in this respect:

“... that in every redistribution there must be involved sale, exchange, or donation between one heir and another, or between the heir and surviving spouse. But the mere fact that a sale between two heirs or between an heir and the surviving spouse is entered into does not necessarily mean that a redistribution is brought about by that sale.”

How must one determine whether the redistribution agreement does not constitute a covert donation or sale? A test which can be made use of to determine whether such redistribution agreement does not perhaps constitute a covert donation or sale is the one which was used in the case of Lubbe v Commissioner for Inland Revenue 1962 (2) SA 503 (O) whereby the following question can be posed to determine the answer to this question viz;

“If the redistribution agreement is ignored, will there, irrespective of the movable assets which are possibly introduced, be an allocation of the relevant assets being distributed in the agreement to the contracting party?”

If the question is answered in the affirmative, the redistribution agreement will be forthcoming. A similar test was also applied in the Klerck case (see the discussion supra).

Each redistribution agreement will thus have to be, as indicated above, tested to determine whether it in fact does not in effect constitute a concealed or covert donation or sale. If the latter applies, the agreement is void.

Part II next week - Parties to a redistributed agreement; Creation of obligations between heirs; Payment of transfer duty and Agreements entered into after liquidation and distribution account accepted.

Allen West
Property Law Specialist
MacRobert Incorporated