Substitution in Estate Planning

Substitution

• Testator can appoint beneficiaries to inherit, with alternative beneficiaries if needed.
• Direct Substitution: Beneficiaries are appointed as alternatives, explicitly or impliedly by law.
• Fideicommissary Substitution: Beneficiaries inherit successively.
• Conditional Substitution: Expressly stated by the testator or implied by law if the beneficiary dies without descendants.

Direct Substitution

• Testator appoints an alternative beneficiary if the primary beneficiary cannot inherit.
• Reasons for inability to inherit: deceased, disqualified, repudiated the benefit, or condition not met.
• Testators use direct substitution to prevent intestate succession, keep assets out of the estate residue, and exclude accrual rights.
• Express Direct Substitution: Testator explicitly states the alternative beneficiary in the will.
• Implied Direct Substitution: Arises from the Wills Act, Section 2C, for major descendants who renounce their benefits.
  • Section 2C(1): Benefit goes to the surviving spouse.
  • Section 2C(2): Descendants of the deceased beneficiary inherit.
• Moosa v Minister of Justice: Constitutional Court clarified "surviving spouse" applies to monogamous and polygamous Muslim marriages, highlighting discrimination against spouses from polygamous marriages under Section 2C(1).

Fideicommissary Substitution

• Testator appoints multiple beneficiaries to inherit an estate or assets sequentially.
• The first beneficiary is the fiduciary, who must transfer the property to the subsequent beneficiary, the fideicommissary, upon a specified condition or event.
• Requires clear intent, identification of fiduciary, fideicommissary, and the property, and valid condition.
• Fideicommissum simplex: One fideicommissary.
• Fideicommissum multiplex: Multiple fideicommissaries.
• Raubenheimer v Raubeheimer: Intention to create a fideicommissum must be clear; terms like "usufruct" do not automatically imply a fideicommissum
• King v De Jager: Discrimination based on gender in wills can render clauses invalid under public policy and constitutional law.

Fideicommissum Types

• Conditional Fideicommissum: Property transfer depends on the fulfillment of a specific condition.
• Inferred Fideicommissum (Fideicommissum in Diem): Arises from the will's language, even if not explicitly stated.
  • Rockman v Padayachee: Court ruled that Neela Pillay was a fiduciary heir, unable to dispose of the property against the first will's terms.
• Special Power of Appointment: Testator grants the fiduciary power to appoint the fideicommissary.
• Fideicommissum Residui: Property left to a fiduciary, with the remainder passing to another person after the fiduciary's death.
  • Fiduciary can alienate parts of the property, subject to conditions regulating the fideicommissary's interest.

Legal Position of Parties in a Fideicommissum

• Fiduciary:
  • Becomes owner upon delivery or registration.
  • Ownership is subject to a resolutive condition, transferring to the fideicommissary upon fulfillment.
  • Can alienate fiduciary interest.
  • Must maintain the property's essential qualities.
• Fideicommissary:
  • Receives the fideicommissary property upon condition fulfillment.
  • Does not need to be alive at the testator’s death, but must be alive or conceived by the transfer time.
  • If the fideicommissary dies before the condition is fulfilled, the fideicommissum may lapse, and the fiduciary may acquire full ownership.

Presumption against Fideicommissum

• Presumption favors direct substitution when there is doubt about the testator's intent.
• Does not apply when distinguishing fideicommissum from usufruct, as both impose burdens.
• Van Zyl v Van Zyl: Fideicommissary substitutions should be honored when the will explicitly supports them.

Usufruct and Accrual

• Usufruct: One person (dominus) owns the property while another (usufructuary) has the right to use, enjoy, and take the fruits of the property.
  • Usually lasts for the usufructuary's lifetime.
  • Usufructuary must return the property, maintaining its essential quality.
  • Dominus obtains vested ownership at the testator's death but cannot use the property until a future event, such as the usufructuary's death.
  • If the dominus dies before the usufructuary, ownership passes to the dominus's beneficiaries, subject to the usufruct.
• Common Law Accrual: Allows co-heirs or co-legatees to inherit a share from a beneficiary who cannot or does not want to inherit.
• Occurs when there is no substitution provision by the testator or under section 2C(2) of the Wills Act.
• Circumstances of Accrual:
  • Predeceased co-heir or co-legatee
  • Disqualified to inherit
  • Repudiation of the benefit.
  • Unfulfilled suspensive conditions