Understanding Failed Legacies and Estate Distribution in South African Succession Law

Introduction

This article explains the different types of legacies, what happens to the leftover assets in an estate, and the legal outcomes when legacies fail.

Intestate succession

If there is no will the estate is distributed according to the rules of intestate succession.

The terms heir and beneficiary refer to different roles in inheritance, and understanding their distinction is important:

• Heir: An heir is someone who is entitled by law to inherit from a deceased person if that person dies without a will (intestate). Heirs are typically close relatives, such as spouses, children, or parents, and their entitlement is governed by the rules of intestate succession. Heirs may inherit the deceased’s estate automatically under these rules.
• Beneficiary: A beneficiary is someone who is specifically named in a will to receive certain assets or property. Beneficiaries are chosen by the testator (the person making the will) and may or may not be relatives. Unlike heirs, a beneficiary’s rights come from the will, not from legal entitlement.

In short, heirs inherit by law when there is no will, while beneficiaries inherit based on what is stated in a will.

Testate succession

The person who writes a will is called a testator. They leave their estate to people they choose, called beneficiaries. This can be done in two main ways:

·         The testator can leave the remaining part of their estate (the residue—being the value of all assets in the estate minus the expenses incurred in winding up the estate) in percentages to beneficiaries.

·         The testator can also leave specific items or amounts of money to certain beneficiaries, and whatever is left (the residue) to other named beneficiaries.

Legacies

A "legacy" is a gift left to someone in a will and can be general or specific.

Specific Legacy

• A specific legacy is when a particular item or asset is clearly named in the will.
• Example: A person leaves a specific painting or car to a named individual.
• For the legacy to work, the asset must still exist when the person dies.

General Legacy

• A general legacy is not tied to a specific item but rather a sum of money or a general type of property.
• Example: A person leaves R50,000 to a beneficiary from their estate.
• Unlike a specific legacy, the money or property can come from any part of the estate that has enough value.

The Residue of the Estate

After distribution of all specific and general legacies, the remaining assets are called the residue of the estate. The residue includes anything that hasn’t been specifically mentioned in the will or used to pay off debts.

• Example: If an estate includes a house, a car, and R100,000, and specific legacies are made for the car and R50,000, the residue will be the house and the remaining R50,000.

Distribution of the Residue

• A will usually names one or more beneficiaries to inherit the residue of the estate.
• If there are several beneficiaries, the residue is split according to the terms of the will.
• If no heirs are named for the residue, the estate follows the intestate succession laws, which determine how the assets are shared among family members.

What Happens When a Legacy Fails?

A failed legacy occurs when a bequest cannot be carried out. When this happens, the asset intended for the legacy is reallocated to the residuary estate. Understanding why legacies fail and what happens afterward is important to ensure the estate is distributed smoothly.

Reasons for a Failed Legacy

• Non-Existence of the Item: The item may no longer exist at the time of death, for example, if it was sold or destroyed.
• Death of the Beneficiary: If the named beneficiary dies before the person who wrote the will, the legacy fails unless a replacement beneficiary is named.
• Disqualification: A beneficiary might be disqualified from receiving a legacy, for example, if they caused the death of the testator.
• Impossibility or Illegality: If the conditions tied to a legacy are impossible to meet or illegal, the legacy cannot be fulfilled.

Legal Consequences of a Failed Legacy

• When a legacy fails, the asset becomes part of the residuary estate. It is then distributed according to the rules laid out in the will for the residue.
• If the will does not specify how to handle the residue, the estate is distributed according to intestate succession laws, which follow a set order of family members.

Handling Failed Legacies

There are important things to consider when a legacy fails, especially regarding how the estate is distributed.

No Substitute Beneficiary

• If no alternate or substitute beneficiary is named in the will, the failed legacy is absorbed into the residuary estate.
• Example: A person leaves a car to a nephew, but if the car is sold before the person dies and no replacement is named, the value of the car is added to the residue. This benefits the heirs who inherit the residue.

Conclusion

In South African law, legacies are an important part of how estates are distributed according to the wishes of the deceased. However, if a legacy fails because the asset no longer exists or the beneficiary has died, the asset doesn’t just disappear. Instead, it becomes part of the residuary estate, ensuring that the overall value of the estate is preserved and distributed fairly.

Understanding these concepts is crucial for proper estate planning. It helps ensure that even if a legacy fails, the testator’s wishes are still respected, and their assets are fairly shared among their heirs.

 

Understanding the Rights and Obligations of Creditors and Debtors in South Africa

 Introduction

In South Africa, the National Credit Act (NCA) serves as a guiding framework for creditors and debtors. It regulates how credit information is accessed, ensuring that consumer rights are upheld while also allowing creditors to manage risk and recover debt. This article explores the rights and obligations of creditors and debtors, including when a creditor can conduct a credit check, when it is unnecessary to obtain permission, the process of listing a debtor as a bad payer, and what steps an aggrieved debtor can take.

Rights and Obligations of Creditors and Debtors

The NCA ensures that both creditors and debtors operate within a regulated environment, protecting consumer information and preventing unfair practices.

Obligations of Creditors

Creditors have the following obligations under the NCA:

• Obtain Consent for Credit Checks: With some exceptions, a creditor must secure the consumer's explicit consent before conducting a credit check. This ensures that the debtor's personal information is protected.
• Notify Before Listing as a Bad Payer: Creditors must notify debtors 20 business days before listing them as a bad payer with a credit bureau, allowing the debtor time to rectify the situation or dispute the listing.
• Correct or Resolve Disputes: If a debtor challenges their listing, the creditor must work with the credit bureau to correct any inaccuracies.

Rights of Debtors

Debtors are entitled to several protections under the NCA, including:

• Right to Consent: A debtor's credit information cannot be accessed without their explicit consent, except in limited circumstances.
• Right to Dispute Listings: Debtors can challenge listings with credit bureaus if they believe the information is incorrect.
• Right to Privacy: A debtor’s financial information cannot be shared or used without their permission unless legal exceptions apply.

 Conducting Credit Checks: Consent and Exceptions

The NCA makes it clear that conducting credit checks without consent is illegal, with a few exceptions that permit creditors to access credit information without prior permission.

When Creditors Can Conduct Credit Checks

In most situations, creditors must obtain consent before running a credit check. The general rule is that consumers must explicitly agree to have their credit information accessed by signing a contract or providing written consent.

Exceptions to Obtaining Consent

There are situations where a creditor or authorized party may access credit information without the debtor’s prior consent. These include:

• Legal Requirements: A court order or legal requirement can compel a credit bureau or creditor to access credit information without consent.
• Debt Collection: If a registered debt collector is acting on behalf of a creditor to recover debts, they may perform a credit check without permission, but this must be done in accordance with the law.
• Fraud Prevention: Credit checks may be conducted without consent in cases where there is a suspicion of fraud, helping creditors assess the risk of fraudulent activity.

These exceptions ensure that creditors can still protect themselves and recover debts, even when consent is not obtained, but they must always act within the confines of the law.

Listing Debtors as Bad Payers

If a debtor defaults on payment, creditors have the right to list the individual or business as a bad payer with credit bureaus. This listing negatively affects the debtor’s credit rating and stays on the record for at least two years.

Steps to List a Debtor

Creditors must follow the process outlined in the NCA before listing a debtor as a bad payer:

• 20-Day Notice: Creditors must provide the debtor with a written notice of their intention to list a default. This notice can be sent via registered mail or email, and the creditor must prove that the notice was received.
• Dispute Option: During the 20-day notice period, the debtor has the right to dispute the listing by challenging the accuracy of the information.
• No Notice for Judgments: If a court judgment has been passed against the debtor, the creditor can list the judgment without providing prior notice.

Default listings have serious consequences, affecting the debtor’s ability to access further credit and possibly impacting employment opportunities.

Rights of an Aggrieved Debtor

A debtor who believes they have been unfairly listed with a credit bureau has several options to rectify the situation.

Steps to Challenge a Listing

• Check Credit Report: If a debtor suspects incorrect information on their credit report, they should first check the accuracy of the report by contacting the credit bureau.
• Lodge a Dispute: If there is an error, the debtor can lodge a dispute with the credit bureau. The bureau must provide a reference number and resolve the dispute within 20 business days.
• Escalate to the Credit Ombud: If the credit bureau fails to correct the mistake or the debtor is dissatisfied with the outcome, they can escalate the issue to the Credit Ombud. The Ombud resolves disputes between consumers and credit bureaus or credit providers.

The Credit Ombud is a free service available to consumers and businesses and can be contacted via phone or their website.

Conclusion

The National Credit Act in South Africa provides a balanced framework to protect both creditors and debtors. Creditors are required to obtain consent for credit checks and notify debtors before listing them as bad payers, while debtors have the right to dispute incorrect listings and seek resolution through the Credit Ombud. By following the guidelines set out in the NCA, both parties can ensure a fair and transparent credit process that respects consumer privacy and upholds legal obligations.