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INSOLVENT HEIR COULD FORFEIT INHERITANCE AND OTHER BENEFITS

Posted on: 01 March 2010
This forms part of our Social Development articles

Inheritances and other amounts obtained outside the estate, such as the proceeds of a policy

on which he was a beneficiary, and which devolve upon an insolvent heir and vest in his

name during the sequestration of his estate, form part of his insolvent estate. In most

instances, benefits under a pension fund and annuity can be excluded, as the benefits are

distributed at the discretion of the trustees of the fund.

There could be exceptions where the insolvent heir has been an unrehabilitated insolvent for

many years and where the trustees of the insolvent estate do not lay claim to the inheritance

and other benefits and waive them.

When bequeathing inheritances and other benefits to an unrehabilitated insolvent in a will, or

where there is a possibility of a beneficiary becoming insolvent, the correct wording must be

used in order to ensure that an inheritance and other benefits do not become part of the

insolvent estate.

The insolvent heir should therefore not receive any vested right. The best solution is to

bequeath the inheritance to the trustees of a testamentary trust. The inheritance will then vest

in the hands of the trustees. If the insolvent heir is a beneficiary on a policy, this should be

cancelled and the proceeds paid to the estate to form part of the bequest to the trust.

The trustees of the trust must be able to use the trust income as they see fit to the benefit of

the insolvent, his spouse, children and other dependants. The trustees must also be able to

set the termination date and distribute the capital to the insolvent heir, or other beneficiaries

such as his wife, should he die in the interim.

Expert advice is recommended when drawing up a will. The regular revision of a will is again

emphasised, as the testator, if he is still capable of doing so, can amend his will after the

rehabilitation of the heir and make a direct bequest to the heir.

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