Le Roux and Another v Ontvanger van Inkomste and Another (6800/08) [2009] ZAFSHC 27 (12 March 2009)

80 Reportability

Trusts and Estates

Brief Summary

Succession — Joint wills — Revocation of election — Applicant, an 85-year-old man, sought to revoke his election made under a joint will with his deceased spouse, which had significant tax implications he was unaware of at the time of election — The South African Revenue Service treated the election as a donation subject to tax — The court considered whether the applicant's ignorance of the tax consequences was excusable and whether he should be allowed to retract his election — Held, the applicant was permitted to revoke his election due to his lack of understanding of the material consequences, which was deemed excusable in the circumstances.

Comprehensive Summary

Summary of Judgment

1. Introduction

The matter was brought as an application in the Free State High Court, Bloemfontein, concerning whether a surviving spouse who has adiated (accepted benefits under) a joint will may later be authorised to withdraw or revoke that adiation.

The applicants were Jacobus Stefanus Vogel Le Roux (in his personal capacity as surviving spouse) and Jacobus Stefanus Vogel Le Roux N.O., in his capacity as executor in the estate of the late Anna Susanna Elizabeth le Roux. The respondents were the Ontvanger van Inkomste (first respondent, representing the revenue authority’s position in relation to the tax consequence) and the Meester van die Hooggeregshof (second respondent).

The application followed after the surviving spouse had already signed an Act of Adiation, and it subsequently emerged that the revenue authority treated the adiation as giving rise to a deemed donation with donations tax consequences under section 58 of the Income Tax Act (as referred to in the judgment). The Master did not oppose the application, but filed a report outlining office practice regarding adiation/repudiation certificates. The first respondent opposed the relief.

The general dispute concerned the intersection between succession law principles governing election (adiation/repudiation) under a joint will, the requirement that an election be informed, and whether the court should, on grounds of equity and fairness, permit the withdrawal of an election where it was made in excusable ignorance of its legal consequences.

2. Material Facts

It was common cause that the applicant (an 85-year-old man) and his late wife executed a joint will in which they “merged” their joint estate and, among other provisions, bequeathed all liquid funds to a trust. Their children were to act as trustees, and the trust was to make provision for the maintenance of the surviving spouse in the trustees’ discretion. Upon the death of the survivor, the trust assets would devolve upon the children of the marriage.

It was not in dispute that the only asset implicated was a cash amount of approximately R2 million, which would form both the estate asset and, following the testamentary scheme, the trust asset. The applicant was nominated as executor and arranged for the practical administration to be done by Smith, who performed estate administration work while associated with an auditing firm (and who was described as a lawyer by training but not practising as such).

It was common cause that the applicant adiated under the joint will. Shortly thereafter it emerged that the revenue authority treated the adiation as a deemed donation to the trust under section 58 of the Income Tax Act, on the basis that the applicant had received an insufficient counter-performance relative to the value of what passed to the trust. The donations tax exposure was stated to be R170 840-61, and the applicant asserted he did not have funds available to satisfy the assessment because his assets would, on the testamentary scheme, be located in the trust.

The court treated as undisputed that, prior to signing the Act of Adiation, the applicant had not been informed of the donations tax implication. This was supported by Smith’s confirmatory affidavit, which indicated that Smith himself had not appreciated the potential tax consequence until it was raised by the first respondent.

It also appeared from the documentation that the Act of Adiation did not reflect that the applicant understood all “material consequences” of the election in the sense contemplated by the Master’s office practice. The Master reported that his office requires written adiation/repudiation and ordinarily insists on a certificate by a suitably qualified person confirming that the implications and legal consequences have been explained and understood; because such a certificate did not appear on the adiation documentation, the Master’s office did not accept it. The result, on the papers, was that the Master required the applicant to provide an improved Act of Adiation and an adiation certificate confirming explanation of all material consequences, which the applicant could not truthfully provide given his case.

The first respondent accepted (at least for purposes of opposition) that the applicant personally was not aware of the tax implication, but contended that Smith, as adviser, ought to have known of it, and that this ignorance should not be treated as reasonable or excusable. The first respondent also contended that the adviser’s lack of knowledge should be attributed to the applicant, so that the applicant should remain bound by the adiation.

3. Legal Issues

The central legal questions were whether, and in what circumstances, a surviving spouse who has elected to adiate under a joint will may later be granted relief to withdraw that election, and whether ignorance of a legal/tax consequence of the election can qualify as the kind of excusable ignorance that justifies intervention by a court.

The dispute primarily concerned the application of legal principles to established facts, coupled with an evaluative assessment grounded in equity and fairness. The factual premise that the applicant had not been informed of the donations tax implication was treated as common cause on the papers; the contest lay in whether that ignorance was legally relevant, whether it was excusable, whether adviser ignorance could be attributed to the applicant, and how the court’s equitable discretion should be exercised.

4. Court’s Reasoning

The court approached the matter from the premise, drawn from authority and academic writing, that an election to adiate (or repudiate) is, as a general rule, irrevocable once made, and cannot be withdrawn unilaterally. The court accepted that leave of the court is required for a surviving spouse to be released from an election already made.

In addressing the possibility of relief, the court relied on the principle (as formulated in the succession law authorities referred to in the judgment) that a beneficiary may obtain relief where the choice was made in excusable ignorance. The court also referred to case law indicating that relief may be accorded in exceptional cases where the ignorance leading to the election is excusable in the circumstances and where considerations of justice and equity support intervention.

The court observed that many reported decisions focus on whether the nature of the election had been explained rather than the full range of its material consequences, but held that this did not justify restricting relief only to ignorance about the existence or character of the choice. It reasoned that there was no sound basis for applying the court’s power so narrowly. Where it is clear that a surviving spouse was excusably ignorant of the legal consequences of the election, relief could follow. The court treated the donations tax implication as, in substance, a legal consequence of the adiation.

In evaluating the first respondent’s contention that the adviser’s ignorance should be attributed to the applicant, the court did not accept that this should preclude relief on the facts. The judgment emphasised that the applicant was elderly and demonstrably legally unsophisticated, and that he had been unaware of the tax consequence. It further noted that the assertion that Smith had not explained the tax implication because he himself was unaware of it stood uncontradicted on the papers.

The court placed substantial weight on fairness and equity as the applicable measure in this type of application, and evaluated the concrete prejudice and justice of the outcome. The applicant’s adiation meant that he would have no assets, would depend on discretionary trust allowances for his maintenance, and would be unable to pay the revenue authority’s assessment. The court considered that the first respondent would not be deprived of tax that would otherwise have been payable in the ordinary course based on prior earnings; rather, the first respondent stood to receive what the court characterised as a form of windfall or “bonus” arising from the applicant’s initial election. In those circumstances, and given the lack of informed consent to the election’s material legal consequence, the court held that justice and equity favoured permitting the applicant to withdraw the adiation.

On costs, the court treated the matter as one where the applicant sought indulgence from the court but where the first respondent had failed in its opposition. The court crafted a split approach, ordering that the estate pay costs only on the scale as if the application were unopposed, and making no order for the remainder of the costs.

5. Outcome and Relief

The court granted the substantive relief sought in prayers 1 and 2 of the notice of motion, thereby authorising the applicant to withdraw his earlier adiation.

The court ordered that the costs of the application be payable out of the deceased estate on the basis as if the application were unopposed, and it made no order in respect of the balance of the costs.

Cases Cited

Oxenham v Oxenham’s Executor 1945 WLD 57

Van der Merwe v Die Meester en ’n Ander 1967 (2) SA 714 (SWA)

Serfontein v Walton 1979 (1) SA 1059 (O)

T (1984) 46 SATC 121

T (1988) 15 SATC 58

Legislation Cited

Inkomstebelastingwet, section 58

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that while an election by a surviving spouse to adiate under a joint will is generally irrevocable, the court has the power to grant relief where the election was made in excusable ignorance and where justice and equity require that the surviving spouse be allowed to withdraw the election.

On the facts, the applicant’s election was made without knowledge of a significant legal consequence, namely the donations tax consequence treated by the revenue authority as arising under section 58. Given the applicant’s age, lack of legal sophistication, the absence of explanation of the material consequence, and the severe practical effect of leaving the applicant assetless and unable to satisfy the assessment, the court concluded that fairness required permitting withdrawal of the adiation.

LEGAL PRINCIPLES

An adiation/repudiation election in the context of a joint will is not freely retractable once exercised; withdrawal requires judicial intervention rather than unilateral reversal by the beneficiary.

A court may grant relief from an election where the beneficiary acted in excusable ignorance when electing, and where equity and fairness justify the departure from the general rule of irrevocability.

Excusable ignorance is not confined to ignorance about the bare existence or nature of the choice; it may extend to ignorance of a material legal consequence of the election, where the circumstances show that the beneficiary did not understand that consequence and where it would be unjust to hold the beneficiary strictly to the election.

Applications of this nature require a case-by-case assessment, with the decisive enquiry being whether it is just and equitable to permit a change of position in light of the beneficiary’s knowledge, circumstances, and the practical impact of maintaining the election.