Picture: 123RF/STEVE WOODS
Picture: 123RF/STEVE WOODS

Almost everyone will deal with the trauma of a loved one dying, but often this trauma is compounded by complicated and expensive estate administration, liabilities and unforeseen tax burdens.

Most people do not realise the financial implications of dying, and many do not have enough cash in their estates to settle debts and pay costs, according to Louis van Vuren, CEO of the Fiduciary Institute of Southern Africa (Fisa).

Marietjie Strauss, regional manager for Gauteng at Sentinel Trust, says the first thing that must be paid for is the funeral.

"Make sure your close relatives know what you budgeted for and where to collect the money from, such as a funeral policy or savings account. You don't want your family hosting a huge funeral chomping away on their inheritance if you planned for a small, intimate service," says Strauss.

The next step is to report the estate to the master of the high court, where a specific legal process must be followed. The appointed executor must first settle liabilities, then attend to specific items that have been bequeathed to specific people or organisations. The balance of the estate is called the residue. The residue will be transferred according to your will, and if you did not leave a will, "according to the rules of intestate succession law", says Van Vuren.

Many estates do not
have enough cash to
settle the debts and
administration costs.
Louis van Vuren
CEO of the Fiduciary Institute of Southern Africa
Louis van Vuren, CEO of the Fiduciary Institute of Southern Africa

He says there are two different processes — one for estates valued at less that R250,000 and one for those valued at more than this amount. There are not many formalities for estates below R250,000 and "most family members can attend to the process themselves". However, for estates exceeding R250,000 an executor must be appointed — usually the person or entity nominated in your will — to administer and wind up the estate.

You can appoint a family member as your executor, but the master of the high court may demand security from the executor unless the executor is qualified to comply with all the relevant laws, says Van Vuren. Security can be obtained by way of a court bond, a type of short-term insurance, which costs extra money for the premium.

The executor must account for all assets and liabilities in the estate in a document known as the liquidation and distribution account, which is lodged with the master of the high court.

"The liabilities include those amounts owing by the deceased at the time of death, as well as the administration costs resulting from the administration process," says Van Vuren.

Many people know that your estate can be liable for estate duty of 20% of assets not left to a spouse and which exceed the estate duty exemptions (R3.5m for a single person). But not many are aware of all the administration costs, which Van Vuren says include:

  • Advertising — your executor must advertise for creditors who want to claim against your estate and advertise the liquidation and distribution account in the Government Gazette and in a newspaper;
  • Master's fees — these are due to the South African Revenue Service (Sars) for estates worth more than R250,000 where an executor is appointed. They are calculated on a sliding scale depending on the value of the estate, to a maximum of R7,000, Strauss says;
  • Executor's remuneration — if your will doesn't stipulate the fee, it is typically calculated at the highest fee allowed: 3.5% of the gross asset value of the estate plus VAT. Most trust companies will reduce the fee on estates worth more than R3m Strauss says;
  • Costs of security — if the executor is required to lodge security for the administration of the estate, the cost of the premium for this insurance is a charge against the estate, usually around 0.5% of the gross value of the estate plus VAT, Van Vuren says; and
  • The costs of selling or transferring fixed property — your estate may incur mortgage cancellation costs. Though no transfer duties are payable when a property is transferred to a beneficiary, there are still some costs, such as attorney and Deeds Office fees, Van Vuren and Strauss say.

If the property must be sold, your estate will incur costs such as estate agent's commission and brokerage fees, they say.

Other costs may include the costs of valuing the assets for the estate liquidation and distribution account, submitted to the master and to Sars for estate duty purposes; costs to transfer shares or timeshare; bank charges; postage and petties; funeral expenses; maintenance of assets while the estate is wound up; tax accounting fees — a fee charged by the person preparing the tax returns; and duplicate original motor vehicle registration certificates.

Once the administration costs are calculated, the executor will look for claims against the estate, including a claim from Sars against the estate for income tax due for the period March 1 to date of death.

It is the executor's duty to give Sars a completed tax return including capital gains made on the deemed disposal from you to your estate for the relevant period; and to settle bonds and overdrafts or instalment agreements.

Each estate is different, so you need to work out your own costs and make a plan to ensure there is enough cash in the estate.

Van Vuren says many estates are solvent, but still they do not have enough cash to settle the debts and administration costs. The heirs may be required to pay cash into the estate to avoid the sale of assets. If they are unable to do so, the executor may be forced to sell a valuable asset such as a home or car to generate the cash.

Marietjie Strauss of Sentinel Trust has provided a fictitious example, based on real-life experience, of the costs associated with winding up the estate of a Mr Goodwin. The comparison is of the costs of the estate in the event he died without a will (intestate) and another where he died and he had a signed will (testate).

Scenario 1:  Mr Goodwin recently died without doing any estate planning. He was married out of community of property to Mrs Goodwin, with two adult children living abroad. Mr Goodwin died in a car accident and Mrs Goodwin is in a coma, but doctors are positive.

Mr Goodwin did not leave a last will and testament and his estate is thus intestate and will be dealt with accordingly. His children rush to SA for the funeral and will return home once their mother awakes. They have no plans to return to SA for another two years. 

His gross asset value is R11 000 000.00 and consists of a fixed property, motor vehicle, share portfolio and various investments (cash and unit trust). 

The two children approached ABC Trust Company to assist with the administration of the Estate. 

Scenario 2:  The same scenario as above, except for the fact that Mr Goodwin planned for his death with a signed will where Mrs Goodwin is his sole beneficiary.


Explanation of comparison of costs courtesy of Marietjie Strauss

Advert Costs:

The executor needs to place adverts in a local newspaper and the Government Gazette, as prescribed by the Estate Administration Act. 

Master’s Fees:

Master’s Fees are payable to the master of the high court, and is calculated on a sliding scale depending on the asset value, with a maximum fee of R7 000.00. 

Executor’s Remuneration:

Executor’s remuneration is prescribed by the Estate Administration Act, currently to a maximum of 3.5% on the gross asset value of the estate, as at date of death.  The Testator, however, can negotiate this fee in his will, or leave it to the beneficiaries of the estate to negotiate.  Most trust companies will consider a reduced tariff on estates with a gross value above R3 000 000.00.  For calculation purposes we kept the fee at the prescribed rate. 

Fixed Property:  Conveyancing Costs

The fixed property needs to be transferred to the beneficiaries of the estate.  There is no transfer duty payable on a property transfer from an estate to a beneficiary, but there is still costs involved, such as attorney’s fees and Deeds Office fees. Conveyancing costs are calculated on a sliding scale, depending on the fixed property value. 

Fixed Property: Clearance Figures

Clearance figures needs to be obtained from the local municipality or city council and is usually calculated at 6 or 4 x the monthly rates and taxes.

Transfer costs: Assets

ABC Trust Company offer their clients an option to either attend to vehicles themselves, or to use their service provider to attend to the vehicle transfer on their behalf.  This saves a lot of time and frustration.  

Asset valuation fees:

Scenario A attracts estate duty and the executor needs to lodge sworn valuations with the liquidation and distribution account to the master of the high court and Sars. The appraiser’s costs are calculated on a sliding scale, depending on the asset value. 

Scenario 2 does not attract estate duty, because Mrs Goodwin is the sole beneficiary (based on a section 4q deduction of the Estate Duty Act). The executor can therefor make use of informal valuations. However, due to the value of this estate it was decided to obtain a sworn valuation, irrespective of the scenario. 

Estate Duty

Scenario A will be liable for estate duty on the assets/asset value inherited by the two children. The children’s inheritance will also be deducted from the R3 500 000.00 rebate, and this will reduce the estate duty roll over to Mrs Goodwin’s estate. 

Scenario B will be exempt from estate duty as the total of Mrs Goodwin’s inheritance will be deducted in terms of Section 4q of the Estate Duty Act. She will also benefit from a full estate duty roll-over of R3 500 000.00 in her estate, which will bring the primary rebate that she can use in her estate to R7 000 000.00. 

Bond of Security

Scenario A:  Mr Goodwin passed away intestate and the family needs to appoint an executor. The master of the high court will exempt the nominated executor from bond of security, provided that the person is a close relative (wife, child or parent). Mrs Goodwin is currently in a coma and cannot take up appointment. The two children reside overseas, with little to no expectation of visiting SA within the next 2 years, after their return to their respective homes. 

There is provision made that should the executor reside outside SA, you are allowed to choose domicilium citandi et executandi in the Republic (an SA address where legal processes can be serviced). The master of the high court may require you to furnish security in the form of a bond of security, notwithstanding you being otherwise exempt. This is quite an expensive exercise as an annual premium needs to be paid for as long as the estate is under administration.

The family decided to rather nominate ABC Trust Company as executor, as the master would in any case have called for security, irrespective of whether a child or the company is appointed in this scenario.   

Scenario B: the professionally drafted will exempted the executor from lodging a bond of security and as the nominated executor, (ABC Trust Company) is a reputable company with a clear track record, the Master did not override the exemption.