Financial planning is not only for the living

*This content is brought to you by Brenthurst Wealth

By Malissa Conlin*

The goal for many investors, and in fact, anyone who has assets to leave behind, is to ensure that a legacy is left behind for their loved ones. Fortunately, many are able to do so, but only after a considerable amount of time has been spent factoring in the costs for administering an estate, which includes everything from executor’s fees to courier charges.

This means that in order for you to leave a legacy behind, you will need to account for these costs in your financial plan.

As the old saying goes, life’s two greatest predictables are death and taxes. And when someone close to you passes away, this can hit home really hard if you don’t know what to expect. This is especially true for the remaining spouse, who could be left with large bills and no liquid assets to pay for those costs.

There are many ways to structure your estate to ease this path a little, but that’s a discussion you should have with a fiduciary specialist, like me, who is able to help you optimise your affairs for tax and cost efficiency.

So, to help you prepare for the inevitable, here’s a quick breakdown of the costs usually associated with winding up a deceased estate.

What is a deceased estate?

A deceased estate refers to all the assets and liabilities that a person leaves behind after they die. This can include property, money, investments, cars, and household effects, as well as debts like credit card balances, loans, and medical bills. 

Settling a deceased estate involves distributing the assets to beneficiaries as per your Last Will and Testament, paying off any outstanding debts and taxes, and finalising any legal matters.

This process is typically undertaken by an executor, as nominated in accordance with your will, or should you die intestate are either nominated by your intestate heirs or appointed by the Master of the High Court, which can be a lengthy and frustrating process. Whilst you may decide to nominate a family member, I believe it imperative that a qualified executor be nominated instead, someone who understands the legal process with respect to winding up estates in detail, therefore having the experience and skills to conclude matters as quickly as possible. In the event that an estate is valued at less than R 250 000, a section 18(3) estate comes into play, which is a much simpler and straightforward process, which would be easy for a direct family member to navigate, as paperwork needs to be concluded to obtain a Master’s directive, whereafter distributions can be made following that directive. 

This is what it costs to die

I’ve put together a comprehensive list of the costs, and estimated what you could pay where that’s possible:

  • Funeral expenses: These can cost between R15 000 to R30 000 or more, depending on the requirements. It makes sense, therefore, to nominate a beneficiary on your funeral policy (if you have such a policy in place) so they can receive the payment quickly to cover the cost of your funeral. The money is paid into your estate if you don’t nominate a beneficiary.
  • Executor’s fees and remuneration: Estates valued at more than R250 000 require an executor to be appointed, who is entitled to charge 3.5% plus VAT on the total value of your estate, which is the maximum fee prescribed by the Master. It is possible for you to negotiate a lower fee with the executor, which can be discussed and recorded when you ensure that you have a valid will drafted and where a professional executor is formally nominated. If you’re married in community of property, the executor’s fee is calculated on the whole (joint) estate, not only that deemed to belong to the deceased. Additionally, where there are assets in the deceased estate that generates an income after your death. This includes rental income, interest, dividends, trading, or farming income. For this, an executor is entitled to a prescribed maximum executors’ remuneration of 6% plus VAT earned on those assets until such time as your estate is wound up.  
  • Estate duty: A section 4A rebate applies to all deceased estates, which means your estate will be exempt from estate duty if the estate is less than R3.5 million. Where the deceased was married, it is possible for this rebate to roll over to the surviving spouse, allowing for a R7 million rebate against estate duty. However, estates of more than R 3.5 million up to R30 million trigger estate duty which is levied at 20%, and thereafter at 25% for any amounts that fall above R 30 million.
  • Capital gains tax: This tax is payable on the gains made on assets that have to be sold or transferred to beneficiaries and is calculated based on your personal tax rate. The first R300 000 of gains are exempt at death, and only 40% of the balance of the gain is used to calculate what you need to pay. There are also additional capital gains tax exemptions that can be considered, one example is the primary residence rebate of R 2 million. 
  • Income tax: Any income tax owed to SARS must be paid from your estate. SARS will conduct an audit to ensure all your taxes are up to date and will issue a tax compliance certificate, also known as a DEC certificate, once this is completed. This certificate allows the executor to finalise your estate.
  • Master’s fees: For estates valued at less than R400 000, the fee is currently R600, with this increasing on a sliding scale up to a maximum of R7 000 based on the value of your estate.
  • Claims against the estate: This includes costs like outstanding debts, which include but are not limited to hospital accounts, bond and vehicle repayments, loan accounts, outstanding credit card balances, clothing accounts and so on. 
  • Accrual claims and maintenance costs: If you are married out of community of property subject to the inclusion of the accrual system, whilst you retain your separate estates during your marriage, the value at which your respective estates from the date of marriage have grown is calculated on the demise of the first-dying spouse. In the event that the deceased’s estate is valued higher than the surviving spouse, the result would be that the surviving spouse then has a claim against the estate in respect to accrual. If you are divorced at the time of your death, your obligations in terms of a maintenance claim in respect to a divorce order will need to be upheld.
  • Donations tax: You will be liable for donations tax of 20% on donations of more than R100 000 a year if you haven’t paid donations tax at the time of death. Donations to spouses are exempt from this tax, and some donations made in the event of death are excluded.
  • Professional fees: This is for professionals helping the executor with specific requirements, like an accountant, conveyancer or tax consultant.
  • Maintenance of estate assets: Any costs for maintaining assets while the estate is being wound up. 
  • Estate agent’s commission: This will apply if your property is sold, and is usually around 7.5%, but can be negotiated.
  • Transfer costs: This will be due if your property is transferred to a testate or intestate beneficiary and is paid to the conveyancing attorney managing property transfers from a deceased estate. This fee is also determined in accordance with a sliding scale. Property transfers to beneficiaries are exempt from the transfer duty. 
  • Bond cancellation costs: This is paid to bond cancellation attorneys (usually appointed by the banking institution where your bond is held) if a mortgage account has to be closed and cancelled in the Deeds Office.
  • Valuation and appraisal costs: If a sworn valuation by an appraiser is required by the Master. 
  • Rates and taxes: It is common to have to pay five months’ rates and taxes in advance to get clearance figures from the municipality.
  • Advertising costs: Part of the process of winding up an estate is publishing two advertisements in a local newspaper and the government gazette. A Section 29 advert is required to notify creditors of your death and allow them to lodge claims against the estate, and the second Section 35 advert is required to inform any interested parties that the liquidation and distribution account is laying for inspection. Costs depend but could be as much as R1 000 per advertisement.
  • Bank charges: These fees are for the estate bank account that the executor is required to open while settling your estate.
  • Postage and petties: The executor is allowed to charge postage and petties of R260 plus VAT. This excludes courier charges, which will be charged to the estate as an additional cost. 

This is an exhaustive list of all the various costs and taxes your loved ones will have to contend with once you’re gone. As suggested in the headline, this means that you need to prepare for these expenses while you can so that your family are not left holding the can. It is crucial that these costs are considered well before the time, so that strategies can be put in place, for example maximising the estate deductions in order to bring down estate duty liability. Liquidity in your estate is imperative, considering that all liabilities will need to be covered before your beneficiaries receive any financial benefit from your estate. 

If matters of liquidity are an issue, the simplest way to resolve this is to have a life policy in place to cover immediate costs and also potentially leave money to your dependents. Speaking to a qualified financial advisor who can guide you through the various options is always best.

So, it goes without saying that effective estate planning will aid in ensuring you structure your estate in such a way that you are able to reduce the costs in your estate and have a will in place to ensure your wishes are correctly carried out. Do this now before the bucket is kicked.

  • Malissa Conlin is the General Manager of Brenthurst Wealth and Fiduciary Specialist (a registered member of FPSA®). [email protected]
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