Reference: Published by Devon Card – Crue Invest (Pty) Ltd, 24 April 2023

It is clear that ensuring that your estate has enough liquidity to pay your numerous commitments is an essential component of estate planning.

The Administration of Estates Act of 1965, whose provisions are applicable whether the deceased died testate or intestate, must be followed when a person passes away with an estate worth more than R250 000.

Keeping in mind that the heirs and beneficiaries can only get their inheritances once the debts in the estate have been paid off, the executor’s primary duty is to maintain track of the liabilities in the decedent’s estate.

In this article, we examine the numerous expenses related to handling a decedent’s estate.

Tax

One of the executor’s first duties is to see that Sars receives the taxes it is due, keeping in mind that they will actually have to perform two tax assessments: the pre-date of death assessment and the post-date of death assessment. The post-date of death assessment includes dividends, interest, and rental income that was accumulated throughout the administration process up until the Master has formally approved the liquidation and distribution account, whereas the pre-date of death assessment includes all income and deductions that were applicable to the deceased up to the date of death.

It is crucial to consider any potential estate duty and capital gains tax liabilities you may have while creating your estate plan. The first R3.5 million of the value of your estate is not subject to estate duty, which is a tax paid on the dutiable estate of the deceased and is assessed at a rate of 20% of the first R30 million and at 25% of everything over R30 million. If the dead was married when they passed away, the R3.5 million estate duty exemption can be carried over to the surviving spouse, who will then be eligible for a R7 million exemption when they pass away.

Claims for maintenance and accrual

It’s crucial to comprehend how maintenance responsibilities and accrual claims can impact the administration of your estate. These two costs are frequently ignored when determining estate liquidity. The accrual method governs the growth of each spouse’s inheritance starting from the date of marriage and is computed at the death of the first-dying spouse if you are married and have separate estates while you are still married. The surviving spouse will have a claim against the deceased spouse’s estate for their part of the accrual, having in mind that their claim is a preferent one, if the value of the deceased spouse’s estate is more than that of the surviving spouse. Similar to this, if the deceased had support duties under a divorce decree, these obligations did not end with their owner’s passing. The executor must make sure they are honored, which is often done by making a lump sum payment. The executor may need to sell assets meant for other beneficiaries if the dead did not make provisions for them, which could have disastrous financial ramifications.

Existing debt

The executor must make sure that all other estate debts are paid after Sars has been paid and all accrual and maintenance duties have been satisfied. This is accomplished by publishing a Section 29 advertisement in the Government Gazette and the local newspaper, which essentially serves as an advertisement for the estate’s creditors to submit their claims. The Master will only authorize the executor to distribute inheritances and bequests to the heirs and beneficiaries once all of the creditors have been satisfied. Once more, the executor may need to sell assets to cover the estate’s death expenses if the decedent did not leave enough money in their estate to pay off their debts.

Fees for an executor

As of right now, an executor is only allowed to charge a maximum of 3.5% of the gross value of the estate’s assets plus 15% VAT. Additionally, from the time of the decedent’s death until the estate’s final winding up, an executor may charge 6% of all revenue received on the estate’s behalf, including rental, interest, dividend, trade, and farming income. You have the option to negotiate a reduced executor’s fee when naming an executor in your will, which is typically done afterward.

Expense of administration

A deceased person’s estate may also incur the following expenses:

• Costs of burial and funerals: Funeral and burial expenses are covered by the estate of the deceased person, but it is ideal to make sure that your loved ones have access to money or a funeral policy to pay for the funeral so that they can later recoup those expenses from your estate. Keep in mind that funerals can range in price from R10,000 to R50,000, depending.
• Paying the master: According to existing regulations, master’s fees will be charged at a rate of 600 for estates valued between R250 000 and R400 000, and thereafter on a sliding scale up to a maximum of R7 000.
• Late bank account for an estate: The opening of an estate-late bank account, for which most banks charge somewhere in the neighborhood of R600, is one of the executor’s first tasks.
• Transfer expenses: Your estate will be obligated to pay the transfer charges, which are the attorney’s conveyancing fees, in accordance with a sliding scale decided from time to time whenever immovable property in your estate is transferred to an heir, whether via testate or intestate succession. It is crucial to remember that beneficiaries and heirs are free from paying transfer duty on assets they inherit from a deceased estate either through testate or intestate succession.
• Costs of bond cancellation: The estate is responsible for the bond cancellation expenses, which can range from R4 000 to R5 000 depending on the lender’s terms, if the executor needs to cancel a bond over fixed property.
• Expert charges: The fees associated with hiring professionals to help the executor of your estate wind it up will be covered by the estate. For instance, if you and your spouse use the accrual system, the executor may need to hire an accountant to figure out the accrual. To sell any immovable property, you must also pay the estate agent’s commission, if applicable.
• Costs of advertising: Depending on the publication rates, the Section 29 and Section 35 advertisements that are mandated by the Act cost about R1,500.
• Upkeep of an asset: The estate will pay for any expenses paid in relation to maintaining an asset, such as gardening services, plumbing, electricity charges, or cleaning expenses.
• Costs of valuation and appraisal: These costs, together with the appraiser’s travel expenses, will be covered by the estate when the Master demands that an asset in the estate be valued by a sworn appraiser.
• Costs of duplicate rates clearance: Your estate must pay rates and taxes to the municipality up to six months in advance if your estate owns immovable property.

With the aforementioned in mind, it is clear that a crucial aspect of estate planning is making sure your estate has enough liquidity to satisfy your numerous commitments without taking away from the inheritance you want to leave to your loved ones. Our recommendation is to collaborate with a knowledgeable estate planner to make sure that all estate costs are estimated and fully covered.