Death can be expensive and it is possible for your loved ones to be saddled with serious cash shortfalls when they have to wind up your estate, warns insurer Sanlam.
According to the group, the average cost of winding up an estate in South Africa is 3.5% of the gross value of the assets, plus VAT (15%).
On a R1 million estate, this equates to R35,000 and R5,250 VAT – just over R40,000 lost. The executor of the estate is also entitled to a fee on all income earned post the date of death, it said.
“It’s important to understand that costs are classified as a) administration costs, which accrue as a result of the death and are mostly paid in cash, and b) claims against the estate – this means the costs the deceased was liable for at the time of death,” said David Thomson, senior legal adviser for Sanlam Trust.
Below Thomson outlined some of the other hidden costs to consider when someone dies in South Africa:
- For estates with a value between R250,000 and R400,000: R600 (fees escalate as the value of the estate increases, to a maximum of R7,000);
- Administration charges (the executor’s remuneration): 4.025% of the estate value;
- Valuation costs of assets for estate duty purposes: R2,000 to R5,000;
- Advertising costs (advertisements for calling on creditors and giving notice that the liquidation and distribution account is open for inspection): R850;
- Costs for provision of security to the Master (a security bond protects an estate from any negligent act from the executor): 0.05% plus the VAT of the asset value;
- Estate bank account charges: R600;
- Transfer costs of fixed property to an heir (determined by a sliding scale issued by the Law Society): R29,000 on a property worth R1 million;
- Cancellation costs of bonds registered over fixed property in the estate: R3,500;
- Rates and taxes payable to the City Council with the transfer of fixed property – five months in advance;
- Postage: R260;
- Funeral costs: A funeral can cost anything from R6,000 to R50,000 or more.
Administration of the deceased estate
Thomson said there should be enough cash in an estate to help loved ones cover three to six months’ rates and contractual commitments such as rental payments, mortgage bond repayments, medical aid premiums etc.
There may also be capital gains tax to contend with, he said.
“Capital gains tax is levied on any capital gain (profit) made on the disposal (whether by sale, donation or expropriation) of an asset (on death we are deemed to have disposed of all our assets).
“At its maximum, 18% capital gains tax would be levied. Then there’s the estate duty to think about. This is the tax paid on the deceased’s dutiable estate (all the individual’s assets and life insurance policies minus their liabilities and allowable deductions and exemptions).
“Duty of 20% is charged on the first R30 million, and 25% on anything above this. Unless these taxes are paid to SARS, no heir can receive their inheritance,” he said.
Thomson said that the executor has a duty to determine the financial position of the estate and decide if there’s enough cash to cover all the administration and debts.
If not, the executor and heirs need to assess whether there are sufficient assets to sell in order to settle these expenses, he said.
“The law is quite clear that if a shortfall exists, the executor has to sell the assets of the estate to cover it. Should heirs not cooperate, then the executor must follow a process set out in section 47 of the Administration of Estates Act and obtain the consent of the Master of the High Court for the sale of immovable property.
“A certificate authorising the sale in terms of section (42(2)) is also required. Alternatively, the heirs may choose to pay the cash shortfall themselves in order to retain the assets.
It’s important to note that all liabilities must be paid up in full to the creditor – by the estate, Thomson said.
“For example, in the case of an unpaid vehicle loan, the bank/creditor will issue a summons for repossession of the vehicle and payment of the debt, plus, they can reclaim their legal fees and costs of collection from the estate.
“A creditor may – in exceptional circumstances – agree to renegotiate the credit terms with the estate and/or the heirs.
“Normally, a deceased estate is administered in terms of section 34 of the Administration of Estates Act. However, if an estate is insolvent, the creditors may decide to surrender the estate formally and then it will be administered in terms of the Insolvency Act.”