Death is not absolute when it comes to your debt and taxes in South Africa.
Financial services company, Sanlam, notes that the bad news is that if you have debt on your assets including your car and home, “won’t become sweet parting gifts from the creditor to your loved ones”. They still need to be paid for, or they can be taken away.
“That doesn’t mean your family is liable for your loans, but if the loans are unsecured it does mean the creditor can pursue your estate for the full payment, which is kind of the same thing. If you haven’t protected your assets, they can be used to pay the outstanding amount.
“It can also mean that if you cosigned a loan with someone, that person will then become fully responsible for the whole debt.”
Failing having a life insurance policy, when you die all your assets and liabilities will be placed into an estate, noted Sanlam. Your assets include your house, your car, your furniture and the money in your bank account. Basically, anything that has your name linked to it when you bought it. Your liabilities are all your debts.
Then the following could happen:
- Your assets will be used to cover your outstanding debt: Whoever is assigned to be the executor of your estate will sell your assets in order to cover your outstanding debt. Whatever is left over after all debts are paid will be distributed to your dependants.
- Your debt could be cancelled: If the executor finds that you do not have enough assets to cover your outstanding debt, the debt could be cancelled. The executor will not be allowed to pursue your dependants for the outstanding amount, unless they have cosigned the debts, or have signed surety. In this case, the debt sharer will inherit the full debt.
Taking control of your debt while you’re alive should be your first plan of action, said Old Mutual.
What does happen to the debt once you pass on?
1. Your assets could be liquidated
If there is a will, an executor of the estate as nominated in your will, will be appointed. Their main job is to locate the property and money left behind (called the ‘estate’) and pay off all debts and liabilities before distributing the remainder to the beneficiaries stated in the will.
If there is insufficient liquidity or cash in the estate to pay all your debts, the executor of the estate will be forced to sell the assets in your estate to settle your debts possibly leaving nothing available for distribution to your loved ones, the financial services firm said.
2. Determining if the debt is secured or unsecured
Secured debts are debts that are secured against particular assets. When a bank lends you money, they may take security for the debt. That means that if you stop making repayments, the bank can take certain property (called the security property) and sell or use it to recover the amount you owe.
If the debt is unsecured and you stop making repayments, there is no particular asset the bank can take and sell or use. The bank must go to court and get an order that your valuables be taken and sold to pay off the debt. Credit cards and personal loans are usually unsecured debts.
3. Determining whose name the debt is in
If your debt is shared with another, i.e. credit card debt shared by spouses or business partners in their own names, it is the responsibility of all names listed on the account, said Old Mutual.
“If one account-holder dies, it may become the responsibility of the joint account holder. Alternatively, if one account holder dies, their estate may be used to pay off a portion or all of the debt. If the deceased account holder has insufficient (or no) assets to liquidate in order to pay their portion or all of the debt, the other account holder/s will be forced to pay all outstanding debt.”
4. Is your debt guaranteed?
If you have named a guarantee on a loan, it will become their responsibility, should you be unable to make the repayments. This can be a tricky position to put a loved one in, as they are promising to pay all debt if the borrower stops making payments.
“Depending on the type of asset (secured or unsecured), the bank will chase your guarantee, should you pass away. If the debt is secured, an asset will be liquidated to pay all outstanding debt,” the insurer warned.
What about tax?
The South African Revenue Service (SARS) provides an explanatory note on what happens to a deceased person’s tax obligation.
When a taxpayer dies, all his or her assets on the date of death will be placed in an estate, the revenue collector said. Assets in a deceased estate can among other things include immovable property and movable property, cash in the bank, etc.
“The person who administers a deceased estate is called an ‘executor’. Once the Executor has finalised all the administration in the deceased estate, the remaining assets, after paying all the debts, will be distributed to the beneficiaries,” it said.
“The executor is the representative taxpayer of the deceased person’s estate, and is required to submit the outstanding returns up to the date of death of the deceased person.”
How do I get the process started to make SARS aware of an estate?
SARS said that there are two options at this stage to report a new Estate Case to SARS:
- By sending an email to the SARS email addresses
- By sending it through the new SARS Online Query System.
To report a new Estate Case to SARS, it is important that the correct supporting documentation be submitted to SARS, the revenue collector said. This information can be found here.
Update of the estate’s representative taxpayer details
The nominated representative taxpayer of the estate, such as an executor, needs to ensure that the necessary official appointment documents are furnished to SARS for the details regarding the estate’s representative taxpayer to be updated.
“This is vitally important, in the course of the estate initiation and finalisation process, as all communication regarding tax enquiries, eFiling matters and estates compliance is sent to the correct email address,” SARS said.
“As such, all representative taxpayers should ensure that their personal tax profile with SARS is up to date and reflects the correct contact details and email address. ”
No changes and amendments to the representative taxpayer’s profile shall be done at the time of updating the relationship between the estate and the representative taxpayer, it said.
“Updates to the representative taxpayer’s personal taxpayer profile can be done via the available electronic channels. Corporate stakeholders (Executor / Trustee/Liquidator/Curator) who nominate their employees as the appointed executor of an estate, by the Master of the High Court, should ensure that these employees’ personal tax profile with SARS is updated and current.
“Their contact details and email address are critical in ensuring direct communication and smooth facilitation of the SARS Estates processes. These updates and changes, as may be required, cannot be done as part of the estate process. Employees need to follow the generally prescribed channels to effect such updates and changes.”
You can find out more about estates and taxes here.