Tax
One of the executor’s first functions is to ensure that SARS is paid what it is owed in respect of taxes, keeping in mind that they will effectively need to carry out two tax assessments, being the pre-date of death assessment and post-date of death assessment. The pre-date of death assessment includes all income and deductions applicable to the deceased up to the date of death, whereas the post-date of death includes dividends, interest, and rental income which accrued during the administration process up until the Master has formally approved the liquidation and distribution account. When developing your estate plan, it is important to take into account any potential estate duty and capital gains tax liabilities that you might have. Estate duty is tax paid on the dutiable estate of the deceased and is charged at a rate of 20% of the first R30 million, and at 25% on anything over R30 million – with the first R3.5 million of the value of your estate not being dutiable. Where the deceased was married at the time of death, the R3.5 million abatement can be rolled over to the surviving spouse who will then have a R7 million estate duty abatement on her death.
Maintenance and accrual claims
Maintenance obligations and accrual claims are two expenses that are often overlooked when it comes to calculating estate liquidity, and it’s important to understand how these claims can affect the administration of your estate. If you are married with the accrual system – while you and your spouse retain separate estates during your marriage – the accrual regulates the growth of each spouse’s estate from the date of marriage and is calculated upon the death of the first-dying spouse. If the value of the deceased spouse’s estate is greater than that of the surviving spouse, the surviving spouse will have a claim against the deceased’s estate for their share of the accrual, keeping in mind that their claim is a preferent one. Similarly, if the deceased has maintenance obligations in terms of a divorce order, these obligations do not fall away on death and the executor will need to ensure that they are honoured which is normally done in the form of a lump sum payment. If the deceased has not made provision for these obligations, the executor may need to realise assets intended for other beneficiaries which can have devastating financial consequences.
Outstanding debt
Once SARS has been paid and all accrual and maintenance obligations have been discharged, the executor must ensure that all other estate debts are settled. This is done by placing a Section 29 advertisement in the local newspaper and the Government Gazette which effectively advertises for creditors of the estate to come forward and lodge their claims. Only once all the creditors have been paid will the Master give permission to the executor to distribute inheritances and bequests to the heirs and beneficiaries. Again, if the deceased has not made sufficient provision in their estate for their debts to be settled, the executor may need to realise assets in order to pay the estate’s death.
Executor’s fees
As currently prescribed, the maximum amount that an executor can charge is 3.5% of the gross value of the assets in the estate, plus VAT at 15%. In addition, an executor can charge 6% on all income collected on behalf of the deceased estate from the date of death until final winding up, including rental, interest, dividend, trading, or farming income. When nominating an executor in your will, you are able to negotiate a discounted executor’s fee which would usually then be recorded in your will.
Administration costs
Other administration costs that a deceased estate may face include the following:
Funeral and burial costs: Funeral and burial costs are borne by the deceased estate although, ideally, it is advisable to ensure that your loved ones have access to cash or a funeral policy to cover the costs of the funeral, following which they can claim the costs back from your estate – keeping in mind that funerals can cost anywhere between R10 000 and R50 000 depending.
Master’s fees: As currently prescribed, estates valued between R250 000 and R400 000 will be levied Master’s fees at a rate of 600, and at a sliding scale thereafter up to a maximum of R7 000.
Estate late bank account: One of the first jobs of the executor is to open an estate late bank account for which most banks charge in the region of R600.
Transfer costs: If immovable property in your estate is transferred to an heir – whether by testate or intestate succession – your estate will be required to pay the transfer costs, being the attorney’s conveyancing fees, in accordance with a sliding scale determined from time to time. It is important to note that beneficiaries and heirs are exempt from paying transfer duty on property inherited through either testate or intestate succession from a deceased estate.
Bond cancellation costs: If the executor needs to cancel a bond over fixed property, the estate is liable for the bond cancellation costs which can be around R4 000 to R5 000 depending on the terms of the lender.
Professional fees: The executor of your estate may need to use professionals to assist with the winding up of your estate, and these costs will be paid by the estate. For example, if you are married with the accrual system, the executor may need to employ the services of an accountant to determine the accrual. This also includes paying estate agent’s commission if required to sell any immovable property.
Advertising costs: The Section 29 and Section 35 adverts required in terms of the Act cost around R1 500 depending on the publication rates.
Maintenance of asset: Any costs incurred in respect of maintaining an asset in the estate, such as garden services, plumbing, electrical or cleaning costs, will be covered by the estate.
Valuation and appraisal costs: Where the Master insists that an asset in the estate is valued by a sworn appraiser, these costs – together with the appraiser’s traveling costs – will be paid from the estate.
Duplicated Rates clearance costs: Where your estate owns fixed property, your estate will be required to pay rates and taxes to the municipality up to six months in advance.
With the above in mind, it is evident that a critical part of estate planning is to ensure that there is sufficient liquidity in your estate to meet your various obligations without detracting from the inheritance intended for your loved ones. Our advice is to work with an experienced estate planner to ensure that all estate costs are calculated and adequately provided for.
Have a wonderful day.
Sue
