Author: Shelley Orgill
There are few things in life that are certain, however, death is a certainty and especially in the time we find ourselves in during the midst of the novel coronavirus pandemic.
The mourning process of the passing of beloved family and friends is a long and emotionally draining one and may be aggravated by the challenge of winding up a loved one’s estate.
Not many individuals have a sufficient understanding of all the costs associated with winding up an estate. Having knowledge of these costs and how to handle them are important to those left with the task of administering your deceased estate.
The costs related to winding up an estate can be categorized into two groups, namely: administration costs and claims against the estate. The administration costs are expenses incurred after death, due to death. Claims against the estate are debts payable by the deceased at the time of death. Both categories of costs generally are required to be settled in cash. However, there are exceptions such as a surviving spouse taking over the deceased’s bond in light of the relevant banks’ approval. The most substantial costs borne by an Estate may be the estate duty payable to SARS, the Executor’s fee and Conveyancing costs.
The Executor has the responsibility of winding up an estate. An executor’s fee is limited to a prescribed charge of 3.5% of the value of the estate. Should the executor be a VAT vendor, then VAT must be added to the prescribed tariff. Furthermore, the executor is entitled to a fee on all income earned or collected after the date of death of the deceased at a rate of 6 %.
Additionally, other costs may include, where applicable bond cancellation costs; appraisements fees, sale of assets fee, for example sale of shares fee, an estate agent’s commission; the costs of advertising for unsettled creditors, bank fees, accounting expenses and conveyancing expenses to transfer property or shares; maintenance of assets; tax costs and costs due to the Master of the High court will be borne by the estate. Collectively, these costs could reach a significant amount.
Taxes and Estate Duty
It should be borne in mind that 20% of the value of the estate is levied by the South African Revenue Services for estate duty. An estate valued below 3.5 million rand is not liable to pay estate duty. An estate valued at any amount above 30 million rand will be taxed at 25%. It should be noted that no taxes will be incurred on assets left to a surviving spouse. Any assets sold out of the estate may incur capital gains tax, upon a final income tax assessment conducted by the South African Revenue Services. Additionally, South African citizens who hold assets outside the Republic of South Africa may be liable to pay estate taxes in those countries.
The estate is liable to settle any unsettled debts such as mortgage bonds, credit cards and loans. Interest on these debts continue to accrue despite the passing of an individual therefore; it is in the best interest of the estate to settle these debts as soon as possible. In the instance of mortgage bonds, surviving spouses may not meet the financial requirements to take over the bond which may require the house to be sold if the debt cannot be settled.
Cash in the estate
Despite, there being adequate assets in the estate to cover the abovementioned costs, it may be challenging if there is insufficient available cash in the estate, which may require the executor to sell assets in order to generate the necessary cash. In order to avoid the sale of estate assets the executor may approach the heirs in order to pay the required cash into the estate. Should the heirs be unwilling or unable to do so, then the executor has no choice but to sell certain assets. One way to avoid having to sell assets out of the estate would be to have a life insurance policy or bond insurance in place prior to death, that would inject cash into the estate or bond account, upon death of the deceased.