What goes into wrapping up a deceased estate?
Life is uncertain, especially after the passing of a loved one. Dealing with the passing of a loved one is never easy. Amidst the emotional turmoil, the family needs to sort out a number of tasks. If you understand how deceased estates works, the administration surrounding these tasks can be easier to tackle. So, what exactly is a deceased estate and what happens to a person’s estate when he or she passes away?
A deceased estate comes into existence when a person dies and leaves behind assets of any kind. If there is a Last Will and Testament, the deceased estate is administered and distributed in terms of the deceased Will. In absence of a valid Will, the deceased estate will be distributed in terms of the Intestate Succession Act, 81 of 1987. The Administration of Estates Act, 66 of 1965 (as amended), prescribes the procedure which must be followed to administer a deceased estate. Clearly it makes absolute sense to have a Last Will and Testament in place to avoid your assets being distributed in terms of legislation. Intestate succession means that your estate will be divided amongst your surviving spouse, children, parents or siblings according to a set formula.
The Deceased Estates division of the Master of the High Court's office supervises the administration of deceased estates. The purpose is to ensure an orderly winding up of the financial affairs of the deceased and the protection of the financial interests of the heirs. The Administration of Estates Act 66 of 1965 governs this administrative process. A deceased estate is made up of all the assets and liabilities you leave behind at death and administering of the deceased estate by your executor involves the distribution of assets to your beneficiaries after all debts have been settled. This process is regulated as mentioned by law and is overseen by the Master of the High Court.
An executor of the estate is the person appointed to handle the process of settling the estate. The executor will be nominated either in the deceased Will or by the heirs of the deceased. In the scenario where there is no Last Will and Testament, this nomination is submitted to the Master of the High Court who then officially appoints the executor.
The duties of an executor include the following:
- Compiling a list of documents and information required by the Master of the High Court and lodging of these with the Master’s Office on the jurisdiction over the deceased person.
- Obtaining letters of executorship.
- Interpreting the Will and locating all the beneficiaries mentioned in the Will.
Depending on the solvency and complexity of the estate, the executor must apply the necessary steps as provided for by legislation
- Open a bank account
- Place Sec 29 advertisement notice to debtors and creditors. This provides an opportunity to lodge formal claims against the estate
- Collect information on all assets and liabilities in the name of the deceased
- Finalize tax affairs with the South African Revenue Service
- Calculate and pay any estate duty, if applicable
- Compile and lodge a liquidation and distribution account and
- Pay debts and administration charges.
Distributing the remaining assets in the estate in terms of the Last Will and Testament and meeting the final requirements of the Master’s Office are the last steps in this administrative process.
According to the website of the Master of the High Court, the following is applicable:
- Where the deceased was living in the Republic of South Africa, the estate must be reported to the Master of the High Court in whose area of jurisdiction the deceased was living 12 months before his/her death.
- Where the deceased was not living in the Republic of South Africa at the time of his/her death, the estate may be reported to any Master of the High Court, provided it is reported to only one Master.
- An affidavit in which it is stated that the Letters of Executorships have not already been granted by any other Master of the High Court in the Republic of South Africa must accompany the reporting documents.
- As of 5 December 2002, all Magistrates Offices will have a designated service point where deceased estates can be reported. However, these service points have limited jurisdiction. All estates with a valid Will, and/or exceeding R125 000 in value, will be transferred to the provincial Master’s Office. Therefore, it is advisable to report these estates directly the Master’s Office.
- Note: If the estate value is less than R 250 000 and there is a minor heir, Legal Aid S.A. (LASA) can be contacted to assist in this regard.
According to the Master of the High Court:
- The estate of a deceased person must be reported to the Master of the High Court within 14 days of the date of death.
- The death is to be reported by any person having control or possession of any property or documents that is or intends to be a Will of the deceased.
- The estate is reported by lodging a completed death notice and other supporting documents with the Master which may be obtained from any Office of the Master of the High Court, Magistrate’s Office.
To say that estate planning is a challenging task is an understatement. The best personal financial planning can be undone if a deceased estate does not have sufficient liquidity to satisfy the compulsory administration costs and liabilities due in the event of death. The issue of liquidity is often overlooked, resulting in unnecessary negative consequences that were never intended by the executor.
“Costs of a deceased estate” can roughly be grouped as follows:
- Administrative cost – this includes advertisement costs, postage and petties, executor’s fees, Master’s fees and the conveyancing fees to transfer fixed property. The executor’s prescribed fee is 3.5% (excluding VAT) on the value of the gross assets in the estate.
- Debts and other liabilities of the deceased estate: consideration must be given to the deceased’s liabilities – including mortgages, vehicle finance and other personal loans because these do not dissolve upon death.
- Taxes where applicable: submission of all outstanding income tax returns, capital gains tax (which forms part of the last income tax return and estate duty).
It is important to have sufficient liquidity in an estate to cover all these administration costs, debts and taxes. Liquidity therefore refers to whether an estate has sufficient cash or assets that can easily be converted to cash, to settle all the costs without the need to sell assets that would otherwise be left as an inheritance for beneficiaries.
The best way to avoid unforeseen negative consequences for your heirs is by way of thorough personal financial planning. Do not underestimate the value such planning.
Two critical questions to ask yourself:
- Do you have a valid signed Will in safe custody?
- Do you have sufficient liquidity in your estate?
We understand how traumatic the passing of a loved one can be. Proper financial planning with your financial adviser is the best way of ensuring that your loved ones will be left cared for and receive all the assets you intend for them to have, without having to sacrifice your home, means of transport or future income streams to cover your liabilities.
We recommend meeting an expert as soon as possible to evaluate your estate and ensure that you can live in peace knowing that your estate is all in order. You can then focus on the things that matter to you the most.
Get your personal financial plan created and managed by an Absa Financial Advisor, who can assist you in speaking to the right people about other investments and policies to ensure your dependents are cared for. Send an e-mail to AdviceGurus@absa.co.za or call 011 225 1797 and start your journey of financial planning success.
Note: Finances are important but your emotional health is also a priority in such trying times. Contact the South African Depression and Anxiety Group if you would like to talk about managing your grief.
Disclaimer: The advice contained on this blog is for general purposes only and does not take into account individual circumstances, objectives or financial needs. Accordingly, readers are advised to seek appropriate advice from licensed professionals prior to making any investment, or taking up a financial product or service.