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Making provision for the cost of your deceased estate

Opinion editorial by Cecilia Steyn, Will Administrator at Legatus Trust (201607)

A deceased estate costs money to administer and as a caring family member you would not want your loved ones to be burdened with the financial outlay upon your death.

There is plenty you can do to budget for the expenses in your estate while you are still alive. Do the right thing and plan now so that your family and loved ones aren’t left in the lurch in an already heart-breaking time in their lives.

To budget for expenses in your estate simply means making a list of your assets and liabilities, add up and compare. If your assets are more than your liabilities; provided that there are sufficient funds in your estate to settle costs and pay debts; all is well. Should it be the other way around, you have to make provision to cover the liabilities.

Don’t postpone and leave this task until it is too late. To be responsible now is to save those you leave behind a lot of trouble.

You can allay your fears about executor’s fees, estate duty and taxes by being informed. Most of the costs involved you already know about and budget for in your lifetime, for instance your bond and vehicle payments. Most debt can be provided for by credit life insurance, policies and other options that you would be wise to discuss with your broker or financial advisor.

To determine how your estate may be affected by the accompanying costs, it is always recommended that you discuss your estate with a knowledgeable and experienced firm like Legatus Trust. A reputable estate and trust company can assist you with drafting your will or have an existing will amended. When your life takes a turn – you get married, have children, someone close passes away – this may have an impact on your estate. Don’t forget to bring this to the attention of your executor and have your will amended accordingly, set up an inter vivos trust, or whatever suits your situation best at the time.

Remember, estates are unique and not everything discussed here will be applicable to you. Let’s touch on a couple of the basics.

The administration of a deceased estate

This is the process of distributing the deceased's assets and paying the debts.  All deceased estate administration must comply with the procedures prescribed in the Administration of Estates Act 66 of 1965. Laws are subject to revisions and are adapted from time to time. The value of Section 18(3) estates was revised and since 24 November 2014 an estate with a gross asset value of R250 000 falls in this category. For Section 18(3) estates Letters of Authority is issued by the Master of the High Court and an informal administration process is followed by the executor.  If the deceased passed away on 24 November 2014 or later leaving an estate with a gross asset value exceeding R250 000 Letters of Executorship is issued by the Master of the High Court and a formal administration process is followed by the executor. In this process advertisements are placed, Master’s Fees are payable and a Liquidation and Distribution Account has to be submitted to the Master of the High Court for examination.  

To assist you, here is a guideline for estimating the costs involved and how to budget for the needs of your estate:

Executor’s fees: 3.5% plus VAT on the gross value of the estate as per the liquidation and distribution account. This is a set percentage laid down by law. Should a trust company be prepared to assist you with a Section 18(3) estate (value below R250 000) ascertain what the cost will be; a set minimum fee may be charged.

Inventory value of estate: This is the value of your immoveable property; moveable property and claims in favour of the estate. These assets are recorded on an inventory and the value calculated. The inventory value will indicate whether yours is a Section 18(3) estate or not. 

Now, let’s have a closer look at the main three types of assets which comprise your inventory:
  1. Immoveable property: These are usually assets held by title deed or share title, for instance a stand, house, town house, flat, farm, agricultural holding, fixed property abroad, time share or certificate of mineral rights.  
  1. Moveable property: Here we look at licensed assets like a motor vehicle, caravan, trailer, boat, fire arm, but also furniture and household effects, jewellery, livestock, tools, implements, shares and businesses.
  1. Claims in favour of your estate: These are normally assets that can be liquidated, like bank accounts, current and credit card accounts in credit, fixed deposits, investments, policies payable to the estate, salary and/or leave pay. Other claims in favour of an estate may be accrual, usufruct, tax rebates, the balance of your medical aid savings account; offshore investments; royalties, copyrights and trademarks.
  1. Claims against your estate are not recorded in the inventory. Any current account or credit card which is in debit, as well as outstanding balances on loans/bonds, conveyance costs, municipal/levy clearance costs, valuation costs, unpaid accounts (i.e. cell phone, telephone, medical costs, etc.), funeral expenses and such. Administration cost and claims against your estate may include: 
·       Executor’s fees, postage & petties
·       Banking fees and cost to open an account for the deceased estate
·       Advertisements in the Government Gazette and other publications
·       Costs for certified copies of documents from the Master of the Court’s estate files, like a death notice & will 
·       Master’s fees, which, like the executor’s fees, are prescribed by law
·       Taxes, as applicable: for instance personal, business, VAT, CGT, estate duty
·       Transfer cost of any fixed properties
·       Possible maintenance claim for minor children and/or a divorce settlement
·       Final medical expenses and/or exhausted medical aid fund
·       Debts
·       Suretyship signed during your life  

You would be wise to provide for the general living expenses for surviving spouse/dependants during the administration of your estate.

This list is not exhaustive as there may be other costs involved.

Normally pensions and retirement annuities do not form part of a deceased estate as such, although your executor will need this information when compiling the Estate Duty Return and for income tax purposes. Keep yourself up to date with the rules of your particular pension fund; keep nominations up to date and keep in mind that taxes may be payable on such policies or pensions. Take note that despite the nomination of beneficiaries, retirement annuity and pension payments are subject to Section 37C of the Pension Fund Act of 1956, which in short means that dependants as well as nominations will be taken into account by the relevant company.

After discussion with a reputable estate and trust company you should be fully informed of what your deceased estate will cost, and you will be able to make provision.

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