Adv Anneke le Roux, Fiduciary Specialist, PPS Fiduciary Services

In recent years, many people came to face the loss of loved ones and the agony of the cost related to the administration of their estate. When a person dies with a gross estate value exceeding R250 000, their estate is required to be administered in accordance with the provisions stipulated in the Administration of Estates Act 66 of 1965. The provisions of this Act are applied irrespective of whether or not a person dies with or without a valid Will. 

The task falls upon the executor to account for all liabilities of the estate in the Liquidation and Distribution Account. This includes administration costs and claims against the estate. The costs involved in an estate can broadly be classified as administration costs and claims against the estate. Claims against the estate are those the deceased was liable for at the time of death. 

Fixed Property

If the deceased owned property, then rates and taxes which have accrued at the date of death are claimed against the estate. Rates and taxes that accrue after death must first be offset against any income earned from the property from date of death to sale or transfer and the balance remaining will be payable out of the capital of the estate. As rates and taxes are payable three to six months in advance, provision should be made for this before the property is transferred.

Where an heir inherits fixed property from an estate, it must be transferred to him/her from the estate in terms of the provisions of the Deeds Registries Act and in accordance with Deeds Office practice and tariffs. Charges may differ from conveyancer to conveyancer. If the bank that holds the bond is satisfied and the heir to the property agrees to it, the bank may replace the heir as the new debtor, but if the bond has to be cancelled, there will be a fee attached to this.

Tax

The South African Revenue Service (SARS) has a claim against the estate for income tax due for the period 1 March to the date of death in line with the fiscal year which applies from 1 March to 28 February. It is the executor’s duty to furnish SARS with a completed tax return including capital gains made on the deemed disposal of any capital asset from the deceased to the estate for the relevant period. Estate duty is applied at 20% on the first R30 million and at a rate of 25% thereafter and is subject to certain allowable exemptions.

Mortgage bonds and loans

Any outstanding amount on a mortgage bond is considered a liability against the estate, as well as any amount owing to a bank on an overdraft or instalment sale agreement. This includes interest accumulated up to date of death. Interest accumulated from the date of death until the date of payment is accounted for in the income and expenditure account.

In the event of a cash shortfall, the executor will approach the heirs of the estate to see if they would be willing to pay the required cash into the estate to avoid the sale of assets. If the heirs are not willing to do this, the executor may have no choice but to sell estate assets to raise the necessary cash.

Family responsibilities

Maintenance obligations in terms of divorce orders (potentially including a spouse and children) usually do not fall away at death and the executor normally has to pay a lump sum to the claimant. If provision was not made for these claims, assets will have to be sold to meet this obligation which could result in the heir having to sell the property.

The effect of an accrual claim in marriage is often not understood and could have severe financial implications for the heir or dependants. For example, if the deceased was married out of community of property with the accrual system, the executor will have to claim from the surviving spouse if he/she has the bigger estate and is not the deceased’s sole heir.

Administration costs

The most significant administration costs are generally the executor and conveyancing fees. The executor is entitled to remuneration for the work involved in administering the estate. The executor’s remuneration is calculated according to a prescribed tariff which is currently 3.5% of the gross value of the assets, subject to a minimum remuneration of R350 plus VAT if the executor is registered as a VAT vendor. The executor is also entitled to a fee on all income earned after the date of death at the current tariff of 6% (plus VAT where applicable). Other potential administration could include:

• Postage, petties and advertisement fees;
• Master’s fees to a maximum of R7 000;
• Costs of bond of security if the executor is not exempt from furnishing security for the administration of the estate;
• Appraisement costs for the valuation of assets for estate and estate duty purposes; and/or
• Rates and taxes on fixed property.
• Costs incurred in the realisation of estate assets e.g. estate agent’s commission, brokerage on sale of shares etc.

It is important to understand the cost implications in winding up an estate and therefore vital to have a discussion with a financial adviser or a fiduciary specialist to make provision for these costs, as your loved ones are not always in the position or have the ability to pay for the costs related to death.