Insuring the cost of dying

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When you die, there are numerous fees and taxes that need to be paid.                                                   Photo: Supplied
When you die, there are numerous fees and taxes that need to be paid. Photo: Supplied

PERSONAL FINANCE


Dying is an expensive business not only because of the cost of funerals, but also due to other expenses associated with winding up your estate.

When you die, there are numerous fees and taxes that need to be paid.

If you do not plan for these, they will reduce the value of the inheritance you were expecting to leave your family. Executor fees are paid to attorneys to wind up your estate.

Unless you have negotiated these fees, you will be charged a maximum rate of 3.5% (4.03% with VAT) on the value of your estate.

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This includes any property you own, and the fees are calculated on the full value of the property, not taking any mortgage into account.

The property would also need to be either sold or transferred into the heir’s name and that would incur conveyancing fees.

On a R1 million property, estate fees would be R40 000 and the estate would pay about R25 000 – so your estate would need to provide a total bill of R65 000.

If you are married in community of property, this calculation is done on your joint estate, so it includes assets in your spouse’s name.

Add that to other assets and the bill starts to mount significantly.

This does not even include death taxes such as estate duty and capital gains tax that could be payable if you bequeathed your estate to anyone other than a spouse.

These fees all need to be paid before your estate can be wound up and the benefits are paid to your heirs. This often results in the forced sale of assets to provide enough liquidity to cover these costs.

Traditionally, one would purchase a life policy to cover these expenses. The life policy would be payable to the estate and would, ironically, incur executor fees.

There is also no guarantee that it would be sufficient to cover the costs. Wills administrator Capital Legacy, as well as Discovery Life, offer full estate planning services that provide clients with advice as well as an insurance premium that fully covers the costs of winding up the estate.

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The premium is calculated based on your assets stipulated in the will, and covers the costs of both the executor’s fees and conveyancing fees in the case of property.

If the client has minor children, the costs of setting up and maintaining the testamentary trust are also covered by the insurance premium.

Capital Legacy uses its own in-house estate administration to wind up the estate and manage the testamentary trust. Discovery Life has outsourced the service to Absa Trust. 

Harry Joffe, head of legal at Discovery Life says:

As we are bringing economies of scale, we have agreed a discounted fee with Absa Trust, which makes it more cost-effective to insure.

NO SUCH THING AS A FREE WILL 

Most estate administrators/trust companies will draw up your will for free if you nominate them as executor. This is also true for any free will from your bank.

This means they will earn the executor fees from winding up the estate. You could pay about R1 500 for a will to be drawn up by a professional and then select your own executor.

The executor would need to be a professional, as winding up an estate is complex.

You need to appoint someone who is able to manage the process smoothly.


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