The real cost of death

Cape Town - Two things in life are certain – death and taxes. And if you know it, you can plan for it.

Still, more than 30% of people who die do not have enough cash in their estates to pay for costs and debts, according to Angelique Visser, chairperson of the Fiduciary Institute of South Africa (*Fisa).

“In fact, very few people realise what the financial implications are at death. As a result they fail to provide for post-death expenses, adding to the family’s trauma at an extremely difficult and emotional time.”

In detailing the possible costs associated with death to help family providers plan accordingly, Visser says it is important to note that there are two different processes: one for estates below the value of R125 000 (gross value), referred to as “Section 18(3) Estates”, and one for estates above the value of R125 000 (gross value).

In the first instance, there are not many formalities to be met and most family members can attend to the process themselves.

When the value of the estate is above R125 000, the Administration of Estates Act sets out many requirements which have to be met by the executor of the estate. Visser highlights some of these below.

Choice of executor

An executor is normally nominated in your will.

Anyone may be nominated as an executor of an estate, but it is important to note that the Master of the High Court will not appoint an executor unless they are qualified to comply with all the relevant laws or are assisted by an agent who meets all these requirements.

Security for the full value of the estate assets may further be required by the Master of the High Court and this will result in additional costs for the estate.

Ideally, the executor would be regulated by a professional body which requires members to adhere to a code of ethics.

The executor has a highly responsible role to play as they literally “step into the shoes of the deceased” and will have full power to deal with the assets as they see fit.

It is therefore extremely important to choose an executor or agent who knows the law, has experience in this specialised area and is able to assist you and your family, after your death, to find solutions for specific needs.

In terms of the administration process the executor will have to pay for the following costs from the estate funds:

1. Advertising costs

Two advertisements have to be placed in a local newspaper and the Government Gazette. The costs can vary between R1 000 and R1 500 depending on the publication selected.

2. Conveyancing fees

Fortunately there is no transfer duty (tax) payable when a property is transferred from an estate into the name of the beneficiary, but the conveyancer has to be paid for the transfer of the property.

This fee depends on the value of the property and is determined in terms of a sliding scale. An average property with a value of R1 000 000 will cost about R16 000.

3. Rates and taxes

One of the requirements to transfer a property is obtaining a clearance certificate from the city council or municipality.

The latter will be issued only if the rates and taxes are paid in advance. The period that has to be paid varies from area to area, but is normally about six months.

Very few people have cash to pay rates and taxes on a property for six months in advance as this could be another few thousand rands. Again, this needs to be planned in advance.

4. Master's fees

This is the fee payable to the Masters Office of the High Court, which is the authority that handles deceased estates. There is a formula to calculate this fee, but the maximum amount payable is R600.

5. Executor’s fees

Executor’s fees always seem to be a contentious issue. Fisa believes it is important for people to understand what fees can be charged, how they are calculated and what an executor’s responsibilities are in order to receive this fee. 

In terms of current regulations, the fee is 3.99% (VAT inclusive) of the gross value of the estate assets as on date of death and 6.84% (VAT inclusive) on income earned by the estate after date of death.

Pension funds and proceeds of policies payable to third parties are excluded from an estate and are not subject to this fee. If you decide to nominate third parties on a life policy to save on executor’s fees, be careful that you do not fall into the trap of other situations that could be worse.

For example, if a minor is nominated as a beneficiary, the insurance company can pay the funds to the guardian (possibly a previous spouse) and this may not be the person you would have elected to receive the funds.

It may be worth allowing the life policy to pay into the estate and ensure that the funds are protected and managed properly. Everyone’s circumstances are different, however, and you should seek expert advice if you are unclear what would be best in your situation.

Although executor’s fees are regulated, you may negotiate the fee with your nominated executor at the time of drafting your will. The following factors will most likely be taken into account in negotiating the fee:
  • Complexity of the estate (the type of assets that will be dealt with, maintenance and/or accrual claims, death taxes to be calculated. etc);
  • Risks involved (are there business entities, offshore assets, possible litigation, etc);
  • Liquidity of the estate (if there is not sufficient cash in the estate to pay all liabilities, taxes and administration costs, assets will have to be realised and the administration process may be delayed); and
  • Value and type of assets to be dealt with (although greater in size, a large estate with one cash investment of R100m  may be be less complex to administer than a R2m estate with many assets of a low value, for instance household furniture and firearms).
6. Taxes

Not only will all outstanding taxes have to be paid from the estate before it may be finalised, but the executor will have to determine whether capital gains tax is payable as death is a deemed event for CGT purposes.

An estate may therefore be below the threshold for estate duty, which currently is R3.5m, but still incur a CGT liability.

7. Other debts (bond, overdraft, credit and store cards, etc)

In most instances there is still an outstanding amount due on the bond at death which has to be settled before the executor may distribute the assets.

Often the surviving spouse does not qualify to take over the bond, which results in the family home having to be sold.

People also sometimes think that they have a policy that will pay out and cover the outstanding balance on the bond at death, but find out that it was only short-term cover and not life cover when it is too late.

Unfortunately taking out life cover is not required when a bond is applied for; this would have saved many tears.

Remember that interest on outstanding debt does not stop when a person dies, so interest-bearing accounts should be settled as soon as possible.

8. Medical costs

In most instances when a person dies there are bills to be paid, as medical aids do not always cover all the medical costs.

It is difficult to determine what these costs could amount to, but they could be substantial.

9. Maintenance and accrual claims

Maintenance obligations 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 a surviving spouse having to sell the family home.

The effect of an accrual claim is often not understood and could have severe financial implications for a surviving spouse or dependants from a previous marriage.

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. 

10. Funeral

Lastly, funeral costs should not be underestimated. The cost can vary from R10 000 to a few hundred thousand rand.

 - Fin24

* Fisa is a non-profit organisation that represents practitioners in the fiduciary industry and sets standards to protect the public.

Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.

Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner. 
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