To ensure that there are no lost profits or unforeseen complications, your estate plan should include careful calculations to determine the death costs of your estate. Estate planning being a highly specialized field, it is preferable that this exercise be carried out in collaboration with an expert in the matter. Beyond ensuring the solvency of your estate, it is also important to determine whether it has sufficient liquidity to pay its debts, taxes and other financial obligations that may arise from your death.
Estate solvency means that the value of all the assets in your estate is greater than the total combined liabilities of your estate. If your deceased estate is declared insolvent, the Master can order that the estate be liquidated in accordance with the Insolvency Law. On the other hand, estate liquidity means that you have enough cash, or assets that can easily be converted into cash, to cover debts and the costs of administering the estate.
If there is not enough liquidity, the executor may need to realize some assets of the estate in order to meet its obligations, which can lead to complications and unintended consequences. As such, estate planning aims, among other things, to ensure that your estate is both solvent and liquid, and can be liquidated according to your last wishes.
When developing your estate plan, the following costs should be considered:
It’s important to keep in mind that your tax obligations follow you to the grave, and one of the first jobs of the executor is to make sure Sars gets paid what’s owed. There are actually two tax assessments that your executor will need to perform. The “before date of death” valuation must include all income and deductions applicable to the deceased up to the date of death, and the “after date of death” valuation which will include dividends, interest and rental income. accumulated during the liquidation -up process until the Master has formally approved the liquidation and distribution account.
When preparing your estate plan, it is essential to determine whether your estate is subject to inheritance tax. Inheritance tax is tax paid on the taxable estate of the deceased person and is charged at a rate of 20% on the first 30 million Rand and 25% on anything over 30 million Rand. The taxable estate includes all of your assets and liabilities, less any allowable deductions. The first 3.5 million Rand of the value of your estate is not taxable. If you are the first spouse to die, you can defer this allowance to your surviving spouse who will then benefit from an allowance of R7 million in inheritance tax upon his death.
When you have left property to your surviving spouse, no inheritance tax will be levied on the property. Remember that funds held in retirement annuities, pension funds, provident funds or life annuities are not part of your deceased estate, assuming contributions to these funds are a tax deduction.
(ii) Claims against the estate
Paying off all debts and debts in your estate is one of the first tasks of the executor, knowing that the settlement of estate debts takes place before the heirs or beneficiaries receive their inheritance. As soon as the executor has been officially appointed, he must open an estate bank account and place an Section 29 ad in the local newspaper and government Gazette. The purpose of this announcement is to inform debtors and creditors of the deceased estate, giving them 30 days to submit any claims against the estate. Once the L&D account has been signed, the executor is required to place an Section 35 advertisement in the local newspaper and government Gazette, and the account will be opened for inspection at the Magistrates’ Court for a period of 21 days. This process provides the opportunity to file any objection, along with reasons, with the captain. Once all the creditors have been paid, the Master will need to determine if there will be a cash shortage in your estate, as a result of which he may have to sell some assets of the estate to meet his financial obligations. – and this can lead to your heirs not receiving the inheritance you intended for them.
(ii) Administrative costs
A number of administration fees may apply to your deceased estate, including:
Funeral and burial costs: The costs of your funeral and burial are the responsibility of your deceased estate, and it’s important to make sure your loved ones have immediate access to the money. Funerals can cost anywhere from R10,000 to R50,000, depending on your wishes and those of your family members, although with the current restrictions of Covid-19, funerals tend to be smaller, more profitable events.
Advertising costs: Your executor will have to advertise for creditors within the meaning of Article 29 of the Law on Administration of Estates, as well as your L&D account within the meaning of Article 35, and the costs of such advertising will depend on the publication used.
Shipping and small: These are likely to cost between R300 and R500.
Bank account in arrears of inheritance: Banks usually charge in the region of R600 to open an overdue estate bank account.
Professional fees: The executor of your estate may need to hire professionals to help liquidate your estate, and these fees will be paid by the estate. For example, if you are married to the accrual system, the executor may need to employ the services of an account to determine the accrual.
Real estate agent commission
Asset maintenance: Any costs incurred for maintaining an asset in the estate will be covered by the estate.
Assessment and expertise fees: When the master insists that any property in the estate be appraised by a sworn appraiser, those costs – along with the appraiser’s travel expenses – will be paid by the estate.
Executor fees: The maximum amount that an executor can charge is 3.5% of the gross value of the estate’s assets, plus 15% VAT. In addition to this, your executor has the right to charge 6% on all income received on behalf of your estate from the date of death until final liquidation, and this includes rental income, interest , dividends, commercial or agricultural.
Master fees: If an estate has a value between R250,000 and R400,000, the master’s fee will be in the amount of R600. Thereafter, the master’s fees are calculated on a sliding scale up to a maximum of R7,000.
Deposit cancellation fees: If your executor is required to cancel a bond on the fixed property, your estate will be responsible for the cost of voiding the bond.
Transfer fee : If real estate from your estate is transferred to an heir, your estate will have to pay the transfer fee according to a sliding scale determined by the Law Society. Note that no transfer tax is payable when the property is transferred to an heir by will or intestate succession.
Customs clearance fees: When your estate has fixed property, your estate will be required to pay the rates and taxes to the municipality five months in advance.
As your personal and financial circumstances change over time, it’s important to make sure your estate plan stays up to date. Ideally, your estate plan should be reviewed as part of your annual financial planning review.