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Even dying has become an expensive exercise, which is why it is important to remember how the cost of dying and winding up your estate will reduce the inheritance of your loved ones.
Do you want to leave them with a lot of debts to pay off, or do you want them to remember you as someone “who thought of everything”?
Everything you own and owe forms part of your estate at your death, including your assets such as money, property, cars, furniture, timeshare and investments and liabilities, such as credit cards, bond accounts, personal loans, vehicle finance, clothing accounts and medical bills, says Christel Botha, fiduciary service manager at Alexforbes.
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It is important to have enough liquidity in your estate to pay for all the costs, or else your plans for your estate and beneficiaries might not turn out as you think.
“Liquidity” means that you should have assets like cash available, or that can be made available relatively easily to pay for the fees and taxes. This could include money in your bank account or investments, Botha says.
On an average estate of R1.5 million the executor fees, together with the basic administration expenses (advertisement fees, Master’s fees, bank costs, postage and petties) would amount to R65 075. On an average estate of R2 million this will increase to R86 200.
“It is important to note that this calculation does not include any estate taxes, property transfer costs, municipal clearance charges, bond cancellation fees and valuation charges. It also does not take into account any debt to be settled from the estate.”
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Botha says the easiest way to provide liquidity is through a life policy that can also provide a sum of money that can be used to provide an income for your spouse and children.
“The first step to making sure your wishes are carried out correctly is to have a will. This can also help structure your assets and liabilities and reduce some of the costs of an estate. For example, retirement funds do not form part of your estate, which saves estate duty and executor’s fees.”
Endowments allow you to nominate beneficiaries and no executor’s fee is charged on that amount, while it is available quickly after death.
“You might want to set up a trust to reduce costs at death to ensure your beneficiaries are looked after. Trusts have their own rules and costs and it is important to discuss this with your financial adviser to see it this is the best option for your situation.”
She recommends that you speak to your financial adviser to ensure that you have enough liquidity in your estate and ask how for help you if you do not.
“Getting professional advice while you are alive can help ensure that you do not make rash financial decisions that could affect you in the long term. It also means that people are less likely to take advantage of your loved ones while they are dealing with your loss one day.”
Botha warns consumers to consider these costs to ensure that their deceased estate will have enough funds to pay the costs to lessen the burden on their loved ones when something happens to them. (Not all of the costs will apply to all estates.)
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This could cost at least R15 000 to R30 000, depending on your requirements.
Botha reminds consumers to nominate a beneficiary on your funeral policy who can receive the policy payment quickly to pay for your funeral. If you do not nominate a beneficiary, the money must be paid into the estate.
You must name an executor in your will who will be appointed by the Master of the High Court to sort out your estate.
You can appoint a direct family member as estate representative to process your estate if it is worth less than R250 000. However, any estate with a value of more than R250 000 requires an executor to be appointed and a formal process to be followed.
The executor takes control over your assets when you die by selling or transferring them, closing accounts, settling debts, and distributing what is left to your beneficiaries.
By law, executor’s fees are up to 3.5% plus VAT, but you can negotiate a lower fee with the executor, specifically on larger estates.
If you are married in community of property, the executor’s fee is calculated on the whole estate, not only the half deemed to belong to the deceased, Botha says.
Although you might not need to pay estate duty, you must still provide for the executor’s fee. On an estate of R2 million this alone can cost R80 500.
Estate duty
If your estate is worth less than R3.5 million, no estate duty is payable. Estates up to R30 million attract 20% estate duty and any amounts above R30 million attract 25%.
If you are married, any unused portion of the primary rebate (exemption) on the first estate will roll over to the second person’s estate. The tax exemption is up to R7 million in total (R3,5 million from the first dying spouse’s estate plus R3,5 million from the second dying spouse’s estate).
Botha points out that assets left to a spouse are deductible from the estate duty calculation.
Therefore, no estate duty will payable should the spouse be the only beneficiary of the estate.
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This tax is payable on the gains made on assets that have to be sold or transferred to beneficiaries. No capital gains tax is paid on the first R300 000 at death. Only 40% of the balance of the gain is included in the capital gains tax calculation and this is then taxed at the deceased’s tax rate. This calculation can vary depending on who you leave the assets to, as well as the asset type.
Any income tax owed to Sars up to the date of death has to be paid and Sars will conduct an audit to ensure all your taxes are up to date.
Once this is done, Sars will issue a tax compliance certificate, which will also allow the executor to finalise the estate.
The Master’s fees for estates worth less than R400 000, is R600 and thereafter it is calculated on a sliding scale up to R7 000.
The executor can charge 6% plus VAT of the income earned after the date of death while the estate is being finalised and this includes rental income, interest, dividends and trading or farming income.
Two advertisements must be placed in a deceased estate and the cost depends on publications used but could be around R1 000.
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The executor is required to open an estate bank account and the cost depends on the banking institution used.
The executor is allowed to charge postage and petties of R260 plus VAT. Any courier charges will not form part of your postage and petties and will be charged to the estate as an additional administration cost.
These fees will be used to pay professionals to assist the executor with specific requirements, for example an accountant, conveyancer or tax consultant.
If your house has to be sold, the estate agent’s commission can be negotiated, but on average it is 7.5% of the sale of property.
Your estate will also have to pay any costs for maintaining assets while your estate is wound up.
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If required by the Master.
Transfer costs must be paid to a conveyancing attorney for property transfers from a deceased estate. Property transfers to beneficiaries are exempted from transfer duty payable to Sars.
Five months’ rates and taxes are payable in advance to the municipality to obtain clearance figures from the municipality involved.
Bond cancellation fees must be paid to an attorney where the bond account has to be closed and cancelled in the Deeds Office.
Claims against your estate can include hospital bills, bond payments, loan accounts, credit cards and clothing accounts.
Donations tax can be 20% on donations over R100 000 per year you did not pay it at the time of death. Donations to spouses do not attract donations tax and some donations made in the event of death are excluded.
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