By Mandy Dix-Peek, Senior Fiduciary Specialist at Old Mutual Wealth Fiduciary.
Benjamin Franklin once said that in this world, nothing can be said to be certain, except death and taxes. While we’ve all heard this quote on numerous occasions, clients often fail to take the vital steps required to ensure that the traumatic event of their death is made easier for those left behind.
Understanding the process required to wind up an estate, Financial Advisors are in a good position to advise their clients to get their affairs for the sake of loves ones. I unpack these considerations below.
Where there’s a will
The first and most important step is to ensure that you have executed a valid Last Will and Testament that clearly sets out your instructions regarding the devolution of your assets upon your death to your heirs. Your Will is probably one of the most important documents you will sign during your lifetime and it is essential to ensure that your instructions are clear and concise.
Upon your death, the person nominated as the executor in your Will takes legal responsibility for the winding up or administration of your estate. This process can be quite stressful for family members so it is vital that they understand exactly what it entails and how long it is expected to take. While the actual estate administration process is not typically overly complex, it is administratively intensive and the law stipulates certain timelines, which have to be adhered to.
The estate administration process in a nutshell
- The estate administration process begins with the executor reporting the estate to the Master’s Office in the jurisdiction where the deceased lived. This includes the lodgement of numerous documents i.e. the original Last Will and Testament, a copy of the death certificate, a death notice, acceptance of trust (as executor) forms and a preliminary inventory. The preliminary inventory includes the details of all the assets the deceased held at the date of his/her death. In order to gather all of the abovementioned information and documentation, the executor will need to meet with the deceased’s family.
- Provided that the Master of the High Court is happy with the documents furnished, Letters of Executorship (if the gross value of the estate is above R250 000) will be issued, which authorise the executor to proceed with the administration of the estate and deal with all matters related to this. These include opening an estate banking account, gathering information on all assets and liabilities of the deceased, and dealing with the tax matters of the deceased up to the date of death and thereafter including the calculation of estate duties payable.
- Once the executor has gathered all the necessary information, he/she will be in a position to draft a First and Final Liquidation and Distribution Account. The account contains details of all the deceased’s assets and liabilities and reflects the distribution of the legacies and rest and residue in accordance with the Last Will and Testament. The Liquidation and Distribution Account is then lodged at the Master’s Office and the Master may issue a query sheet containing any queries or requests for additional information that the Executor is obliged to answer.
- Once the Master is satisfied that the queries have been adequately dealt with, the Executor will be granted permission to advertise the account as lying for inspection (at the local Magistrate’s office) in a local newspaper and Government Gazette. This is done to give any creditors the opportunity to come forward with any claims they may have against the estate.
- If there are no claims, the Magistrate will issue and lodge a certificate confirming this with the Master. Upon receipt of this certificate, the Master will confirm that the Executor can distribute the estate to the heirs in terms of the Last Will and Testament. Once the estate has finally been distributed, the Master will issue a filing notice confirming that the estate has been finalised.
While the above process may not seem unduly onerous on the face of it, there are many factors that can cause delays and complications. These are briefly outlined below.
Capital gains tax
Death triggers a capital gains tax event i.e. the deceased is deemed to have sold all of his/her estate on the date of death and a complex capital gains tax calculation therefore ensues. There are, however, exemptions or rollovers when a deceased leaves the entire estate to a spouse.
Liquidity is vital as liabilities in an estate include income tax, estate duty, executor’s fees, Master’s fees, valuation fees as well as any other liabilities the deceased may have incurred during his/her lifetime. Currently estate duty is 20% of the gross asset value of your estate up to R30 million and 25% of the gross asset value in excess of R30 million. A well-drafted estate plan by a financial adviser will alert you to any liquidity issues your executors and heirs may face after your death.
Tax return submissions
The submission of tax returns in estates has become far more complex than it was previously as the deceased’s tax practitioner has to continue submitting returns for the deceased until the Liquidation and Distribution has been finalised. An after date of death tax reference number has to be applied for and generated from SARS.
Executors are facing numerous challenges with the Master’s Offices around the country and as a result, undue delays are being experienced.
A final word
In conclusion, it is highly recommended that you appoint an independent and professional executor to attend to the administration of your estate. While it is useful for the professional executor to act with a co-executor who is part of the family, the stress of estate administration for a family member who is not familiar with the process could be overwhelming. This could lead to unnecessary delays and queries. Each person’s situation is unique, and one needs to understand how all of the processes apply to individual circumstances.