Even after death: Costs. Costs? Costs!

Many of the costs involved and fees that may be charged when winding up a deceased estate are set out quite clearly in the Administration of Estates Act.

However, the Act does not set out all the costs and expenses that may arise in a deceased estate. The costs and expenses that arise are important because if there is insufficient liquidity in an estate to pay them all, assets may have to be sold or the heirs who are inheriting the residue of the estate may be required to contribute to them.

Professionals involved in winding up estates often refer to the need for a “war chest” to be made available to meet death costs. If you understand the costs upfront, you can effectively plan and manage your own estate, ultimately facilitating a smoother and more efficient process for the benefit of those who survive you. 

These are some of the key costs and expenses associated with administering a deceased estate in South Africa:

Executor's remuneration

The executor of a deceased estate plays a pivotal role in managing the winding up of the deceased estate.

The executor is required, among other duties, to identify the estate assets, settle the liabilities in the estate, report the estate to the Master of the High Court and the South African Revenue Service (SARS) and, finally, distribute the residue of the estate to the heirs. Read more:

The Administration of Estates Act provides that executors are entitled to claim remuneration for their services. 

There are two components to the executor’s remuneration: firstly, a fee calculated on the gross value of the estate assets on death; and, secondly, a fee calculated on the income arising in the estate after death.

In terms of the Act, an executor is entitled to charge a maximum of 3.5 percent plus VAT on the gross value of the assets in the estate, valued at the date of death, and six percent plus VAT on any income collected by the executor between the date of death and the date of distribution to the heirs.

Taxes

There are a number of taxes that may have to be paid from an estate.

Firstly, the estate will have to settle any income tax due by the deceased up to the date of their death. Then, as the estate is deemed to be a taxpayer, the estate will have to register for, and pay, income tax on taxable income and capital gains arising during the winding up of the estate. 

The estate may also be required to pay capital gains tax (CGT) because the deceased persons are deemed to dispose of all their assets on death. CGT is payable on the gain in the value of certain assets in an estate from the date of their acquisition by the deceased to the date of death.  Read more: What is capital gains tax?

There are certain CGT exclusions, exemptions, and rollovers available, such as the exclusion of the first R2 million of any capital gain on the deceased’s primary residence and the rollover relief for assets that are being left to a surviving spouse.

Estate duty is payable on the net value of the estate above the primary abatement (currently R3.5 million).

Again, there are a number of estate duty rebates and exemptions available, perhaps the most significant of which is the spousal exemption in terms of which anything from a deceased estate that is left to a surviving spouse (broadly defined to include life partners in a long-term relationship) is free from estate duty. 

As a rough guide you can use the following to calculate the estimated estate duty:

Value of the assets

• less liabilities (both assets and liabilities as at date of death)
  
  
• less the value devolving on a surviving spouse
  
  
• less the R3.5 million primary rebate

Total taxable estate which is subject to:

• 20% estate duty for a value up to R30 million; and
  
  
• 25% estate duty for a value above R30 million

Transfer duty is one tax which generally does not arise in deceased estates as transfers of immovable property made from a deceased estate to the legatees or heirs are free from transfer duty.

Legal fees

While there is no transfer duty, there will be a fee payable to a conveyancer to attend to the registration of the transfer of any immovable property in an estate into the name of the heirs of the property.  This fee is generally based on the value of the immovable property to be transferred and the conveyancing fee guidelines published annually by the Law Society of SA. 

In the event that the estate is sued or has to sue, for example to evict unlawful occupiers from an estate property, then the estate will be required to pay the usual costs for legal services.

Master’s fees

The Master of the High Court is entitled to charge fees on any estate with a gross asset value exceeding R250 000. The Master’s fees are calculated on a sliding scale based on the value of the estate but subject to a maximum fee of R7 000.

There may also be some small additional costs charged by the Master for making copies of documents, certifying documents, etc.

Other costs and expenses

Various other expenses may have to be met by the estate in the administration process. These could include:

• Municipal rates clearance figures.
  
  
• Valuation fees to determine the value of assets such as property, investments and personal belongings.
  
  
• Advertising costs arising from placing legal notices in newspapers to inform creditors and potential claimants of the deceased's passing.
  
  
• Bank charges for transferring funds and closing accounts held by the deceased.
  
  
• Accounting or tax practitioner fees for finalising accounts and tax returns and, if an asset is sold from the estate, commission may be due to estate agents or auctioneers.

In conclusion, the above list is not exhaustive and administering a deceased estate in South Africa involves a number of costs and expenses that need to be carefully planned and accounted for.  

From death taxes to executor's and legal fees, the financial implications can be significant. Professional guidance from legal and fiduciary experts is crucial in order to help you plan to build up a “war chest”.