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Leaving an inheritance after your death is something many people aspire to. But did you know that everything you own and owe forms part of your estate at your death?
You have assets like money, property, cars, furniture, timeshare, investments, etc. You might also have liabilities like credit cards, bond accounts, personal loans, vehicle finance, clothing accounts, medical bills, etc.
Christel Botha, fiduciary services manager atAlexforbes, looks at the costs you should consider taking into account to ensure that your deceased estate will have enough funds. This will lessen the burden on your loved ones in the event of your death.
Funeral, cremation or other services
At least R15 000 to R30 000 (but can be more expensive depending on requirements). Note that you have to nominate a beneficiary on your funeral policy so that the beneficiary can receive the policy payment quickly to pay for your funeral. The money must be paid into the estate if you do not nominate a beneficiary.
Executor’s fees
An executor is a person named in a will and appointed by the Master of the High Court to sort out the estate of the person who's died. A direct family member can be appointed as estate representative by the Master to process estates 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.
Upon death, the executor takes control of your assets by:
• selling or transferring them
• closing accounts
• settling debts
• distributing them to your beneficiaries
By law, the executor's fees are up to 3.5% plus VAT. You can negotiate a lower fee with the executor, specifically on larger estates. If you are married in community of property (ICOP), the executor's fee is calculated on the whole estate, not only the half deemed to belong to the deceased. Even though you might not need to pay estate duty, you still need to provide for the executor's fee. On an estate of R2 million, this alone can cost R80 500.
Estate duty
No estate duty is payable if the estate is worth less than R3.5 million. Estates up to R30 million attract 20% estate duty, and any 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 dying estate. The tax exemption is up to R7 million (R3.5 million from the first dying spouse's estate plus R3.5 million from the second dying spouse's estate).
Assets left to a spouse are deductible from the estate duty calculation. There will therefore be no estate duty payable should the spouse be the only beneficiary of the estate.
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Capital gains tax
This tax is payable on the gains made on assets that must 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, which is then taxed at the deceased's tax rate. This calculation can vary depending on who you leave the assets to and the asset type.
Income tax
Any income tax owed to SARS up to the date of death has to be paid. SARS will conduct an audit to ensure all the deceased's taxes are up to date. Once this is done, they will issue a tax compliance certificate, allowing the executor to finalise the estate.
Master’s fees
For estates worth less than R400 000, the fee is R600. Thereafter it is calculated on a sliding scale up to R7 000.
Fee on income earned by the estate
The executor can charge 6% plus VAT of the income earned after the date of death while the estate is being finalised. This includes rental income, interest, dividends and trading or farming income.
Advertising costs
Two advertisem*nts are placed in a deceased estate. Costs depend on publications used but could be around R1 000.
Bank charges
The executor is required to open an estate bank account. Bank costs depend on the banking institution used.
Postage and petties
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.
Professional fees
To pay professionals to assist the executor with specific requirements, for example, an accountant, conveyancer or tax consultant.
Estate agent’s commission
Can be negotiated but on average it is 7.5% of the sale of property.
Maintenance of estate assets
Any costs for maintaining assets while the estate is being wound up.
Valuation and appraisal costs
If required by the Master.
Transfer costs
Payable to a conveyancing attorney for property transfers from a deceased estate. Property transfers to beneficiaries are exempted from transfer duty payable to SARS.
Rates and taxes
Five months’ rates and taxes are payable in advance to the municipality to obtain clearance figures from the municipality involved.
Bond cancellation costs
Payable to an attorney where the bond account has to be closed and cancelled in the Deeds Office.
Claims against the estate
Hospital bills, bond, loan accounts, credit cards, clothing accounts, and so on.
Donations tax
Twenty percent applies on donations over R100 000 per year if the donor has not paid the donations tax at the time of death. Donations to spouses do not attract donations tax and some donations made in the event of death are excluded.
There must be 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 that are 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.
On an average estate of R1.5 million, the executor fees and the basic administration expenses (advertisem*nt fees, Master’s fees, bank costs, postage and petties, and so on) would amount to R65 075. On an average estate of R2 million this will increase to R86 200.
It’s important to note that the above calculation excludes estate taxes, property transfer costs, municipal clearance charges, bond cancellation fees, valuation charges, and so on. It also does not consider any debt to be settled from the estate, says Botha.
The easiest way to provide liquidity is through a life policy. It can also provide a sum of money that can be used to provide income for your spouse and children.
The first step to ensuring 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, so no executor’s fee is charged on that amount and 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, so it is important to discuss this with your financial advisor to see it this is the best option for your situation.
Speak to your financial advisor to ensure you have enough liquidity in your estate and ask how they can help you if you don’t.
Questions may be edited for brevity and clarity.
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