An important function of an executor, the person who is appointed by the Master of the High Court to administer a deceased estate, is to account for the liabilities in the estate of the deceased. Keep in mind that only once the liabilities in the estate have been discharged can the heirs receive their inheritances. In this article, the various costs and expenses involved in administering a deceased estate are explained.
Income tax
One of the executor’s key functions is to ensure that SARS is paid what it is owed in respect of taxes. The executor will have to submit at least two income tax returns – the pre-date of death return is in respect of the income of the deceased up to the date of death, whereas the post-date of death return is in respect of income which accrued during the administration process up until submission of the liquidation and distribution account.
Estate duty
All property belonging to a person at the date of death, together with all property deemed to belong to that person, forms part of the estate for purposes of calculating estate duty. Estate duty is a tax payable on the dutiable estate of the deceased, with the first R3.5 million of the value of the estate not being dutiable. Estate duty is charged at a rate of 20% of the first R30 million, and 25% on anything over R30 million.
Accrual claim
If a person is married out of community of property with the accrual system, the accrual is calculated upon the death of the first-dying spouse. If the value of the deceased spouse’s estate is greater than that of the surviving spouse, the surviving spouse will have a preferent claim against the deceased’s estate for their share of the accrual.
Maintenance claims
If the deceased has maintenance obligations in terms of a divorce order, these obligations do not fall away on death and the executor will need to ensure that they are honoured, which is normally done in the form of a lump sum payment.
Outstanding debt
The executor must also settle all other debts of the deceased, such as outstanding balances on home loans and instalment sale agreements, and amounts owing to creditors e.g. medical bills and store accounts.
Administration costs
Funeral and burial costs: Funeral and burial costs are borne by the deceased estate although, normally, the deceased’s family covers the costs of the funeral, and then claims the costs back from the estate.
Advertising costs: During the administration process two sets of notices must be placed in a local newspaper and the Government Gazette.
Master’s fees: Estates with a value of more than R250,000 are levied Master’s fees at a sliding scale up to a maximum of R7,000.
Bank charges: Service fees are debited to the bank account opened in the name of the estate.
Provision of security: If the nominated executor is not exempt from lodging security, the premium payable on the bond of security is a charge against the estate.
Maintenance costs: Costs incurred in respect of maintaining an asset in the estate, such as garden services and repairs, must be covered by the estate.
Professional fees: The executor may need to use professionals to assist with the winding up of an estate, and these costs will be paid by the estate e.g. estate agent’s commission if immovable property is sold out of the deceased estate, or the fee charged by a tax practitioner completing income tax returns.
Valuation costs: The account rendered by an appraiser for a valuation of assets for estate and estate duty purposes is a cost payable by the estate.
Bond cancellation costs: The executor must cancel all bonds registered over immovable property once the outstanding balances have been paid, and the estate is liable for the bond cancellation costs.
Transfer costs: If immovable property in an estate is transferred to an heir, the estate must pay the transfer costs, being the attorney’s conveyancing fees, in accordance with a sliding scale determined from time to time.
Executor’s fees: The executor is entitled to remuneration for the work involved in administering an estate. The prescribed tariff is 3.5% (plus VAT) of the gross value of the assets in the estate. In addition, an executor can charge 6% on all income collected on behalf of the deceased estate from the date of death until the winding up of the estate.
The costs, as set out above, will vary from estate to estate. It often happens that an estate is solvent, meaning that the total value of the assets exceeds the total value of the liabilities, but there is insufficient cash in the estate to settle the debts and expenses.
If there is a cash shortfall in an estate, the executor will approach the heirs to the residue of the estate to establish if they are able to pay the cash shortfall into the estate to avoid a sale of assets. If the heirs are unable or unwilling to do so, the executor may have no choice but to sell assets.
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