When someone dies, sorting out their money, property, debts and inheritance can be complicated. This process is called winding up a deceased estate.
The process is governed mainly by the Administration of Estates Act 66 of 1965. Depending on the estate, the work may involve the Master of the High Court, an executor, attorneys, accountants and the South African Revenue Service (SARS).
Here are the main things ordinary South Africans should know.
1. Small Estates Worth Less Than R250,000
South African law allows a simplified process for certain smaller estates.
According to the Department of Justice, where the estate’s value is R250,000 or less, the Master of the High Court may appoint a Master’s Representative under section 18(3) of the Administration of Estates Act. The representative receives a Letter of Authority rather than the usual Letters of Executorship.
The representative is generally the person named to handle the estate in the Will or, if there is no valid Will, someone nominated by the heirs.
This process can be simpler because a formal Liquidation and Distribution Account is not normally required unless the Master asks for one. However, the representative must still deal with the deceased’s assets, debts and inheritance in accordance with the law.
The estate must also be reported to the relevant authorities, and outstanding tax matters must be dealt with. A small estate is not automatically exempt from tax or other legal obligations.
Important: The R250,000 threshold is not a guarantee that every estate below that amount will follow exactly the same procedure. The Master considers the circumstances and decides what administration is required.
2. What Happens to Larger Estates?
Where the estate’s value exceeds R250,000, the usual process is for the Master to appoint an executor and issue Letters of Executorship.
The executor is responsible for winding up the estate. This generally involves:
- Identifying and collecting the deceased’s assets.
- Establishing which debts and expenses must be paid.
- Advertising for creditors to submit their claims.
- Preparing a Liquidation and Distribution Account showing the estate’s assets, debts, expenses and proposed distribution.
- Submitting the account to the Master for examination.
- Arranging for the account to lie open for public inspection, as required by law.
- Paying the relevant liabilities and distributing the remaining assets once the necessary approvals have been obtained.
The process takes time. Selling a property, resolving disputes, dealing with tax matters or tracing beneficiaries can cause further delays.
The executor must follow the Will if it is valid and legally effective. If there is no valid Will, the estate is generally distributed under South Africa’s rules of intestate succession.
3. What If the Estate Cannot Pay Its Debts?
An estate may be insolvent if its liabilities exceed the value of its assets.
The executor cannot simply distribute the inheritance as though the estate had enough money to pay everyone. Special procedures apply under the Administration of Estates Act and, where applicable, insolvency legislation.
The executor must follow the relevant legal process, including notifying creditors as required and dealing with the Master. Depending on the circumstances, creditors may be asked whether they wish the estate to be surrendered under the Insolvency Act. If that procedure is not followed, the assets may have to be realised and distributed under the applicable estate-administration rules.
Creditors are paid according to the legal rules that apply to the estate. Some claims may have priority over others, and there may not be enough money to settle every debt in full.
Heirs may receive nothing if the available assets are insufficient after the relevant debts and expenses have been dealt with.
Estate duty is a separate question. Whether estate duty is payable depends on the applicable tax rules, deductions and abatements. An insolvent estate should not automatically be described as exempt from estate duty without considering the facts.
4. Master’s Fees
The Master of the High Court oversees the administration of deceased estates and charges prescribed fees in applicable cases.
Under the published tariff, estates valued at R250,000 or less are exempt from Master’s fees. For estates above that amount, the fee is calculated according to the prescribed scale and is capped at R7,000 under that tariff.
These fees are separate from the executor’s remuneration, legal fees, advertising costs and other expenses that may arise during the administration of the estate.
Because tariffs and regulations can change, it is sensible to confirm the applicable fee with the relevant Master’s Office when the estate is reported.
5. Why You Should Name a Residuary Heir in Your Will
When writing a Will, it is wise to name a residuary heir. This is the person, or group of people, who receives what remains of your estate after the specific gifts, debts, taxes and administration expenses have been dealt with.
For example, you might leave your car to your daughter and a specific amount of money to your son. Your residuary heir would receive the remaining estate, subject to the terms of your Will and the applicable law.
What happens if you do not name a residuary heir?
If your Will does not deal with everything you own, the undisposed portion may be distributed under South Africa’s Intestate Succession Act. This means that the law determines who inherits that portion.
Naming a residuary heir helps reduce uncertainty and can prevent unnecessary complications for your family.
6. Executor’s Fees and Other Administration Costs
Winding up an estate can involve several expenses. These are generally paid from the estate before the remaining inheritance is distributed, where legally permitted.
Executor’s remuneration
If the Will does not prescribe a different arrangement, the prescribed tariff generally allows an executor to charge:
- 3.5% of the gross value of the estate’s assets.
- 6% of income earned and collected by the estate after the person’s death.
VAT may be added where applicable, including where the executor or the agent responsible for the relevant administration is registered for VAT.
These are not necessarily the final fees in every estate. The Will may provide for different remuneration, and the Master has the power to adjust or disallow fees in appropriate circumstances.
It is worth discussing the expected fees with the executor before the administration gets under way.
Advertising costs
For estates requiring full administration, the executor generally has to publish two sets of notices in the Government Gazette and a newspaper circulating in the relevant area.
The first notice, under section 29 of the Administration of Estates Act, calls on creditors to submit their claims, generally within 30 days.
The second notice, under section 35, informs interested parties that the Liquidation and Distribution Account is available for inspection for 21 days after the required process has been followed.
Publication charges vary, so there is no single fixed amount that applies to every estate. Ask the executor for an estimate based on the applicable publication rates.
Postage, bank charges and other expenses
An estate may also have to cover reasonable administration expenses, such as postage, courier services, bank charges, property-related expenses and the cost of obtaining documents.
These costs should be properly accounted for and supported where appropriate. The actual amount depends on the circumstances of the estate.
7. What About SARS and Estate Duty?
A deceased person’s tax affairs do not automatically end when they die.
The executor or authorised representative must ensure that the deceased’s outstanding tax returns and liabilities are dealt with and that the estate’s own tax obligations are met where applicable.
SARS may issue a Deceased Estate Compliance (DEC) letter once the relevant tax obligations have been fulfilled and the requirements for issuing the letter have been met. The executor must also comply with the applicable requirements before distributing assets.
Estate duty is a separate tax. It is calculated according to the Estate Duty Act, taking into account the value of the relevant property, allowable deductions and the applicable abatement.
For a person ordinarily resident in South Africa, the general estate-duty abatement is R3.5 million. The rate is 20% on the first R30 million of the dutiable amount and 25% on the amount above R30 million, subject to the applicable rules and exemptions.
Not every deceased estate will owe estate duty, but the executor must determine whether it applies.
Final thoughts
Dealing with a loved one’s estate can be stressful, especially when family members are grieving and important financial decisions need to be made.
Keep the Will and relevant financial records accessible, report the estate promptly, and make sure the person appointed to administer it understands their responsibilities.
For complicated estates, professional assistance from an attorney, trust company, or suitably experienced accountant can help avoid costly mistakes and unnecessary delays.
Remember: Every estate is different. The correct procedure, fees, taxes and distribution of an inheritance depend on the facts of the case and the law that applies.
If you need any assistance, do not hesitate to contact us to assist you.
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