Losing a husband, wife, child or extended relative can be a traumatic experience. The emotional trauma of loss is a difficult burden to carry. Can you imagine having to carry the financial burden associated with winding up the deceased person’s estate over and above that?
Many ordinary South Africans who pass away don’t have a valid Will and the ones who do have a Will don’t have sufficient liquidity in their estates to deal with the exorbitant costs of winding up an estate. The main reason for this is the absence of financial planning on the path of the deceased person.
In this article, we outline the most common and most important costs that become payable in the process of winding up an estate.
- Masters Fees
Masters fees become payable when an executor is appointed and where the gross estate value is R250 000 and above. The master’s fees are subject to a maximum of R7000.
- Executor Fees
The executor is entitled to remuneration for the work involved in administering an estate. The executor can charge 3.5% excluding vat on the gross value of the estate. For example, if your estate assets (house, savings, shares, cars, etc.) are worth R2 million, your executor fees excluding vat will be R70 000.
- Advertising costs
Upon death your executor needs to advertise your estate to creditors and any other interested parties who may have a claim on your estate. The advertisements are placed in local newspapers and the Government Gazette. These costs range from R400 to R700 per newspaper notice and approximately R40 per insertion.
- Bond cancellation costs
If you have a property that is still bonded with a bank, upon death the bond would have to be cancelled and there is a bond cancellation fee that becomes payable. The approximate cost of cancelling a bond is 1% of the outstanding amount. If a bond of R1 million is cancelled, the approximate cost would be R10 000.
- Appraisement costs
In the process of winding up an estate, the executor needs to hire someone to value the assets in the estate to determine the gross value of the estate. An example is hiring a property agent to value the property. This can cost anything from R1000 upwards.
- Costs of realisation
When assets are sold of an estate, certain costs may become payable. E.g. if a house is sold out of the estate, the estate agents commission needs to be paid out of the estate. Estate agents usually charge between 5% and 8% of the selling price.
- Transfer cost of fixed property
When heirs inherit fixed property from an estate, the property needs to be transferred to the heir and that transfer of ownership needs to go through the deeds office. This transfer will have a transfer duty payable depending on the value of the property and conveyancing costs.
- Bank charges
A deceased estate usually has to open a bank account to manage the cash flow of the estate. Bank accounts have varying fees that are payable.
- Short-term insurance
An executor needs to ensure that the assets in a deceased estate is insured whilst the estate is being wound up. This could be business insurance, vehicle insurance, property insurance and etc.
- Maintenance of assets
The executor is also responsible to maintain assets in the deceased estate and there are maintenance costs associated with this. E.g. In the event that a geyser burst and the property is in a deceased estate, the executor needs to make arrangements to fix the geyser.
- Accounting fees
The executor may have to hire an accountant or tax specialist to deal with specific financial affairs and this comes at a cost.
The above list is by no means exhaustive of costs that become payable in the winding up of an estate. Of course, these costs vary from estate to estate.
More often than not, estate assets exceed liabilities, and more often than not, there is insufficient cash to settle debt and administrative expenses. In that event the executor will approach the beneficiaries to settle these expenses. If the beneficiaries don’t have the cash on hand, the executor will be forced to sell assets in the estate which could be the family home.
None of us have any idea of our expiry date on this earth. If we did, we would certainly plan better.
Consulting a financial advisor helps you make provision for these costs in your financial plan.