Winding up a deceased estate – What you need to know

Madelein Steenkamp, Legal Specialist at PSG Wealth

Losing a spouse or family member is traumatic enough. Being unprepared for the financial realities of death can make it even more devastating.

The Covid-19 pandemic has brought with it an increased awareness around our own mortality, and the importance of having your affairs in order to protect loved ones.

The moment a loved one passes away, their deceased estate comes into existence and must be wound up in terms of the Administration of Estates Act, and – depending on the nature of the estate – the winding-up process can be lengthy. The time required to wind up a deceased estate will be determined by, among other things, the size and complexity of the estate.

For example, if an estate is smaller than R250 000, the process is simpler, and an executor does not need to be appointed. In this instance, a person (usually a family member), is authorised by the Master of the High Court to pay and collect debts and distribute the assets of the deceased to the heirs. For estates above R250 000, an executor needs to be appointed and the formal process of winding up of the estate needs to be followed.

Winding up a deceased estate: Step by step

A deceased estate must be reported to the Master within 14 days from the date of death. As a first step, the nominated executor will consult with the family of the deceased to obtain all necessary information to report the estate to the Master of the High Court in the jurisdiction where the deceased was domiciled 12 months before their death.

They will then be issued the Letter of Executorship, which authorises the executor to act in respect of all matters pertaining to winding up the estate. This includes taking control of all assets of the deceased, opening an estate late bank account, notifying third parties of the death of the deceased, settling liabilities and the transfer or sale of assets.

The executor will also need to advertise the estate in the Government Gazette and a local newspaper. This advertisement is for the attention of debtors and creditors of the deceased, and it informs them that they are granted a period of 30 days from publication to submit their claims against the estate. The executor must also notify SARS of the death – this must be done even in cases where the deceased was not registered for tax purposes and no estate duty is payable. An income tax return must be submitted for each year of assessment until such time as the estate becomes distributable.

Even when an estate is finalised during the year of assessment, an income tax return must still be submitted for the full year of assessment during which the liquidation process was finalised.

Once the 30-day period of the advertisement has expired, and all claims have been lodged, the solvency of the estate is determined. The executor will then proceed to draft the liquidation and distribution account, which reflects all the assets and liabilities of the deceased and sets out how the assets will be distributed to the heirs. The will of the deceased determines how assets are distributed. If the deceased died without a valid will, the Intestate Succession Act will apply and it affords formulas that determine how assets are to be distributed.

The liquidation and distribution account is then lodged at the Master’s Office for approval. Once approved, permission will be granted to advertise the account that will lay open for inspection for a period of 21 days. Interested parties should lodge their objections with the Master before the 21-day period for inspection expires. If no objections are received in this period, the executor may then proceed to pay creditors and distribute the estate to the heirs in accordance with the liquidation and distribution account.

Once the estate has been liquidated and distributed, and all creditors have been paid, the executor must notify the Master, who will then – if satisfied – issue a filing slip to confirm that the estate has formally been closed.

The costs involved

One of the costs to consider is the executor’s remuneration. The maximum tariff (excluding VAT) is determined by the Administration of Estates Act and is currently 3.5% of the gross value of the estate assets, and 6% of all incomes (e.g. rentals, interest and dividends), which the executor collects on behalf of the estate from the date of the testator’s death until the date of final distribution of the estate. Estate assets exclude life insurance policies and retirement fund benefits payable directly to beneficiaries.

There are also several other expenses to take into consideration, such as advertising costs, transfer costs, valuation costs, mortgage bond cancellation costs, bank charges and funeral costs. Unless the executor qualifies for an exemption in terms of the Administration of Estates Act, there will also be the cost of providing security to the Master for the value of the estate. The security must be in the form of a Bond of Security, issued by a short-term insurance company.

What the family needs to do

The deceased’s family must notify the executor of the death and obtain the death certificate. They should also get all relevant documents of the deceased together for the first interview with the executor.

Managing day-to-day living expenses is important. Once the deceased’s bank account is frozen, it can take several months before the executor is able to pay creditors and it is therefore recommended that heirs plan to maintain these payments to avoid potential adverse interest charges and possible legal collection charges.

Heirs may find themselves in a position where they still require access to funds from the estate to meet their day-to-day living expenses.  This can be particularly stressful as the family is faced with both the loss of a loved one and financial concerns.

Pension fund benefits are typically not dealt with by the executor: the family must approach the pension fund directly to deal with the deceased’s retirement savings. This is a separate process to winding up the estate, and the family does not need to wait for the Letters of Executorship to be issued before they begin this claim process.

The administration of a deceased estate can be a lengthy and complicated process that can take anything from six months to several years to finalise, depending on the complexity of the estate. Having your affairs in order will save your family a great deal of administrative effort and emotional stress.

A qualified fiduciary expert will help you avoid the pitfalls of unintended consequences by assisting you with your will and estate plan to ensure that your loved ones are taken care of and that your estate is distributed as intended.