No one wants to think about losing a loved one and dealing with the estate of the deceased can become an administrative and emotional nightmare. This article will focus mainly on the procedure to wind up a deceased estate, briefly discussing the difference between Intestate and Testate succession.
Intestate Succession
When a person passes away without leaving a will, their estate will be dealt with according to the procedures set out in the Intestate Succession Act 81 of 1987 (“the Intestate Act”). The Intestate Act prescribes which of the surviving relatives (heirs) of the deceased will inherit from his/her estate and further what percentage of the estate each heir will inherit. An example is where a person passes away without a spouse or a child but both parents are still alive, then the deceased’s parents will inherit the estate in equal shares.
Testate Succession
When a person passes away leaving a valid will (“the will”) their estate will be regulated by the testate law of succession. In terms of the Wills Act 7 of 1953 (“the Wills Act”) a will is a written document signed by the deceased who is called the “testator”. The will defines what is to happen to the belongings of the testator. The procedures to be followed in order to wind up the estate are those set out in the Administration of Estates Act 66 of 1965 (“the Estates Act”). The procedures are discussed below.
Administration of Estates Act 66 of 1965 (“the Estates Act”)
The following has to be determined before the deceased estate can be reported:
1. Who is the executor?
The executor is the person who steps into the shoes of the deceased and is responsible for 1) gathering all the deceased’s belongings (assets and liabilities); 2) paying the deceased’s debts, if any, for example SARS; and 3) distributing the inheritance to the heirs. The executor has to report the estate to the relevant authorities and attend to the administration of the estate until such a time as he/she is authorised to distribute the inheritance to the heirs.
In an intestate estate, the heirs have to nominate an executor. Whereas in a testate estate the deceased would have nominated an executor in their will.
A nominated executor is entitled to appoint an administrator by power of attorney to assist them with the administration of the estate.
2. The value of the deceased’s belongings at the date of death:
The value of the deceased’s assets and liabilities needs to be (roughly) determined prior to the date of death. Where an estate is worth more than R250 000.00 and/or the deceased owned immovable property then the estate is reported to the Master of the High Court. Where an estate is worth less than R250 000.00 and there is no immovable property then the estate may be reported to the Magistrates’ Court. This article deals with estates reported to the Master’s office and does not deal with the consequences of an insolvent estate.
3. Who stands to inherit the estate:
As stated above, the Intestate Act stipulates inheritance for an intestate estate.
With a testate estate the testator, the deceased, will stipulate in his or her will how they wish for their estate to be divided between relatives, charity organisations or any other legal entity. In some instances, specific items can be left to specified heirs and in other instances, the will could simply stipulate that the heirs will inherit everything in equal shares. It is then the executor who may decide whether to sell all the assets and pay the heirs in cash, or whether the assets will be divided into equal shares and distributed to the heirs. The executor may do this after discussions with the heirs.
Winding-up of a deceased estate
A. Reporting of the estate
The executor has the duty to notify the Master of the deceased’s passing so that a file can be opened at the Master’s office and a letter of executorship can be issued. The letter of executorship is the executor’s authority to collect assets, pay debts and distribute the remaining assets to the heirs.
B. Taking control of the estate assets
The letter of executorship authorises the executor to deal with the financial institutions of the deceased estate and to determine whether the deceased had any accounts, investments, policies or other financial interests with these institutions. These institutions will provide the executor with certificates of balance stating the monetary value at the date of death of the assets the deceased had with them. The executor has to locate the deceased’s belongings and put it in a safe place in order to protect the assets until such a time when it is decided what will happen with the assets – sold or distributed to heirs. Quite often the executor will have to have houses, vehicles, furniture and other personal effects valued by appraisers in order to determine the monetary value of these assets.
C. Advertising the estate to creditors
The executor has to advertise the estate in a local newspaper and the government gazette in order to notify creditors of the death. This allows estate creditors to contact the executor in order to forward details of their claims against the estate to the executor.
D. Open an estate bank account
The reason for a separate bank account for the estate is to ensure transparency with the affairs of the estate. All monies held in the deceased’s bank accounts or proceeds from investments, policies or other financial interests have to be deposited into the estate account and all the accounts held in the deceased’s name will be closed. All payments made on behalf of the estate will then be made from this account. Once all debts and expenses have been paid and the heirs paid out the estate will be closed.
E. Determine whether the estate is solvent or insolvent
Once the executor knows the value of the assets and the value of the liabilities it is easy to determine the solvency of the estate. Where the liabilities exceed the assets the estate is insolvent and will be wound up in terms of the insolvency laws.
F. Drafting of the liquidation and distribution account
1. Once the executor is in possession of all the assets and knows the liabilities of the estate he/she has to account to the Master as to how the assets in the estate are to be distributed and how the liabilities will be settled. The estate’s expenses, such as the advertisement costs; the master’s fees; the executor’s remuneration; and funeral expenses forms part of liquidation and distribution account as these expenses are paid by the estate.
2. Maintenance claims of minor children and surviving spouses are also included in the account. Provision is also made in the account for marriage claims such as division of the joint estate for marriages in community of property and any accrual claim for marriages out of community of property where the accrual system is applicable.
3. The executor has to ensure that the deceased’s death is reported to SARS and that the deceased’s income tax is up to date in order to avoid unnecessary penalties to the estate. Capital Gains Tax is also payable in estates where the deceased owned multiple immovable properties for investment purposes or where the deceased had numerous business interests.
4. Estate Duty Tax or “death tax” is regulated by the Estate Duty Act 45 of 1955. Estate duty is levied against the net value of every deceased estate. The net value of an estate is determined by deducting certain estate expenses and claims/debts from the gross value of the assets of the estate. Estate duty is currently levied at 20% of the net value of the estate, but the law allows for a primary rebate of R3.5million to be deducted from the net value of the estate. If, after deducting the primary rebate, the balance is negative or zero then no Estate Duty tax will be payable to SARS.
G. Lodge liquidation and distribution account
Once the account has been drafted the executor has to sign it and deliver it to the Master’s office. The estate controller at the Master’s office will work through the account and they will notify the executor of any further requirements that have to be complied with before consent is given to advertising the account for the second time. Requirements could include estate bank statements and certificates of balances for assets and liabilities to name a few.
H. Advertising the account as laying for inspection
1. If the executor has met all the Master’s requirements then the Master will consent to advertise the account as laying for inspection. Again the executor has to advertise in a local newspaper and the government gazette that the account is available to be inspected by the public for 21 days at specified offices and/or Magistrates’ Court. The reason for this is to allow creditors and heirs to inspect the account and to lodge an objection with the Master if they dispute any item therein.
2. If no objections are received within this 21 day period then the account is certified as free from objections. The executor may then request consent from the Master to distribute (payout) according to the account/will.
I. Distribution and formal discharge
The Master will request the executor to comply with further requirements such as paying their fees and the Estate duty and to distribute the estate according to the account. Once this has been done the executor will provide the Master with proof that the distribution has taken place and request for the Master to formally discharge him/her as the executor.
Conclusion
Administration of a deceased estate is a time-consuming responsibility and more often than not you may feel that you are drowning in paperwork and “red tape”. It is important to keep proper records and to manage your time properly. If you follow the procedures set out by the Estates Act then you will be able to stay calm and to keep all interested parties informed on the process of the winding-up of the estate.
For an in-depth discussion on deceased estates contact our office for a consultation.
Written by Christelle Zietsman – a practising attorney at Alan José Incorporated.
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