An Administrator takes care of the administrative tasks relevant to the tying up of a deceased estate. The Administrator does not hold any power of attorney unless specifically given such by the Executor.
Estate Administration is the process whereby a person’s assets are either redeemed/transferred and their debts paid. The balance of their assets are then transferred to the Beneficiaries of the person’s Estate – either in terms of a Will or Intestate (where there is no will).
The administration of deceased Estates is generally the process of winding up the affairs of the deceased and is governed by the Administration of Estates Act, 66 of 1965 (as amended).
These duties and processes need to be fulfilled by a person who has been appointed by the Master of the High Court and is referred to as an Executor of the Estate.
After someone dies, someone (called the deceased individual’s Executor or Administrator) must deal with their money and property (the deceased individual’s Estate). They need to pay the deceased individual’s taxes and debts, and distribute the money and property to those who are entitled to it.
What you have stated in your Will is what is actioned after your death. If you do not have a valid Will your Estate will be distributed in accordance with the Intestate Succession Act which will not reflect your wishes and might not be in the best interest of your Heirs.
If an Estate has a shortfall the Executor will either sell off assets to meet the financial requirements or the heirs will pay in the shortfall to preserve the assets in order for them to take transfer of the said assets. However, an Estate that has insufficient assets to settle all the liabilities is declared as insolvent.
Legally, Estate is everything you own (properties, bank accounts, etc). It is a relatively simple definition but it can become a bit more complicated when someone dies.
The Master of the High Court grants the Executor the same powers as though he is the deceased individual himself. The Executor has complete authority to act and request information as though he is the deceased. Without the Court’s appointment, no one has the authority to act on behalf of a deceased individual.
The main duties of an Executor are:
- Taking control, protecting and transferring of the deceased assets as per the Last Will and Testament or as per the Intestate Succession Act;
- Taking care of all the legislative requirements;
- Paying all debts and administration expenses;
- Ensuring that the final Income Tax returns are lodged and all taxes are dealt with; and
- Distribution of the final balances in the Estate.
The whole administration process is supervised and validated by the Master of the High Court, who also performs a judicial function. In other words, deals with any objection lodged against the Liquidation and Distribution Account or any contestation made against a Will.
The simple answer is No. The complex answer is that the proceeds from a life insurance policy are paid to the Beneficiaries as nominated on the form given to the company that issues the policy. However, if no Beneficiaries have been nominated and there are no dependants, then the proceeds will be paid to the Estate. Life Insurance policies, however, are subject to Estate taxes whether the death benefit passes to the Estate or the Beneficiary.
When someone passes away it is important to remember that there are four types of taxes that come into play when dealing with the Estate: 1.) Income Tax for the deceased individual (Personal Taxes); 2.) Capital Gains Tax; 3.) Estate Duty Tax; and 4.) Donations Tax (if applicable to the specific Estate).
Income Tax (Personal Taxes)
- The Executor of the Estate has a duty to make sure that all tax returns of the deceased are up to date with the South African Revenue Services (SARS).
- If any tax years are outstanding the Executor will then have to request the relevant tax certificates/IRP5s from the respective institutions and then send it onto the tax practitioner to have them submitted and uploaded at SARS.
- The Estate will be charged Income Tax on any and all income, whether it is for dividends received, rental income or interest accrued during the Estate Administration process.
- There are two types of assessments that must be carried out: firstly, a pre-date assessment (all income and deductions that were applicable to the deceased up to their date of death); and secondly, a post-date of death assessment (all income and deductions in the Estate from after date of death).
- B: If the deceased was a pensioner at the time of death or even a few years prior to date of death, the tax returns should still be completed and submitted to SARS in order for SARS to advise the Executor that the taxes are in order and therefore provide the Executor with a Tax Compliance Certificate (TCC) for the Estate
Capital Gains Tax
- When someone passes away, the deceased individual is deemed to have disposed of their assets. This is because there has been a “change of ownership” as the assets will now be inherited by the heir/s in the Estate.
- This deemed “change of ownership” attracts Capital Gains Tax for the Estate and is payable to SARS.
- If the Executor of the Estate sells property or receives property into the Estate then these assets will attract Capital Gains Tax.
- However, it is important to note that certain assets in a deceased Estate are excluded from Capital Gains Tax. These include: assets for personal use (there are certain exceptions); assets inherited by the surviving spouse; the proceeds from life assurance policies; and interests in pension, provident or retirement annuity funds.
- At death there is a once-off exclusion of R300 000 which means that R300 000 of the gain or loss will not attract any tax on capital gains made.
- Any amount over and above R300 000 will have an inclusion rate of 40% and this amount will then attract the applicable tax as per the deceased individual’s marginal rate.
- Estate Duty is determined based on the gross value of the Estate.
- Each individual is granted a rebate of R3.5 million and Estate Duty is therefore only taxed on the value of the Estate over R3.5 million.
- Estate Duty is levied at 20% on the first R30 million and then 25% on the value above R30 million.
- In terms of Section 4(q) of the Estate Duty Act – the Estate Duty liability in respect of the assets inherited by the surviving spouse is postponed. This means that it is deemed that the deceased individual disposed of the assets on the day of his/her death but the liability for the tax is postponed until the death of the surviving spouse.
- Donations Tax does not form part of the calculation of an individual’s Income Tax liability and the Donations Tax calculation is done separately on each occasion that a donation is made.
- Donations Tax is not levied on an individual’s income but on the capital transferred which is usually in the form of assets.
- There are two parties involved in a donation, i.e. the donor (the person who makes the donation) and the donee (the person who received the donation).
- The donor is liable for the payment of the donations tax. If the donor fails to pay his tax within the prescribed period (normally by the end of the month following the month in which the donation took effect or for a period as the Commissioner may allow,) the donor and the donee are jointly and severally liable for the Donations Tax.
- Donations (taking into account certain exemptions as discussed below) are subject to donations tax levied at a rate of 20% on the value of the donation and applicable to donations made on or after 1 October 2001.
The following donations are exempt from Donations Tax:
- Donations between spouses.
- Donations that are made and materialise only when the donor dies. For example, if a person has a life-threatening job.
- Donations which the donee will only receive the benefit of upon the death of the donor.
- Donations that are cancelled within six months of taking effect.
- Traditional councils, traditional communities and certain tribes.
- Property located outside the Republic of South Africa. This is only applicable if the donor: acquired the property before becoming a resident of the Republic; or through inheritance from someone who at the date of his/her death was not resident in the Republic; or by using funds from the sale of the property and replacing it with other properties.
- Exempt organisations such as: government; provincial administrations; municipalities; etc.
All Executors’ fees are regulated by a set tariff of 3.5% excluding VAT on the gross value of assets and 6% excluding VAT on all income received into the Estate during the administration process. Banks seldomly give discount or concessions on their fees.
At Capital Legacy our aim is to keep Executor’s fees to a minimal by reducing the turnaround time for Estate Administration. We also offer a 25% indemnification on the standard tariff and do not charge the 6% fees on income received.
Each individual receives a rebate of R 3.5 million on Estate Duty. Therefore, when an Estate is administered the deceased individual’s Estate is exempt from paying Estate Duty on the first R 3.5 million of taxable value.
The length of time it takes to administer an Estate depends on the complexity of the Estate, which in turn affects how long it takes to receive an inheritance. An Executor is required by regulation to submit a Liquidation and Distribution Account (L&D) to the Master of the High Court within six (6) months of the date of the Letter of Executorship. However, the total time to administer an Estate varies.
At Capital Legacy, our business rule is to aim to administer an Estate within nine (9) months.
Generally, the Master can take up to six weeks to issue an appointment letter on provision that all correct and relevant documents have been submitted. At Capital Legacy, we ensure that the correct documents are submitted to the Master as we endeavour to obtain the Court appointment within seven days of lodgement.
This is difficult to specify as every Estate differs depending on the challenges unique to the Estate.
At Capital Legacy, our business rule is to try and finalise an Estate within nine (9) months. Although we do achieve this, we need to regulate expectations and state that Estates with many challenges may take longer to finalise. In some instances, an Estate cannot be reported to the Master of the High Court due to factors such as missing/unsigned documents and cause of death. If this is the case, the Master of the High Court will not issue a Letter of Executorship (LoE) or Letter of Authority (LoA). The Estate cannot be administered until an LoE/LoA is issued.
The Estate Administration process is often known as “Winding up of an Estate”. An Executor, as appointed by the Master of the High Court, finalises an Estate after someone passes away. If you have been nominated as the Executor in someone’s Will but lack the expertise to finalise the Estate the Master of the High Court may instruct you to solicit the services of a company or professional who can assist. Some of the options are then for you to either renounce your role as Executor or remain as the Executor and nominate a company or professional to act under Power of Attorney on your behalf. It is, therefore, recommended that you nominate a professional in your Will to act as Executor.
When an individual passes away, you need to notify the Master of the High Court in the deceased’s jurisdiction of domicile within 14 days after the notice of death. To then proceed to opening an Estate Late bank account, requires a Letter of Executorship (LoE) or Letter of Authority (LoA) as issued by the relevant Master of the High Court. A LoE needs to be issued for Estates with a gross value over R250 000 and an LoA needs to be issued for an Estate with a gross value of less than R250 000.
Documents required for the Letter of Executorship / Authority by the Master of the High Court include (as relevant):
- Death Notice
- Certified copy of the Death Certificate
- Certified copy of the deceased’s ID
- Certified copy of the surviving spouse
- Original Last Will and Testament (if the deceased person has a Will)
- Undertaking and Acceptance of Master’s Directions – in duplicate
- Certified copy of the Executor
- Nomination of Executor and ID of person nominating the Executor (if relevant)
- Inventory of Assets and Liabilities
- Declaration that the Estate has not been reported to date
- Declaration of marriage (if relevant)
- Certified copy of marriage certificate / divorce order / predeceased spouse’s death certificate (if and as relevant)
- Acceptance of Trust document
- Confirmation of assistance by …
- Nomination of representative
- Affidavit by next of kin
- Police report (if the person died due to unnatural causes)
You can prove you are the Executor of an Estate by using the Letter of Executorship/Authority, as granted by the Master of the High Court.
There are two manners through which someone can be nominated to become an Executor:
- The deceased could nominate you in their Last Will and Testament as the Executor of his/her Estate.
- If a deceased individual does not have a Last Will and Testament or has not nominated an Executor, the nominated Beneficiaries could nominate someone to become the Executor.
The Estate of a deceased person must be reported to the Master of the High Court within 14 days of the date of death. The death is to be reported by any person having control or possession of any property or document (normally a fiduciary company) that is or intends to be a Will of the deceased individual. The Estate is reported by lodging a completed death notice and other reporting documents with the Master of the High Court.
Application for Letters of Executorship needs to be made at the Master of the High Court in the Province where the deceased individual resided for the 12 months prior to passing away, or where the deceased had immovable property.
Should the Estate value be more than R 250 000 the Master of the High Court will require that a professional body such as a bank or fiduciary company assist with the administration as there are certain requirements that need to be submitted to have the Estate finalised.
A claim against a deceased Estate refers to a creditor laying a claim for outstanding debt against the deceased Estate. According to South African regulation a creditor has two opportunities to lodge their claim. The Executor will place ads in the Government Gazette and the local newspaper of the deceased’s residential address. These ads are placed at the date of death and when the L&D is ready for inspection (by anyone) in the Master of the High Court’s office. The L&D will be available for inspection for 21 days.
Yes. The Executor of the Estate is responsible for lodging the tax returns for both the deceased individual, as at the time of their death, and for the Estate, from date of death to when the Estate is finalised.
The Executor of the Estate has a duty to make sure that all tax returns of the deceased are up to date with the South African Revenue Services (SARS). N.B: If the deceased is a pensioner at the time of death or even a few years prior to date of death, the tax returns have to be completed and submitted to SARS in order for SARS to advise the Executor that the taxes are in order and to provide the Executor with a Tax Compliance Certificate (TCC) for the Estate.
The Executor of the Estate is required to disclose and submit the Capital Gains Tax calculation together with proof of documentation to the South African Revenue Services (SARS) as part of the deceased individual’s annual income for the financial year in which they passed away.
SARS will then assess the calculation and documentation submitted and then confirm the amount of Capital Gains Tax that is payable by the Estate.
In general, when an individual passes away and bequeaths their entire Estate to their surviving Spouse, no Capital Gains Tax is payable.
If the surviving Spouse inherits the immovable property (house) in the Estate, then the Estate will not be levied with Capital Gains Tax. However, if anyone else other than the surviving spouse inherits from the Estate then Capital Gains Tax, Estate Duty and Donations Tax (If applicable for donations) will be levied.
Yes, if the deceased has any assets (at least R 1000) which need to be administered then as per the Administration of Estates Act 66 of 1965, an Estate Late bank account will need to be opened.
Yes. Taxes will be payable either as part of the Estate if you sell it before the Estate is finalised, or as Capital Gains Tax on your individual profile if you sell it after you have inherited it.
The simple answer is, yes. An Executor does have the discretion to not pay a Beneficiary’s inheritance over to them, however this is generally only exercised when the Beneficiary is considered incapable of managing their own finances.
*For the purposes of answering this question the term Beneficiary(ies) refers to Heir(s) and Legatee(s) as well as the Beneficiary(ies) of a Trust.
No. All assets in the name of a deceased individual will have to be transferred to the Beneficiaries for the fiduciary company to attend to the closure of the Estate and obtain the filing slip from the Master of the High Court, as according to the Administration of Estates Act.
*For the purposes of answering this question the term Beneficiary(ies) refers to Heir(s) and Legatee(s) as well as the Beneficiary(ies) of a Trust.