FAQ - Administration of Deceased Estates

Question - Why would you ask André Kachelhoffer to advise you and assist you when a friend or member of your family passes away and his or her estate requires administration in terms of a Last Will and Testament or the Intestate Law of Succession?

Answer - I have extensive and specialised experience, gained since May 1989 as an admitted attorney, and before that as a senior examiner at the office of the Master of the High Court, Pretoria and as a Deceased Estate Administrative Officer at First National Bank, Deceased Estates, Pretoria.

Question -  What must be done when somebody passes away?

Answer -  Briefly, report the death to the Master of the High Court, apply for an appointment as executor, pay and close accounts, realise or transfer assets (including moveables [cars, firearms, furniture, art, etc] and fixed property, bank accounts, investments, policies etc), attend to SARS requirements (Income Tax, Estate Duty, Capital Gains Tax) and pay beneficiaries. All of this will be the responsibility of the appointed executor and I will act as the executor's agent and I will do all the work and comply with the requirements of the Administration of Estates Act, Act 66 of 1965 and the Regulations promulgated in terms thereof.

Question - How long will this take?

Answer - I would like to say 6 months, but there are unfortunately various factors that affect the time that it takes between the appointment of the executor by the  Master of the High Court and the final release by the Master of the High Court of the executor of his / her duties. The Administration of Estates Act Act 66 of 1965 prescribes advertisement periods to expire, first to give creditors the opportunity to claim  against the estate (21 days) and secondly for anybody to object to a Liquidation and Distribution Account which has lain for inspection for 21 days after it has been approved by the Master of the High Court. People unfortunately pass away leaving their financial problems for the executor to resolve, and this may take time, especially if litigation (a court case) is involved.

Question - How much will it cost and who pays?

Answer - An executor is entitled in terms of the Administration of Estates Act Act 66 of 1965 to a fee calculated on the gross value of the estate at a rate of 3.5% and at a rate of 6% on the income generated by the estate after date of death. The fees are paid by the estate. I will negotiate my fee as agent with the executor with due consideration to the executors fee to which he or she is entitled, and with the amount of work that I will be expected to do.

Question - What other expenses can there be?

Answer 1 -  The transfer of fixed property to a beneficiary will attract a conveyancing fee and a Registrar of Deeds fee. I am a conveyancer and will attend to the conveyancing. Fixed property sold by the estate does not attract a conveyancer's fee for the estate because the purchaser will pay the transfer cost.

Answer 2 - There is also a fee payable to the Master of the High Court depending on the value of the estate, subject to a maximum of R 7 000-00.

Answer 3 - A possible accountant fee for attending to the outstanding Income Tax Returns for the deceased and the final Income Tax Return for the estate.

Question - What about Estate Duty?

Answer 1 - First dying spouse estate -

Estate duty is payable if the dutiable estate is more than R3.5 million. This is called the abatement. 

The dutiable estate is in brief calculated as follows - 

• The total value of the estate including the value of assets overseas, 
• deduct claims and funeral expenses and administration expenses. Also deduct the value of the surviving spouse's inheritance. Anything left to a surviving spouse is not taxed  (rolls over), 
• and the result of this calculation will then be the net estate. 
• Subtract the abatement and that leaves the dutiable estate.

The rate payable on the dutiable estate is 20% on the first R 30 million, and then 25% on the balance. The amount payable is then referred to as the estate duty. 

Answer 2 - Surviving spouse estate -

Any unused portion of the first-dying spouse’s estate duty abatement can be transferred to the surviving spouse’s estate. This is known as the “portable abatement.”

Each individual is entitled to an abatement of R3.5 million. Where the first-dying spouse leaves all or most of his or her estate to the surviving spouse, those bequests are exempt from estate duty. As a result, the first spouse’s abatement may remain wholly or partially unused.

This unused portion (up to R3.5 million) is then carried over to the surviving spouse. Upon the death of the surviving spouse, his or her estate can claim both:

• His or her own R3.5 million abatement; and
• The unused portion of the first-dying spouse’s abatement.

Accordingly, the surviving spouse may effectively have a combined abatement of up to R7 million available.

Question - And Income Tax?

Answer -  This is where I get the accounting officer responsible for the deceased's income tax during his life involved. The deceased estate becomes a separate taxpayer once the estate is being administered. If the executor sells assets during administration, any further growth from date of death is taxed in the estate.

Question - And Capital Gains Tax (CGT)?

 

Answer - When a person dies, Capital Gains Tax rules treat their assets as if they were sold at market value on the date of death. This is called a “deemed disposal.” Any capital gain is calculated up to the date of death. This gain is included in the final income tax return of the deceased and I will instruct the accounting officer responsible for the deceased's income tax during his life to attend to the final income tax return. 

There are important exceptions: 

• Assets left to a surviving spouse are not immediately subject to CGT. The gain is deferred until the spouse disposes of the asset or dies. It is called spouse roll-over relief. The gain is deferred until the spouse disposes of the asset or dies.
• Certain assets (like retirement funds) are excluded from CGT.

Question - Must a beneficiary pay CGT?

Answer - A beneficiary does not pay Capital Gains Tax (CGT) simply for receiving an inheritance.  Any CGT is triggered in the hands of the deceased (via a deemed disposal), not the beneficiary. CGT is triggered only when the beneficiary disposes of the asset. The base cost is generally the market value at date of death (if CGT was triggered then), or a rolled-over base cost if transferred to a surviving spouse.

Question - Is there a shortcut if the estate is small in value?

Answer - Yes, the Master of the High Court will appoint a representative  with a Letter of Authority in terms of Section 18(3) Act 66 of 1965 if the value of the estate is less than R 250 000-00, authorising the representative to proceed without the Master of the High Court's further involvement. A much shorter process.

 

For any further information - 

• Phone me or whats app me at 27 83 687 2609, or 
• e mail me at kach@mweb.co.za, or 
• contact me on my website, or 
• leave a comment on my blog.
• leave a comment below on this page 

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