How to wind up an estate

Old Mutual SuperFund
How to wind up an estate
(Steps to follow when a loved one dies)
How to wind up an estate
Losing a partner or a spouse is traumatic enough, but being unprepared for the practical financial realities of death
can make it all the more devastating. The only thing that can be said for the process of winding up an estate is
that it follows a predictable pattern, so you can put plans in place that will make life - if not death - easier to
handle.
While words such as “estate” and “executor” sound dauntingly formal and distant from the trauma of death, the
sequence of events is laid down in law and the process should be reasonably straightforward in the hands of a
professional.
The executor is the key person in this process, responsible for managing the estate
professionally and efficiently. Once appointed by the Master of the High Court,
in terms of a valid will, the executor’s functions are to:
• Take control of the assets of the estate;
• Protect and preserve the assets;
• Identify the beneficiaries of the estate;
• Make sure the administration complies with all legal requirements;
• Pay the debts and the administration expenses of the estate;
• Deal with the final income tax return of the deceased; and
• Distribute the balance of the assets in the estate to the beneficiaries.
The executor could be an individual, such as a family member, or a company, such as a
bank or trust company. It could also be a joint appointment, for example, a spouse with
a trust company to provide the expertise.
An executor is entitled by law to a maximum fee of 3.5% (excl. VAT) of the value of the assets in the estate. If
there is more than one executor, they have to share the fee. Generally, a family member who is nominated as coexecutor would forfeit his/her share of the fee in favour of the professional executor who does the work.
The entire administration process is supervised and validated by the Master of the High Court to ensure that the
rights of the beneficiaries are protected. Although estates may be relatively simple or complex, depending on
assets and liabilities involved, the process of winding up an estate remains the same as shown in the following
7 steps.
Step 1: At death
Your first step is to approach the funeral home, which will guide you through the process of arranging the funeral
and will obtain the death certificate on your behalf. The funeral is usually the first cost you face. You should expect
to pay at least R8 000 for the most modest funeral, and you are likely to be offered a 10% discount for paying
upfront.
If you pay, you can claim the cost from the deceased’s estate. If you cannot afford the outlay, you can arrange for
the funeral home to submit the invoice to the executor for payment. By the time the death certificate is issued
you should have established whether or not a will exists, and have put the deceased’s papers and documents in
order.
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Step 2: Gather information
Sometime in the next 2 to 6 weeks, you should have a preliminary meeting with the executor who was named in
the will, or, if you are the executor and need professional help, the co-executor you have appointed to assist you.
The duties of the executor at this stage are to obtain the will and check its validity, establish who are the
beneficiaries, and get a rough idea of the assets and liabilities of the estate.
When you go to the first meeting with the executor, you should take with you the bank account details,
accounts, title-deeds to properties, insurance policy documents and any other documents you can find
that pertain to the financial affairs of the deceased.
Step 3: Make it official
The nominated executor applies to the Master of the High Court to
be formally appointed and to be granted the necessary powers to
administer the estate. This procedure can take up to 6 weeks,
depending on which of the nine Master’s Offices in South Africa is
involved.
Step 4: Spread the word
Once the executor is in receipt of the Letter of Executorship from the
Master’s office, one of the executor’s first steps is to advertise the
estate so that any creditors (people or organisations owed money by
the estate) can become aware of the need to register their claims. You
can expect this to take up to 8 weeks from the person’s death.
Advertisements must be placed in the Government Gazette and a local
newspaper. Creditors have 30 days from the date of the publication of
the advertisements to lodge any claims against the estate.
Step 5: Final accounting
Over the next 5 to 10 weeks, the executor prepares the Liquidation and Distribution account (also known as
the L&D account). Here the executor accounts for all the assets and liabilities in the estate, sets out the names
of the beneficiaries and what their inheritance is in terms of the will, as well as the income and expenditure
incurred by the estate from the deceased’s date of death.
The executor submits the L&D account, together with supporting documents and vouchers (if the estate is subject
to estate duty), to the Master of the High Court. The Master of the High Court requires that the executor file an
L&D account within 6 months of the date of death. If it is not possible to have a first L&D account ready within
this period, the executor has to submit a request to the Master for an extension.
If the Master has queries regarding the account, he submits them to the executor, who has to respond within a
certain time period. The executor must receive and respond to the Master’s enquiry before the Master gives
approval for the account to be advertised. The executor submits the deceased’s final tax return to the Receiver of
Revenue at the same time.
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Step 6: Public perusal
Next, the L&D account must be advertised in the Government Gazette and a local newspaper and made
available for inspection for 21 days at the Master’s Office and at the Magistrate’s Office in the district where the
deceased lived. Anyone can ask to see it. The beneficiaries also have the opportunity to review the account before
it is finally approved by the Master.
If a second L&D account has to be filed, the executor has to go through the same process to make it available to
the public.
If no objections are lodged against the L&D account, the Master will confirm to the executor that the assets may
be distributed to the beneficiaries.
Step 7: Distribute the assets
Before distributing the estate, the executor must obtain a release from the Receiver of Revenue. The Receiver
must be satisfied that all outstanding taxes have been paid before giving permission for the balance of the estate
to be distributed to the beneficiaries.
The creditors must also be paid before the estate can be distributed. The executor then prepares a cash statement
and distributes the assets to the beneficiaries. He or she will also arrange for the transfer of fixed property - for
instance, the house from the deceased’s name to the spouse’s name, if the spouse has inherited it. The estate pays
the transfer costs regardless of who inherits the property, and there will be no transfer duty, but conveyancing
costs must be paid.
It takes, on average, 8 months to finalise an estate and for the beneficiaries to receive their inheritances. Once
the executor has provided the High Court with proof that the creditors have been paid and that the assets have
been distributed, the Master signs off the estate. This brings the duties of the executor to an end.
Sometimes additional assets come to light - for instance, an offshore property - long after the estate has been
distributed. In that case, the executor has to deal with these assets, or appoint an offshore executor in the case
of offshore assets, and, if the value of assets is R5 000 or more (or an amount that would affect estate duty), you
would need to lodge a supplementary L&D account.
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Assets not included in the estate
Certain assets are not included in the deceased’s estate and may be distributed to the beneficiaries independently.
Such assets include:
Life assurance benefits
If beneficiaries have been nominated in a life assurance policy, the proceeds of that policy are not included in
the estate, but is paid out directly to the beneficiaries. Such policies are the ideal vehicles for providing cash
for dependants while the estate is being wound up. Where the assets under life policies are included in the
estate (in other words, no beneficiaries are named), they count in the calculation of the executor’s fee.
Retirement assets
Compulsory retirement assets are excluded from the estate. When it comes to pension funds, it is important
to note that the assets are not necessarily distributed according to the wishes of the deceased fund member
as expressed in a will or on the pension fund beneficiary nomination form. The trustees of a pension fund are
obliged under the Pension Funds Act to distribute the assets to a member’s dependants.
For the distribution of death benefits, the following persons qualify as dependants in terms of the Pension Funds
Act:
• Spouses (including customary and religious unions, civil marriages and civil partnerships).
• Children (biological, stepchildren and legally adopted).
•Anyone proven to be dependent on the deceased for maintenance/financial support, or legally liable for
maintenance/financial support (e.g. in terms of divorce agreements and maintenance orders), or would have
become legally liable for maintenance, had the deceased not died (e.g. engaged to be married, unborn children).
Assets held in trust
Assets held in a living intervivos trust are not included in the estate.
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Cash for living expenses
Assets are frozen when estate administration begins, and this can have serious implications for dependants.
A spouse married in community of property will have no access to funds in the combined estate until the executor
is sure the estate is solvent, so it may take some time before that spouse can access any cash.
To avoid this situation, you can:
• Set up a living trust. Any assets transferred into the trust fall outside the estate.
•Take out a life assurance policy in favour of your spouse or other dependants. Such policies pay out directly
to the beneficiaries named in the policies, often within days of the insurance company receiving the necessary
information.
•Transfer a sum of money to your spouse or dependants if death is foreseeable because of ill-health
or frailty.
Choosing an executor
The person you name as executor - in most instances, your spouse - does not personally have to comply with all
the legal processes and can approach a professional, such as an attorney or an accountant, or a trust company, to
deal with the day-to-day logistics of administering your estate.
It is a good idea to name an alternative person as executor in case the person you nominate is unable to take
on the task or is no longer around. Bear in mind the age of the person you name as executor. If you are 50 years
old, there is not much point in making an 80-year-old executor.
If for some reason, the person named as executor refuses to accept the task, another person or organisation can
apply for the role, but they have to convince the Master of the High Court why they should be appointed. Generally,
the Master prefers an executor who stands to inherit from the estate, and the primary beneficiary is preferable.
All the beneficiaries of an estate are asked to consent to the new executor, and, in the case of a dispute, the Master
may appoint joint executors, such as a brother and a sister.
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omms 08.2012 T4454
Regulatory information:
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1999/004643/06. A licensed financial services provider authorized in terms of the Financial Advisery and Intermediary Services Act, 2002, to furnish advice and render
intermediary services with regard to long-term insurance and pension fund benefits, as well as providing intermediary services as a discretionary investment manager.
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