Dying is an expensive business, and not only because of the cost of the funeral. There are multiple death taxes and fees that need to be paid when someone dies. If you don’t plan for these, they will reduce the value of the legacy you were expecting to leave your family.
Executor fees are paid to attorneys to wind up your estate when you die. Unless you have negotiated these fees you will be charged a maximum rate of 3.5% (4.03% with VAT) on the value of your estate.
This includes any property you have and the fees are calculated on the full value of the property, not taking any mortgage into account. The property would also need to be either sold or transferred into the heir’s name and that would incur conveyancing fees.
On a R1 million property, estate fees would be R40 000 and if the property was, for example, to be transferred to the surviving spouse, there would be conveyancing fees of around R25 000 – so a total bill of R65 000 that your estate would need to provide.
If you are married in community of property, this calculation is done on your joint estate, so includes assets in your spouse’s name. Add that to other assets and the bill starts to mount significantly. This does not even include death taxes such as estate duty and capital gains tax that could be payable if you bequeathed your estate to anyone other than a spouse.
These fees all need to be paid before your estate can be wound up and paid to your heirs. This often results in the forced sale of assets to provide enough liquidity for these costs.
Buying insurance to cover death taxes and fees
Traditionally one would purchase a life policy to cover these expenses. The life policy would be payable to the estate and would, ironically, incur executor fees. There is also no guarantee that it would be sufficient to cover the costs.
Wills administrator Capital Legacy and insurer Discovery Life both offer a full estate planning service that provides clients with a fully advised will as well as an insurance policy that completely covers the costs of winding up the estate.
The insurance premium is calculated based on your assets as stipulated in the will, and covers the costs of both the executor fees and conveyancing fees in the case of property.
If you have minor children, the costs of setting up and maintaining the testamentary trust are also covered by the insurance policy.
Capital Legacy uses its own in-house estate administration to wind up the estate and manage the testamentary trust, while Discovery Life has outsourced the service to Absa Trust.
“As we are bringing economies of scale, we have agreed a discounted fee with Absa Trust which makes it more cost effective to insure,” says Harry Joffe, head of legal at Discovery Life.
No such thing as a free will
Most estate administrators/trust companies will draw up your will for free if you nominate them as executor. This is also true for any free will from your bank.
This means they will earn the executor fees from winding up the estate. You could pay around R1500 for a will to be drawn up by a professional and then select your own executor. The executor would need to be a professional, as winding up an estate is complex and currently the Masters Court is facing serious delays due to the backlog from Covid. You need someone who is able to manage the process smoothly.
This article first appeared in City Press.