The moment a loved one passes away, their deceased estate comes into existence and is required to be wound up in terms of the Administration of Deceased Estates Act 1965. The process of winding up a deceased estate is the same regardless of whether the deceased person died testate or intestate. While the process may appear complicated, it is well-regulated although generally best attended to by those who have fiduciary and estate planning experience. The winding-up process can be an extremely frustrating and time-consuming exercise subject to bureaucracy and red tape. In the event of a loved one passing, here’s what you can expect.
On their passing, one of the first interactions you’re likely to have is with the funeral parlour you have chosen. The funeral parlour should be able to guide you through the process of obtaining the death certificate and arranging the funeral. Bear in mind that funerals can be expensive, with a very modest funeral costing around R10 000. If there is no liquidity in the deceased’s estate you may need to finance the funeral and then claim the expenses back from the deceased’s estate. Alternatively, you may be able to make arrangements with the funeral parlour to claim the costs of the funeral back from the estate.
Soon after your loved one’s passing, you will need to try and locate the will which is possibly the most important estate planning document as it determines whether your loved one died testate or intestate. If you cannot find a will, you will need to contact the deceased’s bank, attorney, financial planner, life insurance company or other service providers to determine whether a will exists. Once you have located the will, you will need to make contact with the person named as executor in the will. Bear in mind that, in terms of legislation, the death notice should be forwarded to the Master’s Office within 14 days of death.
If your loved one left a will, the executor named in the will must apply to the Master’s Office for a Letter of Executorship which is effectively a mandate for them to act on behalf of the deceased estate. Once officially appointed, the executor can open an estate late bank account, notify third parties of the death, collect all assets belonging to the deceased, and settle all debt. If no will can be found, the Master may determine that your loved one died intestate and, as such, his estate will be wound up in terms of the law of intestacy. In such circumstances, the Master will appoint an executor dative to wind up the estate.
One of the first duties of the executor is to meet with the family of the deceased to gather as much information as possible and to determine the validity of the will. During this process, the executor will establish who the beneficiaries and legatees are, and make a rough inventory of the deceased’s assets and liabilities which they are then required to forward to the Master’s Office. When preparing for the preliminary meeting with the executor, be sure to collate all important information that will facilitate the smooth winding up of the estate including bank account details, title deeds, insurance policies and trust deeds. The executor will need to arrange for the sworn appraisals of the deceased assets including vehicles, property, furniture, jewellery, stamp collections and artwork.
Advertising for creditors
The assets in the estate may only be distributed amongst the beneficiaries once all the estate’s debt has been settled, including Sars. As such, the executor is required to advertise the deceased estate so that any creditors can register their claims against the estate. A Section 29 advert must be placed in the local newspaper and in the Government Gazette granting creditors 30 days in which to submit any claims against the estate.
Liquidation and distribution account
The next function of the executor is to compile what is referred to as the L&D Account and this can only be done once all the creditor’s claims have been lodged. In preparing the L&D Account, the executor will determine the estate’s solvency and will set out the inheritance of each beneficiary in terms of the deceased’s will. The executor will also need to record the income and expenditure of the deceased estate as from the date of death. Legislation requires that the executor file the L&D account within six months of the date of death, although an extension may be granted where necessary. The L&D account will then lie with the Master for 15 days to allow for queries, and once satisfied, the Master can sign off the L&D Account. It is the function of the executor to report the death to Sars, pay any tax or CGT, and calculate any estate duty.
Advertising the L&D Account
Once the Master has signed off the L&D Account, the executor is required to place a Section 35 advert in the local newspaper and Government Gazette, whereafter the account will lie open for inspection at the Magistrate’s Court for 21 days. This is a public document that can be viewed by anyone, including beneficiaries, creditors and the general public at large. Only once the Master is satisfied that all queries have been answered and no objections have been raised can they give the executor permission to distribute the assets to the beneficiaries.
Importantly, note that the executor must obtain a release from the Receiver of Revenue confirming that all outstanding taxes have been paid before providing permission for the balance of the estate to be distributed. Thereafter, it is the executor’s function to pay all other creditors who have a valid claim against the deceased estate.
Distribution amongst heirs
Once all debt is settled, the executor is required to distribute the balance of the estate amongst their heirs in accordance with the testator’s wishes. If there is no will, the deceased’s estate will devolve amongst the heirs in accordance with the laws of intestate succession. During this process, the executor will need to transfer fixed property into the name of the heir/heirs, or ensure that the property is realised and that the proceeds are paid in accordance with the will. Bear in mind that where the fixed property is transferred to an heir/heirs, no transfer duty is paid although the estate will cover the conveyancing costs. Once all the heirs have received their inheritance, they will be required to sign an acquittance which verifies the receipt of their inheritance.
It is important to keep in mind that certain assets, such retirement funds and certain life insurance policies, do not fall into the deceased estate and do not form part of the executor’s winding up mandate. In the case of life insurance policies where no beneficiary has been nominated, the proceeds are paid directly into the deceased’s estate and are estate dutiable. The distribution of retirement fund benefits falls within the discretion of the trustees of each retirement fund who are required to distribute the assets to those deemed to be financial dependants of the deceased, and this can include a spouse, partner, children, aged parents or anyone else that the deceased was legally liable to support. As such, the proceeds of retirement funds are generally not estate dutiable as they are distributed to the financial dependants of the deceased.
Where a spouse has been nominated on a life policy owned by the deceased, the proceeds will be considered deemed assets in the estate but will have a corresponding deduction and therefore not attract estate duty nor executor’s fees. Further, note that assets held in a living trust do not form part of the deceased’s estate.
Once the balance of the estate has been distributed and the heirs have verified receipt, the executor is required to provide the Master with copies of the acquittances as proof that the heirs were paid, and the property was duly transferred. If satisfied, the Master will formally close the estate.