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Winding up an estate

Executors need a good understanding of accounting, finance and tax.

As soon as a person passes away, their deceased estate comes into existence regardless of whether they leave a Will or not. Immediately after the death, the process of winding up the estate starts, and this process can be very overwhelming for the family of the deceased. Winding up an estate is a complex and lengthy process that can take anything between 5 months to a number of years to complete. Having an experienced Executor who is familiar with the mechanisms and procedures of winding up deceased estates is to the benefit of the family and beneficiaries. The time required to wind up an estate depends largely on the size and structure of the estate, and below we have indicated general timelines for each step in the process. Bear in mind that the process can also be influenced by service levels at the Master’s Office, SARS, banks and other financial institutions. In general, the winding up process entails the following:

  • Preliminary interview

Following a person’s death, it is the role of the nominated Executor to meet with the family of the deceased in order to obtain the documentation required to register the estate with the Master of the High Court. A death notice needs to be completed and forwarded to the Master’s Office within 14 days from the date of death. The nominated Executor should then collate a rough inventory of the deceased’s assets which should be forwarded, together with the deceased’s Will, to the Master’s Office. In addition to this, the nominated Executor should apply to the Master’s Office for a Letter of Executorship. It is important to bear in mind that all powers of attorney in respect of the deceased lapse at his death, and that banks are required to immediately freeze all accounts that form part of the deceased estate. Assets such as vehicles, property and furniture need to be valued by a sworn appraiser.

Note: The most important documents in this process are the death notice, original will, death certificate, inventory and acceptance of Executorship. This process generally takes around 2 weeks to complete.

 

  • Appointment of executor

Once the estate has been registered, the Master will issue a Letter of Executorship which effectively authorises the Executor to represent the deceased estate. The Executor has authority to open an estate late bank account, notify third parties of the death, collect all assets, advertise for creditors and settle liabilities.

Note: This process can take anywhere between 2 weeks and 3 months, and any delays can be incredibly frustrating for the family.

 

  • Advertise for creditors

As soon as the Executor has been officially appointed, he must open an estate late bank account and place a Section 29 advertisement in the local newspaper and the Government Gazette. The purpose of this advert is to notify debtors and creditors of the deceased estate, granting them a 30-day period to submit any claims against the estate.

Note: Placing the advert for debtors and credits will take around 2 weeks to complete depending on the efficiency of the Executor.

 

  • Prepare the liquidation and distribution account

After the 30-day period has elapsed and all claims have been lodged, it is the Executor’s function to prepare a Liquidation and Distribution Account (L&D Account). The L&D Account reflects all the assets and liabilities of the estate and determines its solvency. If there is a Will, the Executor will use this document to determine how the assets will be distributed. In the absence of a Will, the assets will be distributed in accordance with the Intestate Succession Act. Once the L&D Account has been finalised, it is lodged with the Master, together with all supporting documentation as well as the Will, where it will lie for 15 days to allow for queries. Anything pertaining to the L&D Account can be queries via a query sheet and the Executor is obliged to provide answers to the Master. Once the Master is satisfied, he will sign off the L&D Account.

Note: The preparation of the L&D Account can take between 2 weeks and 2 months, depending on the complexity and size of the estate. The Executor is required to have good administrative skills and a solid understanding of accounting. In the case of a complex asset structure or tax issues, several accounts may need to be drawn up before the estate can be finalised.

 

  • Advertise liquidation and distribution account

Once the L&D Account has been signed off, the Executor is required to place a Section 35 advert in the local newspaper and the Government Gazette, and the account will lie open for inspection at the Magistrate’s Court for a period of 21 days. This process provides the opportunity for any objections, together with reasons, to be lodged with the Master. If no objections are lodged, the court will issue a certificate of no objection. This certificate must then be lodged at the Master’s Office in order to grant the Executor the authority to distribute the assets.

Note: It is the Executor’s responsibility to report the death to SARS, pay any tax or CGT, and calculate any Estate Duty owing. The Executor’s Fee is calculated at 3.5% of the estate’s assets (excluding VAT). The advertising of the L&D Account can take between 1 and 2 months to complete.

 

  • Distribute assets

Once the Executor has the authority, he can begin to distribute the assets as per the L&D Account. This includes paying Estate Duty, tax and CGT where applicable. During this process, assets are either awarded to the heirs (for example, property is transferred into the heir’s name) or property is realised, and the proceeds are paid out in accordance with the Will. Once the heirs have received their inheritance, they are required to sign an acquittance as verification of receipt.

Note: Once again, depending on the complexity of the estate, distribution of assets can take between 1 and 6 months.

 

  • Sign off and close

The final step in the process is for the Executor to provide the Master with proof that the estate has been liquidated in accordance with the Will. He is required to provide the Master with copies of the acquittances, proof that creditors were paid, and that property was duly transferred. Once he is satisfied, the Master will issue a filing slip and formally close the estate. The Executor is required to retain all records pertaining to the Estate for the prescribed period.

Note: Closing off the estate takes around 2 weeks.

 

As is evident, the process of winding up an estate is lengthy, time-consuming and administratively intensive. It also requires that the executor has a good understanding of accounting, finance and tax. It is advisable that family members and heirs should be prepared for delays in the winding up process and ensure that they can support themselves financially during this period.

(Thank you to Servo Fiduciary Services for providing valuable information pertaining to this article)

ADVISOR PROFILE

Eric Jordaan

Crue Invest (Pty) Ltd

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