Stumbling blocks to winding up deceased estates

Angélique Visser, national councillor at Fisa, explains the so-called ‘three Ps’ that can delay the winding up of a deceased estate.

AMANDA VISSER: Losing a loved one is devastating, and dealing with the winding up of the estate and unforeseen delays can further contribute to hardship and frustration. My name is Amanda Visser, and we are joined today by Angélique Visser, national councillor at Fisa, the Fiduciary Institute of Southern Africa, to explain to us what the main reasons for these delays [are] and how to deal with them. There’s a perception that deceased estates take a very long time to wind up. Is this just a perception or is it the reality, Angélique?

ANGÉLIQUE VISSER: Amanda, unfortunately this is a reality for most people dealing with deceased estates.

AMANDA VISSER: Why would that be, given the fact that we are living in a highly advanced technological era?

ANGÉLIQUE VISSER: Amanda, I would attribute it to one or more of the three Ps – planning, or should I rather say ‘poor or no planning’, processes and people.

AMANDA VISSER: Can you give us some context to understand what you mean by these three Ps?

ANGÉLIQUE VISSER: Let us start with the planning. Contrary to what many people think, every person has assets to be dealt with in the event of death. These types of assets and the value of the assets will be different for every person. So to really effectively deal with these assets at death it is important to understand what type of assets one has, and to plan around them.

Assets can be made up of furniture, motor vehicles, fixed properties, bank accounts, investments which could be local and offshore, shares in companies, members’ interests in close corporations, life policies and also retirement funds.

Different rules apply to each type of asset at death. If you do not know what these rules are, how will you be in a position to plan [how], in the event of death, to deal with these assets?

A very good example, which I too often have to deal with, is where the remaining member or members of a close corporation need to give consent to transfer the deceased member’s interest to the heirs, and refuse to do so, which leads us to go to court to apply for approval. That delays the administration of the estate and is very costly too.

Then taxes of course are always a big thing when we deal with the estate.

Death triggers the payment of various kinds of taxes that have to be provided for in the estate.

Often personal income tax returns have been outstanding for years, and it takes time to collect all this information and to bring the tax affairs up to date.

Then there is capital gains tax. As you know, death is a deemed disposal for capital gains tax, and estate duty. Estate duty is not something that only the wealthy have to worry about anymore, because if you own an average value fixed property, a car, a decent life policy, you can easily be above the threshold of R3.5 million, which means that your estate could be liable for estate duty.

Another point that also really makes a big difference in estates is when there are maintenance claims.

Maintenance claims by spouses, previous spouses and now also life partners, as well as minor children [whom one might not even have been aware existed at the time] may be lodged against your estate. These claims not only have a severe financial impact on the estate, but they could also delay the finalisation of the estate for months, even years, if no agreement can be reached by the parties concerned.

Liquidity is another big, big, big issue that we have to deal with.

No cash or not enough cash in the estate to pay claims and administration costs is a huge contributor [to] delaying the finalisation of estates. A cash shortfall should not be confused with insolvency, in which instance the liabilities are more than the value of the assets.

If there’s not enough cash to pay all the creditors – for instance, home loans, credit cards, overdraft – the heirs cannot take transfer of the assets until the cash for that has been paid. It is possible to sell these assets to cover the debt and cost, but it may not be a good time to sell the assets due to the market conditions – and it might even result in one’s loved ones being forced to move out of a family home to settle a bond, which may not have been what your intentions were at all.

AMANDA VISSER: Yes, that is terrible news if that does happen. But what about the second ‘P’, Angélique?

ANGÉLIQUE VISSER: The second reason for delays is due to the processes of institutions that executors have to deal with.

Here I not only refer to government institutions such as the Master’s Office, which is often in the news, Sars [South African Revenue Service], magistrate offices, the government printers – which you’ve also seen in the news lately – but also to institutions such as financial institutions like the banks, insurance companies, share registers and the stock exchange investor services.

It is absolutely astonishing how long these institutions take to provide the necessary information and the documents required to comply with the Administration of Estate Act.

In almost every estate that we administer we have to escalate matters to obtain what we need to proceed with the administration process. Normally we have to wait at least 30 days for information and, if there’s a follow up, then it’s another 30 days. So it takes extremely long just to get the basic information to compile the statements that we have to draft.

AMANDA VISSER: Then how do executors deal with all of this?

ANGÉLIQUE VISSER: Here organisations such as the Fiduciary Institute of Southern Africa play a critical role to identify and address problems experienced in the industry.

Executors who are members of the organisation bring these challenges to the organisation’s attention and they are addressed on an industry level with the relevant stakeholders. Each council member on Fisa’s board is responsible to engage with stakeholders to ensure that they are aware of these problems and issues experienced in the industry, and what the effect thereof is on the beneficiaries – and ultimately on the economy, because if the funds are held up in the estate it cannot be distributed to the beneficiaries.

That not only results in hardship for the beneficiaries, but has a direct impact on the economy as well, especially now with Covid.

AMANDA VISSER: You also mentioned the third ‘P’ being people who delay the winding up of an estate. Why is that?

ANGÉLIQUE VISSER: Amanda, the third P would be people, and one could have the perfect plan in place and the process could run smoothly, but a beneficiary who is unhappy about the outcome of events at death can challenge every step of the administration process.

An example is a child who inherits less in terms of a parent’s last will and testament, who may feel that he or she should have inherited more and then challenges the validity of the will as he or she would inherit equally with siblings if they were to inherit in terms of the Law of Intestate Succession.

Sometimes there are long feuds about sentimental items, such as mom’s jewellery or something that dad treasured and was sentimental about. These situations can last for quite a while.

AMANDA VISSER: Then how does the executor deal with this?

ANGÉLIQUE VISSER: These are more difficult situations to deal with. While executors have to remain impartial, act professionally and within the boundaries of the law, they have to act with compassion and be sensitive when dealing with people who have just lost a loved one.

Sometimes anger and being difficult, for want of better words, is their way of dealing with the loss of a loved one.

It is then necessary to work with your beneficiaries, and find solutions to make sure that the estate can get to a point where you can finalise.

AMANDA VISSER: It’s clear that executors have to deal with much more than just the law.

ANGÉLIQUE VISSER: You’re absolutely right, Amanda. It is for this reason that I’m not always in favour of appointing family members as the only executor as you have to deal with many kinds of situations. Your executor needs to know the law, have some knowledge of the type of assets that you deal with, understand the processes and have experience to deal with sometimes very difficult situations, otherwise the estate can take very, very long to be wound up.

AMANDA VISSER: Angélique, then where do you find executors that meet all these requirements?

ANGÉLIQUE VISSER: Fisa has a growing number of FPSA®s [Fiduciary Practitioners of SA®] who represent [clients] with a very high standard and should be able to deal with these kinds of situations.

AMANDA VISSER: Thank you, Angélique. That was Angélique Visser, national councillor at the Fiduciary Institute of Southern Africa.

Brought to you by the Fiduciary Institute of Southern Africa (Fisa).

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Most informative short summary on the problems of administering a deceased estate.

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