The value of appointing a professional executor to finalise your estate

The importance of having a valid will and nominating an appropriate person as the executor of your estate cannot be emphasised enough.
The administration of a deceased estate is time-consuming and may be fraught with unforeseen complexities. Image: Shutterstock

A testator may nominate any natural person, including a spouse or a child, but should not underestimate the complexity of the process and the pressure and responsibility that place on someone who is grieving the loss of a loved one, says Eben Nel, national chair of the Fiduciary Institute of Southern Africa (Fisa).

It is a legal process that involves several pieces of legislation, in particular, the Administration of Estates Act, which is a voluminous piece of legislation.

He adds that an estate must be reported within 14 days. If a family member has been nominated as the executor that individual must start dealing with legal matters almost a week after the funeral. “I think it is unfair to expect that from someone who has just lost a loved one,” says Nel.

“History has also shown that family members appointed as executors often experience discontent from their siblings, which may result in major family disputes.”

The appointment process

The testator may nominate an executor, but it is the Master of the High Court that makes the appointment. Although the master will lean in favour of the nominated person, they may refuse to appoint them if the person has been declared insolvent, has a criminal record, or if a family member objects to the appointment.

The master will appoint an executor if no nomination was made, or if the nominated person refuses to accept the appointment or is pre-deceased (a master-appointed executor is known as the ‘executor dative’).

In this instance, the master will consult with the heirs to decide on an appropriate appointment. This alone may take weeks to finalise. “In our legal system, the estate is frozen until an appointment is made. Nobody has the authority to deal with any of the assets until an appointment has been made.”

When an executor dative is appointed the master also has no discretion regarding surety and must ask for security, except if a close family member is appointed.

This literally means that the master can ask for security equal to the value of the estate.

It may be difficult to find an executor in cases like this, says Nel. Attorneys can rely on the Legal Practitioners’ Fidelity Fund when they act as executor or administrator in a deceased estate but may be hesitant when they are involved in a number of estates requiring security.

In practice, the master may appoint a close family member as the executor, such as a spouse or a child, in which case he will not require security. However, he may require the appointment of an agent. The agent will have the same powers as the executor as he will be acting in terms of a power of attorney from the person so appointed.

The ideal situation is where the company or institution that drafts the will is nominated as the executor of the estate, as they will be in possession of the required information regarding the estate, understand the family dynamics, and have contact details of the heirs.

Unforeseen complexities

“The administration of a deceased estate is time-consuming and even a so-called simple estate may be fraught with various unforeseen complexities.”

The wrong punctuation in a will can create a legal issue, warns Nel.

The executor must also deal with third parties, such as the Master’s Office, the South African Revenue Service (Sars) and the Department of Home Affairs.

The legislation and required processes were not created with the novice in mind and even an experienced professional executor has various challenges to overcome in the administrative process, says Nel.

Penny wise, pound foolish

“People try to save costs by not appointing professional executors. However, it is a legally complex process and nobody will be doing the amount of work required for free.”

The prescribed fee is 3.5% of the gross assets, but when the testator nominates the business who is also drafting their will as the executor, they will be in a better position to negotiate an appropriate fee upfront. The negotiated fee should be stipulated in the will.

Whether the estate is worth R500 000 or R10 million, the process remains the same.

A large estate is not necessarily a complex estate, and a small estate is not necessarily a simple estate. “In practice, we have often found the contrary to be true.”

Nel says the best safeguard is to nominate a reputable firm or institution. If the executor is also a member of a professional body such as Fisa, it offers further reassurance that the estate will be dealt with in a responsible and professional manner.

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

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A terrible industry.

Example.

For all those who have asked Old Mutual Trust to be their executors think again. Old Mutual trust is just a name used by Old Mutual to get clients with other Old Mutual products to use them so they can pocket the fee.

When you call them you actually get through to Nedbank. Nedbank do the work and when you ask about it the Nedbank personal will use an Old Mutual Trust logo in their correspondence.

How they get away with it is mind boggling. I don’t believe Old Mutual Trust even have employees. It is Nedbank employees.

I bet that most clients would change who they nominate if they knew this.

I did as Nedbank is not the best at what they do anyway.

I am very tempted to take this up with the ombud but I have no trust in the system as these are mostly political appointments and we know what that means.

Just be careful. OLD MUTUAL TRUST is just a name used to con their clients into actually appointing Nedbank as executor instead of their own banks.

Be careful with these Trust Companies. Most of them will outsource their executor duties to small unknown BEE attorneys in backstreets if the estate is valued below a predetermined amount. They will not inform you about this unless you ask them specifically about it.

Indeed. My late mother-in-law died intestate. Or so the family thought. All the due reporting was done to her banker. Accounts frozen and an account for the Estate was opened. Only after all the work was done and just before distribution, the bank suddenly informed the family that they were in possession of a will. And they were nominated as executors in that will. Very keen to step in until they heard the estate value was less than R2.5m. Suddenly they were no longer interested and waived their right to executorship. Trust Companies probably are no different in their attitude. Too small, so outsource. And claim BEE credits.

Yes, many people underestimate the benefit of a skilful, professional, and GOOD executor. The work is not simply administrative…. Competence and knowledge can actually save tax, and integrity can maximise what the estate beneficiaries receive.

I concur with both comments above Mmmm and Eric H – use a professional but also ask the your parents to nominate as co executor so that you can engage the executor along the this trying path

You are right. Appointing a co-executor is essential.

The “pro’s” are very keen for the co-executor to sign a power of attorney in their favor though. They say it will cause delay’s if not done. It wont cause delay’s so don’t sign it.

Negotiate the executor’s/agents fee, and use a reputable professional who does not charge VAT. You will save 15 %.

Easier said than done. Some refuse outright, but it can be done.

The only people with a tangible interest in getting the estate wound up without delay are the beneficiaries. By nominating anyone else than the major (as in heirs, not age) beneficiaries you effectively remove their choice in appointing someone they trust to act in their best interest.

So make them the executors, allow them to appoint an agent of their choosing and limit the executors fees (and agent fees).

My wife died at a young age very unexpectedly a few years ago. She had signed a will many years previously, nominating a large insurer as the executor of her estate. This was an extremely bad idea. The fees they charged were a complete ripoff, but I had no choice, due to her will. Never, ever, ever, sign a will in which you nominate somebody as an executor. You are stealing from your heirs.

I have found no value in having a professional executor on my father’s estate.

I have used PSG and despite they estate being very simple, they still push for the maximum fee and it has taken 4 years.

Some home truths:
1) There is no automatic direct relationship between the size of a deceased estate and the complexity of its administration. Sometimes a small estate can be extremely difficult to administer.
2) The Master of the High Court (some offices) has shambolic service. Getting letters of executorship can take anything from 7 days to 70 days (or more). Without this, the executor has no authority to act and the bank (understandably due to the fraud risk) will not even supply the certificate of balance to the executor.
3) Co-executors are OK, but will delay the process in the absence of a power of attorney. Both executors will have to sign each document and both will have to go to SARS (physically yes) to register the estate’s bank account details etc.
4) If the executor is a FISA member and has acted unethically, there is a complaints facility on the FISA website. If not and the executor is not a member of another profession (attorney, accountant etc.), why not? FISA members, like other professionals, are subject to a Code of Ethics and a disciplinary process in case of a breach of the Code.

I have asked the following question of many professional executors:
Estate 1
1 House with no Mortgage R10,000,000
1 Liquid Share Portfolio R5,000,000
1 Employer Pension Fund R3,000,000
1 Preservation Fund R2,000,000
Total Gross Assets R20,000,000
No Debt

Estate 2
20 Houses in 7 different Provinces (Deed Offices) R20,000,000
All Mortgaged with 5 different banks – Total Mortgage Value R18,000,000
Gross Assets R20,0 mil
Net Assets R2 mil

Why will these 2 estates cost the same to Execute? (i.e. % Based on Gross Assets).
I will deem an executor reputable when this answer can be given.

@danie – just break the numbers down:

If the executor’s normal fees are R3,000/hour, to earn the 3.5% of R700k, they would need to spend 233 hours on the estate.

On a 8 hour day that would mean that they would spend the equivalent of pretty much one whole month just on the estate.

Now we all know that is not the case – in either scenario.

This ad valorem tariff should just be done away with IMO and let executors quote and substantiate their fees on actual time spent.

@daniemare:
Comparing the two estates is not comparing apples with apples.
1) The pension fund and the preservation fund has nothing to do with the estate as they are retirement funds which have to be dealt with under section 37C of the Pension Funds Act, 24 of 1956. The executor does not deal with it and will not charge a fee based on those values.
2) The two estates will not “cost the same to execute” because the second estate will have 20 property transfers for which attorneys will have to be paid. If by cost you mean the executor’s fee, this will also not be the same as the gross estate values differ due to what is said in point 1 above.
3) Executor’s fees are regulated by the regulations to the Administration of Estates Act, 66 of 1965 to a maximum of 3.5% (plus VAT if applicable) of the gross value of the estate, as well as a 6% income collection fee calculated on income collected by the executor.
4) The first estate should, in principle, depending on the terms of the will and the absence of objections to the will and/or the liquidation and distribution account, be easier to administer. As indicated already, the maximum fee will also be lower because the gross assets that the executor will charge a fee on is not R20m, but R15m.
5) On the first estate a reputable professional executor will probably be happy to negotiate about the fee. On the second, it is highly unlikely.

there are other ways to manage the fees – negotiation is one of the options. The other is that one of the siblings of the parents draws funds out of he parents accounts and holds he funds to their order and pays the interest to the parents monthly/quarterly to augment their income in need. On their demise the sibling does an independent distribution to any of the other siblings as a direct payment and hen lets the executor handle the estate but the sibling needs to be nominated by the parents as a co – executor. The most important thing is that parents and siblings should have open discussions with one another and with a chosen executive also estates are supposed to be wrapped up within 90 deaths of the death of the last spouse – as far as I recall

The folly of a free will….
It’s only free as the executor will charge the maximum legal rate is can, and will. It’s all a scam, like the entire debt and financial industry, designed to extract maximum capital from the very people who cannot afford it. Absolutely disgusting but it’s the Old Mutuals of the world who will lobby government for these laws where financial literacy is almost non existant…..

Winding up an estate is afterall a legal process. Appoint a lawyer as the executor and negotiate his remuneration and record in will. Generally lawyers are driven to wind up quickly as they only get their fee once wound up and can usually attend to all aspects of winding up including the transfer of properties. It is an ancient practice that has been usurped by banks and insurance companies.

The drive to wind up as fast as possible is the same for all executors, as the fee is fixed. The more time (and therefore money) the executor wastes, the smaller the profit. Also not true that this was originally the attorneys’ domain usurped by others. In SA prior to 1834 the job was done by the “State” (the Weeskamer in VOC times and early English occupation). The first trust company in the world (South African Association for the Administration and Settlement of Estates) was formed in Cape Town in 1834 in the wake of the abolition of the Weeskamer. This was followed by BoE in 1838 and others during the latter half of the 19th century. A large portion of deceased estates have therefore been administered by trust companies and boards of executors. The point is also not whose domain it is. The point is that a professional (attorney, accountant, FPSA®) knows the pitfalls and can navigate the process through the challenges of Master’s Office delays, legal requirements etc.

End of comments.

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