WHAT TO KNOW ABOUT WINDING UP A DECEASED ESTATE

There is a set process to be followed when a person dies regarding how his or her assets (and debts) are dealt with and distributed.

WHEN someone dies, that person’s deceased estate comes into existence and must be wound up in terms of the Administration of Estates Act. Depending on the nature of the estate, the winding-up process can be lengthy.

“The time required to wind up a deceased estate will be determined by, among other things, the size and complexity of the estate,” says Madelein Steenkamp, legal specialist at PSG Wealth.

Winding up the estate, step by step, Steenkamp says a deceased estate must be reported to the Master within 14 days of the date of death.

● As a first step, the executor (nominated in the will or appointed by the Master of the High Court) will consult with the family to obtain all necessary information to report the estate to the Master in the jurisdiction where the deceased lived during the year before his or her death.

● The executor will be issued a letter of executorship – authorisation to act in respect of all matters pertaining to winding up the estate. This includes taking control of all assets of the deceased, opening an estate bank account, notifying third parties of the death of the deceased, settling liabilities and transferring or selling assets.

● The executor will need to advertise the estate in the Government Gazette and a local newspaper. “This advertisement is for the attention of debtors and creditors of the deceased. It informs them that they have a period of 30 days from publication to submit their claims against the estate,” she says.

● The executor must also notify the South African Revenue Service of the death – this must be done even in cases where the deceased was not registered for tax purposes and no estate duty is payable. An income tax return must be submitted each year until the estate becomes distributable.

● Once the 30-day period of the advertisement has expired, and all claims have been lodged, Steenkamp says the solvency of the estate is determined. “The executor will then draft the liquidation and distribution account, which reflects all the assets and liabilities of the deceased and sets out how the assets will be distributed to the heirs.”

● The will of the deceased determines how assets are distributed. “If the deceased died without a valid will, the Intestate Succession Act will apply. This contains formulas that determine how assets are to be distributed,” Steenkamp says.

● The liquidation and distribution account is then lodged at the Master’s Office for approval. Once approved, permission is granted to advertise the account, which will lay open for inspection for 21 days. Interested parties may lodge objections with the Master within the 21-day period.

● If no objections are received, the executor may proceed to pay creditors and distribute the estate to the heirs, in accordance with the liquidation and distribution account.

● Once the estate has been liquidated and distributed, and all creditors paid, the executor must notify the Master, who will, if satisfied, confirm that the estate has formally been closed.

THE COSTS INVOLVED

Steenkamp says that one of the costs to consider is the executor’s fee. The maximum fee (excluding VAT) is currently 3.5% of the gross value of the estate assets, and 6% of all income (such as rentals, interest and dividends) collected while the estate is being wound up.

There are other expenses to take into consideration, such as advertising costs, property transfer costs, valuation costs, mortgage bond cancellation costs, bank charges and funeral costs. Unless the executor qualifies for an exemption, there will also be the cost of providing security to the Master for the value of the estate.

This must be in the form of a bond of security, issued by a short-term insurance company.

WHAT THE FAMILY NEEDS TO DO

The family must notify the executor of the death and obtain the death certificate. “They should also get all relevant documents of the deceased together for the first interview with the executor,” says Steenkamp. “Managing day-to-day living expenses is important. Once the deceased’s bank account is frozen, it can take several months before the executor is able to pay creditors. It is therefore recommended that heirs plan beforehand to maintain these payments,” she says.

Heirs may find themselves in a position where they require access to funds from the estate to meet their day-to-day living expenses.

The Administration of Estates Act makes allowance for the Master of the High Court, upon request, to issue a letter permitting the bank to release funds from the deceased’s frozen accounts to cover living expenses while the estate is being wound up.

Pension fund and life insurance benefits are typically not dealt with by the executor. This is separate to winding up the estate, and the family can begin the claim process straight away.

“A qualified fiduciary expert will help you with your will and estate plan to ensure that your loved ones are taken care of and that your estate is distributed as intended,” Steenkamp says.