How to wind up an estate
16 October 2004 - Personal Finance

Losing a partner or a spouse is traumatic enough, but being unprepared for the practical financial realities of death can make it all the more devastating. The only thing that can be said for the process of winding up an estate is that it follows a predictable pattern, so you can put plans in place that will make life - if not death - easier to handle.

Death is a mystery, but sometimes it seems no more so than the process of estate administration that kicks in immediately afterwards. While words such as "estate" and "executor" sound dauntingly formal and distant from the trauma of death, the sequence of events is laid down in law and the process should be reasonably straightforward in the hands of a professional.

"The executor is the key person in this process, responsible for managing it professionally and efficiently," Graham McPherson, the managing director of Trust Services at First National Bank and the chairperson of the Association of Trust Companies, says.

The executor's functions are to:

An executor is entitled by law to a maximum fee of 3.5 percent of the value of the assets in the estate, plus six percent of the income earned by the assets from the date of the person's death. If there is more than one executor, they have to share the fee. Generally, a family member who is nominated as co-executor would forfeit his/her share of the fee in favour of the professional executor who does the work.

The entire administration process is supervised and validated by the Master of the High Court to ensure that the rights of the beneficiaries are protected. However, the reality is that the Master's Offices are frequently overloaded with work and lack the time and resources to keep proper tabs on executors in all cases.

At present there is no single body that deals with consumer complaints about executors and estate administration, but an initiative to create one is being driven by the trust industry (the Association of Trust Companies and the Law Society of South Africa). Where a bank is appointed executor, consumers have some recourse through the Banking Ombudsman.

Meanwhile, you will find dealing with the aftermath of a death much easier if you know what to expect. Although estates may be relatively simple or complex, depending on assets and liabilities involved, the process of winding up an estate is the same.

Step 1. At death
Your first stop is the funeral parlour, which will guide you through the process of arranging the funeral and will obtain the death certificate on your behalf.

The funeral is usually the first cost you face. You should expect to pay at least R8 000 for the most modest funeral, and you are likely to be offered a 10 Percent discount for paying upfront.
If you pay, you can claim the cost from the estate. If you cannot afford the outlay, you can arrange for the funeral parlour to submit the invoice to the executor for payment.

The death certificate is issued within a week or two of death. By this time you should have established whether or not a will exists, and have put the deceased's papers and documents in order.

Step 2. Gather information
Sometime in the next two to six weeks, you should have a preliminary meeting with the executor who was named in the will, or, if you are the executor and need professional help, the co-executor you have appointed to assist you. The duties of the executor at this stage are to obtain the will and check its validity, establish who are the beneficiaries, and get a rough idea of the assets and liabilities of the estate.

Robyn Cowie, a lawyer and a director of Fairheads, says when you go to the first meeting with the executor, you should take with you the bank account details, accounts, title deeds to properties, insurance policy documents and any other documents you can find that pertain to the financial affairs of the deceased.

Step 3. Make it official
The nominated executor applies to the Master of the High Court to be formally appointed and to be granted the necessary powers to administer the estate. This procedure can take up to six weeks, depending on which of the nine Master's Offices in South Africa is involved.

Step 4. Spread the word
One of the executor's first moves is to advertise the estate so that any creditors (people or organisations owed money by the estate) can become aware of the need to register their claims. You can expect this to take about eight weeks from the person's death.
Advertisements must be placed in the Government Gazette and a local newspaper. Creditors have 30 days from the date of the publication of the advertisements to lodge any claims against the estate.

Step 5. Final accounting
Over the next five to 10 weeks, the executor prepares the liquidation and distribution account (also known as the L&D account). This details all the assets and liabilities in the estate, the anticipated inheritance left for distribution, the beneficiaries who stand to inherit, as well as the income and expenditure incurred by the estate from the deceased's date of death.

The executor submits the L&D account, together with supporting documents and vouchers (if the estate is subject to estate duty), to the Master. If the Master has queries regarding the account, he submits them to the executor, who has to respond within a certain time period. The executor must receive and respond to the Master's enquiry before the Master gives approval for the account to be advertised. The executor submits the deceased's final tax return to the Receiver of Revenue at the same time.

Step 6. Public perusal
Next, the L&D account must be advertised in the Government Gazette and a local newspaper and made available for inspection for 21 days at the Master's Office and at the Magistrate's Office in the district where the deceased lived. Anyone can ask to see it. The heirs also have the opportunity to review the account before it is finally approved by the Master.

"The Master of the High Court requires that the executor file an L&D account within six months of the date of death," Dix-Peek says. If it is not possible to have a first L&D ready within this period, the executor has to submit a request to the Master for an extension.

If a second L&D account has to be filed, the executor has to go through the same process to make it available to the public.

If no objections are lodged against the L&D account, the Master will confirm to the executor that the assets may be distributed to the beneficiaries.

Step 7. Distribute the assets
Before distributing the estate, the executor must obtain a release from the Receiver of Revenue. The Receiver must be satisfied that all outstanding taxes have paid before giving permission for the balance of the estate to be distributed to the heirs.

The creditors must also be paid before the estate can be distributed.

The executor then prepares a cash statement and distributes the assets to the heirs. He or she will also arrange for the transfer of fixed property - for instance, the house from the deceased's name to the spouse's name, if the spouse has inherited it. The estate pays the transfer costs regardless of who inherits the property, and there will be no transfer duty, but conveyancing costs must be paid.

It takes, on average, eight months to finalise an estate and for the beneficiaries to receive their inheritances. Once the executor has provided the High Court with proof that the creditors have been paid and that the assets have been distributed, the Master signs off the estate. This brings the duties of the executor to an end.

Sometimes assets come to light - for instance, an offshore property - long after the estate has been distributed. In that case, the executor has to deal with these assets, or appoint an offshore executor in the case of offshore assets, and, if the value of assets is R5 000 or more (or an amount that would affect estate duty), lodge a supplementary L&D account.

NON-ESTATE ASSETS
Certain assets are not included in the deceased's estate and may be distributed to the beneficiaries independently. Such assets include:

Life assurance benefits
If beneficiaries have been nominated in a life assurance policy, the proceeds of that policy are not included in the estate, but are paid out directly to the beneficiaries. Such policies are the ideal vehicles for providing cash for dependants while the estate is being wound up.
Where the assets under life policies are included in the estate (in other words, no beneficiaries are named), they count in the calculation of the executor's fee.

Retirement assets
Compulsory retirement assets are excluded from the estate. When it comes to pension funds, it is important to note that the assets are not necessarily distributed according to the wishes of the deceased fund member as expressed in a will or on the pension fund beneficiary nomination form. The trustees of a pension fund are obliged under the Pension Funds Act to distribute the assets to a member's dependants according to their needs before the member's death.
The trustees will always consider the wishes of the member - and if there are no dependants, will act accordingly. But many people fail to understand that trustees have a responsibility to take care of dependants. Any death benefits due to the family under a group life policy will also be distributed by the trustees of the pension fund.

Proceeds of a compulsory retirement annuity (one bought with the two-thirds payout from a pension fund, which by law you cannot take in cash) will also be distributed at the discretion of the trustees of the fund. However, voluntary retirement annuities are distributed according to your will.

Assets held in trust
Assets held in an intervivos (living) trust are not included in the estate.
CASH FOR LIVING EXPENSES
Assets are frozen when estate administration begins, and this can have serious implications for dependants. A spouse married in community of property will have no access to funds in the combined estate until the executor is sure the estate is solvent, so it may take some time before that spouse can access any cash.

To avoid this situation, you can:

set up an intervivos trust. Any assets transferred into the trust fall outside the estate.
Take out a life assurance policy in favour of your spouse or other dependants. Such policies pay out directly to the beneficiaries named in the policies, often within days of the insurance company receiving the necessary information.
Transfer a sum of money to your spouse or dependants if death is foreseeable because of ill-health or frailty.
CHOOSING AN EXECUTOR
The person you name as executor - in most instances, your spouse - does not personally have to comply with all the legal processes and can approach a professional, such as an attorney or an accountant, or a trust company, to deal with the day-to-day logistics of administering your estate.

Dix-Peek says it is a good idea to name an alternative person as executor in case the person you nominate is unable to take on the task or is no longer around.

Michael Black, the head of the private client division f Fairheads and the deputy chairperson of the Association of Trust Companies, adds that you should discuss with the person you name as executor whether he or she is willing to accept the role after your death.

"Bear in mind the age of the person you name as executor," Robyn Cowie, a lawyer and a director of Fairheads, says. "If you are 50 years old, there is not much point in making an 80-year-old executor."

If for some reason, the person named as executor refuses to accept the task, another person or organisation can apply for the role, but they have to convince the Master of the High Court why they should be appointed. Generally, the Master prefers an executor who stands to inherit from the estate, and the primary beneficiary is preferable.

All the beneficiaries of an estate are asked to consent to the new executor, and, in the case of a dispute, the Master may appoint joint executors, such as a brother and a sister.