Where there's a Will - Winding up a deceased estate and tax compliance

Where there's a Will - Winding up a deceased estate and tax compliance

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The moment a loved one passes away, their deceased estate comes into existence. It is to be wound up in terms of the Administration of Estates Act, and – 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. 

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So, what happens to your loved one's finances when they die?

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WHERE THERE'S A WILL … ‍

The first and most crucial step is to ensure that you have executed a valid last will that sets out your instructions regarding the devolution of your assets upon your death to your heirs. Your will is probably one of the most important documents you will sign during your lifetime. it is essential to ensure that your instructions are clear and concise.

Upon your death, the person nominated as the executor in your will takes legal responsibility for your estate's winding up or administration. This process can be pretty stressful for family members.

While the estate administration process is not typically overly complex, it is administratively intensive, and the law stipulates specific strict timelines.

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THE ESTATE ADMINISTRATION PROCESS 

The estate administration process begins with the executor reporting the estate to the Master's Office in the jurisdiction where the deceased lived. This includes the lodgement of numerous documents, i.e. the original testament, a copy of the death certificate, a death notice, acceptance of trust (as executor) forms and a preliminary inventory.

The preliminary inventory includes the details of all the assets the deceased held at the date of their death. To gather all the information mentioned above, the executor must meet with the deceased's family.

Provided that the Master of the High Court is satisfied with the documents furnished, Letters of Executorship (if the estate's gross value is above R250 000) will be issued, which will authorise the executor to proceed with the administration of the estate and deal with all related matters related. These include opening an estate banking account, gathering information on all assets and liabilities of the deceased, and dealing with the tax matters of the deceased up to the date of death.

Once the executor has gathered all the necessary information, they will be in a position to draft a First and Final Liquidation and Distribution Account. The Liquidation and Distribution Account is then lodged at the Master's Office. The Master may issue a query sheet containing any queries or requests for additional information that the executor is obliged to answer.

Once the Master is satisfied the queries have been dealt with adequately, the executor will be granted permission to advertise the account as lying for inspection (at the local Magistrate's office) in a local newspaper and Government Gazette.

This allows creditors to come forward with any claims against the estate. If there are no claims, the Magistrate will issue and lodge a certificate confirming this with the Master. Upon receipt of this certificate, the Master will confirm that the executor can distribute the estate to the heirs in terms of the last will. Once the estate has been distributed, the Master will issue a filing notice confirming that the estate has been finalised.

While the above process may not seem unduly onerous on the face of it, many factors can cause delays and complications. These are briefly outlined below.

CAPITAL GAINS TAX

Death triggers a capital gains tax event, i.e. the deceased is deemed to have sold all of their estates on the date of death, and therefore, a complex capital gains tax calculation ensues. However, there are exemptions or what we call 'rollovers' when a deceased leaves the entire estate to a spouse.‍

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LIQUIDITY‍

Liquidity is vital. Liabilities in an estate can include income tax, estate duty, executor's fees, Master's fees, valuation fees, and any other liabilities the deceased may have incurred during their lifetime. Currently, estate duty is 20% of the gross asset value of your estate up to R30 million and 25% of the gross asset value over R30 million.

A well-drafted estate plan by a financial adviser will alert you to any liquidity issues your executors and heirs may face after your death.‍

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TAX RETURN SUBMISSIONS

The submission of tax returns in estates has become far more complex than before. The deceased's tax practitioner has to continue submitting returns for the deceased until the Liquidation and Distribution have been finalised.

MASTER'S DELAYS

Executors face numerous challenges with the Master's Offices around the country, and as a result, undue delays are to be experienced.

It is highly recommended that you appoint an independent and professional executor to attend to the administration of your estate. While it is helpful for the professional executor to act with a co-executor who is part of the family, the stress of estate administration for a family member unfamiliar with the process could be overwhelming. This could lead to unnecessary delays and queries.

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Each person's situation is unique, and one must understand how all processes apply to individual circumstances.

To summarise the process for winding up a deceased estate:

1) Report estate to the Master

 2) Master issues Letters of Executorship

 3) Advertise the estate in the Government Gazette and local newspaper

 4) Submit Liquidation and Distribution account to the Master for approval

 5) Advertise Liquidation and Distribution account

 6) Distribution