It is very important that you have a will, but you cannot simply buy a will off the shelf or have one drafted by a bank and leave the rest to fate.

If you want your dependants to be protected properly, some key issues you must consider are:

* Who will be the executor of your estate (the person or institution that carries out the instructions in your will)?

* What will happen to your minor children or incapacitated adult dependants? In most cases, you will have to establish a testamentary trust. A testamentary trust is a trust set up at your death to care for minor dependants or incapacitated adult dependants. A “trusted” person or institution should be appointed to ensure the financial wellbeing of your beneficiaries.

* How much will the above two cost – remembering that the money will come out of your estate?

The cost issue has long been a problem with deceased estates, and it is a problem of which most beneficiaries become aware only when they see significant amounts of money being drained from their inheritance.

Too often the problem is caused by the executors of deceased estates and the trustees of testamentary trusts not spelling out the costs in absolute detail to the testator and advising him or her that the costs can be negotiated before a will is signed.

Then there are those who simply take advantage of beneficiaries. For example, last year a Cape Town-based law firm, Millers Incorporated, was forced to repay a large part of the secret profit it made with the connivance of Nedbank from a testamentary trust.

Nedbank (and I understand that some other banks do the same) allows trust administrators and will executors to bulk the bank accounts of trusts, and the administrators/executors are paid the difference between the normal and the higher interest rates. The money is paid directly to the administrator/executor.

Nedbank said at the time that the administrator/executor should declare the bulking and obtain approval to skim off the extra interest, but it does little to check that this happens.

An executor may charge a maximum of 3.5 percent of the value of the estate plus VAT. This maximum may only be exceeded with the approval of the Master of the High Court, and you are fully entitled to negotiate a lower fee.

The executor may charge other fees – for example, six percent on realising the assets and collecting the cash.

There are vague restraints on the amount that may be charged for administering a testamentary trust, with an ill-defined section of the Property Control Act allowing for “reasonable remuneration” if no provision is made for fees.

While there are many good and honest administrators and executors, there are far too many who simply see deceased estates and testamentary trusts as easy money.

If you have a sizeable estate, you should avoid paying a percentage of your estate as an executor’s fee; rather consider a rand amount. And you need to itemise every possible cost. Don’t accept arguments along the lines of “these are the statutory fees” – they are not the mandatory amounts.

Because of the no-cost-limits regime, the same advice applies, but even more so, to a testamentary trust.

One of the worst things you can do is take advantage of deals sometimes offered in terms of which you receive your will for free in exchange for your estate paying the maximum executor’s fees. It is far cheaper to pay a fiduciary professional, who is preferably a member of the Fiduciary Institute of South Africa (Fisa), to draw up a proper will, negotiating both the fees for the will and the executor’s fees before signing your will.

Another option is to appoint one of your heirs as the executor. After your death, he or she in turn can appoint an expert executor and negotiate the fees.

The pitfalls can be very serious if the costs are not properly explained. Take, for example, what happens when if you are married in community of property (see “Bank tops high charges with payout calamity, right). The costs can almost double if you are not aware of what can happen – and, I suspect, without the testators being clearly warned in advance.

And what is worse is that all too often the executor does a sloppy job, which is highlighted in the example, right.

Profiteering from the dead and their dependants is very obnoxious.

Bank tops its high charges with payout calamity

Reader P’s parents passed away within six months of each other, four years ago. They were married in community of property.

The executors of the estate are a division of Standard Bank, Standard Executors and Trustees, which has managed to cream off more than R600 000 in fees.

The bank structured its fees |as follows:

* On the passing of Reader P’s mother, the bank valued her portion of the estate as the “full value” of the joint estate at R9 million, and charged a fee of 3.5 percent.

* On death of his father, the bank valued his estate at R8.55 million as if he inherited the full value of the estate from Reader P’s mother and charged a fee of 3.5 percent.

The consequence was that the total fee of R616 464 earned by Standard Bank was an effective seven percent plus VAT.

It should be noted that not even the taxman manages to pull off this remarkable windfall with estate duty.

What is also obnoxious is that Standard Bank told Reader P that the amount is “the statutory tariff prescribed in the Administration of Estates Act”.

While the Act does not state that this statutory amount is a maximum, it quite clearly is, because it is the default position if a different rate is not negotiated. I wonder how often this is pointed out?

The story does not end there. The bank made a gross error in that it paid out the four beneficiaries of Reader P’s father’s estate an extra R1 million in December 2008. The bank discovered its mistake only 16 months later.

The beneficiaries, who by this stage had allocated the money in different ways, were threatened with legal action if they did not repay the money immediately. Three of the beneficiaries did repay the money, but the fourth no longer has the cash and is facing legal action.

Standard Bank says that the reader’s father instructed it to administer the estate of his late wife.

“When the reader’s father had a new will drafted, he once again nominated Standard Bank as executors. He chose not to fix the executor’s remuneration. It is therefore not entirely correct to state that the fees are not explained to customers. In many instances, and depending on the circumstances, concessions on fees are granted.”

The bank says at the initial consultation, fees are discussed and negotiated.

What Standard Bank says:

The Standard Executors and Trustees division of Standard Bank sent Personal Finance a very legalistic and pompous reply in response to Reader P’s complaint.

The bank quoted chapter and verse from Meyerowitz on Administration of Estates and their Taxation, 2010 edition, “... as authority for our submissions”.

But Standard Bank completely missed the point, which is whether the costs are, in fact, fair and why it charged the maximum fees when it could not do its job efficiently.

I am quite sure that Standard Bank, as it claims:

* “Correctly charged for and recovered the executor’s fee on the full value of the joint estate of the first-dying spouse, who was married in community of property.

* “The surviving spouse had, in terms of the will of the pre-deceased spouse, inherited the assets in the estate of the first-dying. The estate of the subsequently deceased spouse therefore increased in value. The executor’s fee is then based on the gross value of the assets in the second estate ...

* “It is considered that ‘assets of the estate’ are not limited to assets which the deceased owned absolutely, but the term includes all such assets as the executor is required to deal with in the liquidation and distribution of the estate. Thus in the case of a community estate, the executor has to administer the whole joint estate and is entitled to remuneration laid down in the tariff in respect of all the joint estate assets.

* “Notwithstanding the estate of the first-dying being a joint estate, the executor has to administer two separate and distinct estates on the death of each spouse. Irrespective of whether or not the parties executed a joint will or single wills, the fees recoverable by the executor would be identical.”

The question Standard Bank does not answer is whether it quoted Meyerowitz chapter and verse to Reader P’s parents.

It also does not say whether his parents were told they could negotiate the fees.

The bank does admit it “erred in overpaying the heirs, but on discovering the error took immediate steps to rectify the shortfall”.

And, as it says: “The executor himself is entitled to recover any over-payment made to an heir or legatee. Chapter 18.14, p18-12 (of Meyerowitz).”

But at the maximum fees, surely Reader P and the other beneficiaries can expect efficiency?

You are entitled to negotiate the executor’s fee

You are fully entitled to negotiate how much will be paid to the executor of your estate after you have died, says the Fiduciary Institute of South Africa (Fisa).

Graham McPherson, a Fisa member and managing member of Zenzele Executor and Trust Solutions, speaking on behalf of the institute, says maximum fees are regulated by the Administration of Estates Act. He says: “The extent of the fee should not glibly be reflected as full fees simply as the matter is in community of property or simply to only recover fees on the assets in the deceased’s name.”

Fisa suggests that you discuss remuneration with your executor to ensure certainty on this aspect.

A thorough discussion about all aspects of your will and estate, not limited to costs, with your nominated executor can remove many uncertainties, McPherson says.

Problems of fees are not necessarily limited to estates where the spouses are married in community of property.

“A similar set of circumstances will arise in a marriage by ante-nuptial contract with accrual if the post-marital growth assets are registered mainly in one spouse’s name.

“Should there be an accrual claim by the estate against the survivor, who may have the larger accrual, such a claim forms an asset in the first-dying’s estate,” he says.

The administration of estates can be difficult, he says.

McPherson says it does not automatically follow that in an in-community estate the surviving spouse will be the sole heir. Others may inherit the deceased’s half share, and the deceased may have incurred debts against the joint estate that may be unknown to the surviving spouse.

“The executor is always responsible to investigate the joint estate fully, take charge of all assets, settle all debts and thereafter distribute properly to the correct heirs, which may include the spouse.

“The nature of a marriage in community of property is often not understood by the general public. For example, executors often come across situations where a spouse will state that the asset is his (because it is registered in his name), whereas he only has ownership of an undivided share of the asset. This is why, when a spouse inherits the residue of the estate from their deceased spouse, the estate account has to reflect their inheritance as to one half share by virtue of the marriage in community of property and the remaining half share in terms of the will.

“The same effect is seen in the endorsement of a fixed property by the Deeds Office, post death, even if the fixed property is registered in the husband’s name and he inherits it.”

The Administration of Estates Act states that the assets of both parties must be included in the community estate from an accounting perspective, McPherson says.

The executor’s remuneration, as set out in the Act, does not distinguish between any marital regime.

MacPherson says there are many issues to be considered in setting the fees, including:

* To what extent are the assets registered in the surviving spouse’s name;

* How much work will be involved in dealing with the assets that must be collected, uplifted and awarded; and

* What is the value and risk associated with the administration of the estate? For example, are there businesses and offshore assets?

Disclosure of earnings

A directive issued recently by the Department of Justice and Constitutional Development will force the executors of deceased estates to disclose all their earnings, as well as stop them from bulking the bank accounts of estates to earn more money.

While the measure will stop unscrupulous executors from earning more than is their due, it will not put a halt to the high costs that are often levied against testamentary trusts, Madelein Marais, a fiduciary services expert at Private Client Holdings, says.

Marais says that funds invested by the executors of deceased estates may no longer be pooled to draw a higher interest rate to the benefit of executors, who in the past have received an “administrative levy” or “handling fee” on these investments.

“All income earned on an estate that is still under probate must be specified and disclosed under the income and expenditure account.

“A person’s estate may be tied up for months or even years before it is finalised. It is standard practice to place the funds from the estate into an interest-bearing account with a bank during this time, and, up until now, what many estate executors did was to pool the funds from various estates into one account, earning more interest than an individual investment,” Marais says.

The banks would pay executors who did this an “administrative levy”, over and above the prescribed fees of 3.5 percent on the gross value of the estate and six percent of the income accrued after the death of the deceased, she says.

Unscrupulous executors who did not disclose the higher interest they earned and the additional “administration levy” were in breach of their fiduciary duty, she says.