Your appointed executor needs to step into your shoes when you die, to wrap up your affairs and distribute your assets according to your will. And you would presumably want this to be done as speedily as possible and with the minimum of stress for your family.
Yet some bereaved families find that the process of winding up an estate can stall over the smallest or most unexpected matter, dragging out for years. To them, the executor may start to resemble a remote, faceless entity that has abandoned their loved one’s shoes on a dusty road rather than the caring and scrupulous steward you originally imagined.
“It feels like my dad’s money has gone into a bottomless black pit, and we have had to beg them to help us. They are in total control,” says Marcia Walker, whose father’s simple estate has still not been wound up two years after his death and is in the hands of a well-known trust company, which is the co-executor.
In brief, the functions of the executor are to:
So who can fulfil these functions? And who would be the best person for you? Here are 10 things you should know about choosing an executor:
1. WHO CAN BE AN EXECUTOR?
Wrapping up an estate requires a knowledge of tax, debt, life assurance and short-term insurance, in even quite straightforward cases, to say nothing of negotiating the administrative process of the Master’s office and the South Africa Revenue Service (SARS).
If the estate includes a business, investments or offshore assets, it starts to look very complex.
But the person you choose as your executor does not need to have all the knowledge at his or her fingertips. You can nominate your spouse, an adult child, a family member or a friend, and your executor can certainly inherit from the estate.
The important thing is that you involve someone you trust to oversee the process and represent your family’s interests. The executor can turn to professionals in a variety of different roles to carry out the tasks required to wind up the estate.
You can nominate any of the following as your executor:
After your death, the appointment of your choice as executor is not automatic. The person or entity you nominate will have to apply to the Master of the High Court to be granted the power to step into your shoes (see “Who, exactly, is the Master?” below).
The Master has to register and accept your will, and then accept your nominated executor.
The Office of the Chief Master of the High Court says that a “natural person” (as opposed to an entity such as a law firm) who is nominated as your executor and who is personally going to liquidate and distribute your estate is not strictly required to have an agent assist him or her.
“However,” the Office of the Chief Master says, “the Master prefers that any layperson be assisted by a professional person or body, as the Administration of Estates Act places specific duties on the executor to fulfil, and for which he can be held liable, should he not comply. As ‘ignorance of the law’ is not a valid defence, the lay executor is very vulnerable when acting without the assistance of a professional person.”
For estates worth R125 000 or less, the Master may appoint a family member, as reflected in the will, to collect and administer the estate without the assistance of a professional person (see “Small estates”, below).
Estates worth R125 000 or less are dealt with in terms of section 18(3) of the Administration of Estates Act.
Graham McPherson, an executive committee member of the Fiduciary Institute of South Africa (Fisa), says administering an estate in terms of section 18(3) is a more straightforward process “and can exclude the need to lodge an estate account (with the Master) or the need to advertise, but this in turn adds risk to the heirs, as there is no validation process by the Master”.
McPherson says that about 30 percent of the total number of adult deaths reported in South Africa at present have an estate valued at more than R125 000.
When the Master appoints the executor in an estate of this type, the Master grants letters of executorship, which confer the power to wind up the estate.
If a family member (who has no knowledge of the Administration of Estates Act) is nominated as the executor in an estate valued at over R125 000, McPherson says, “the Master’s office will normally require such a family member’s application as executor to be accompanied by the name of an agent who will be assisting or acting for ... the family member”.
The agent can be a chartered accountant, an attorney, a trust company or a bank.
Refqah Fataar Ho-Yee, a director and attorney at law firm Smith Tabata Buchanan Boyes, says the agent and the family member executor would decide on which functions the agent would perform on behalf of the executor and which functions the executor would be able to perform himself or herself.
The executor would need to grant power of attorney to the agent to have legal capacity to act for the estate and to sign documents, she says.
But granting someone power of attorney does not mean handing him or her all your powers. David Knott, the head: fiduciary products at trust company BoE Trust Limited and the vice-chairman of Fisa, says that person can still act only on your instructions.
“They cannot decide for you,” he says. “And power of attorney can be revoked at any time.”
There are two types of power of attorney:
“One has to consider the basis of the agent’s appointment,” Fisa says, but adds that limiting the power of attorney in this way “could impede the liquidation process”.
McPherson says it is possible for a natural person to be appointed as the executor without an agent being required by the Master: “From time to time, given the experience of the nominated executor, the Master’s offices may allow a family member, such as a spouse, to act without an agent.”
The Office of the Chief Master says: “Should the [executor] not be a layperson as far as the Administration of Estates Act is concerned, the Master will consider appointing him or her without the assistance of an agent if convinced of his or her knowledge and/or experience in the field.”
Joop Elderkamp, a retired financial adviser, has been helping friends and community members to wind up their estates since 2004. He recommends that if you, as a nominated executor, feel you are competent to liquidate and distribute the assets of the estate yourself, you should submit a covering letter when you apply to the Master for appointment as the executor. Elderkamp recommends that in the letter you should:
Piet Nel, a senior lecturer in taxation at the University of Pretoria, favours the nomination of your spouse as executor and thereafter the appointment of agents as the best way to control the costs and the pace of winding up the estate.
Walker says: “If a company or institution has been nominated as the executor in the will, their incentive to give service is not the same as in other situations.
“It’s not easy to walk away from them if you feel you aren’t getting the service you deserve. This means it is no longer a ‘free market’ situation. They know that going to the Master to complain is going to take a lot of time and effort from your side.”
Walker says her situation is not unique or unusual. “My mother has two friends who are widows and they have waited more than two years for their husbands’ estates to be paid out. I personally know of someone who has waited more than five years for his mother’s estate to be paid out.”
2. HOW DO I NOMINATE AN EXECUTOR?
You nominate your executor by writing your choice into your will.
Nel says that in your will you should also indicate the level of remuneration your executor will receive. If none is indicated, the Master will fall back on the tariff outlined in the regulations (see points 3 and 4).
Ho-Yee says: “People are entitled to negotiate fees, but it depends on the size and complexity of the estate.”
If you die without nominating an executor, or if your nominated executor is not available to take up his or her duties, your beneficiaries must choose the person they would like to act as the executor.
They will then have to nominate, in writing, their choice to the Master. “If all heirs are in agreement, the Master will normally appoint this person but may ask this person to lodge security or obtain the assistance of a professional agent, depending on the person’s knowledge, relation to the deceased, etc,” the Office of the Chief Master says.
“If the heirs cannot come to an agreement as to who should be appointed, the Master will, at his or her discretion, appoint an objective third person whom the Master knows is capable of fulfilling all the necessary duties.”
You do not have to nominate only one executor (but for convenience this article will continue to refer to “executor” in the singular). In fact, there are a variety of options and combinations you can consider when making your choice:
If you nominate a relative/spouse/friend as your executor, it is advisable to nominate at least one alternative executor in case your nominee is unable or unwilling to do the task when the time comes.
But it is the Master’s prerogative, even if there are one or more nominated executor(s) willing, available and with the capacity to act, to join the nominee(s) with other executors of his or her choosing as the Master thinks fit.
There is clearly merit in having a professional person or entity, with the skills to wind up an estate, working in tandem with a relative/spouse/friend, who is better acquainted with your affairs. But if you choose to nominate both in your will, you need to decide on the relationship between the two. Specify whether they are to be co-executors, or whether the professional is to function as an agent.
McPherson says you can nominate more than one executor in your will. If two or more people are appointed, they are generally referred to as co-executors. A co-executor nominated in the will does not have to take up this appointment.
“Most documents and letters related to the estate require the signature and Financial Intelligence Centre Act – or Fica – documents of both appointed executors, particularly around the movement of funds or cheque payments, and this can be cumbersome,” McPherson says.
“As a result, one of the co-executors might sign a power of attorney in favour of the other co-executor to assist the process in moving forwards.”
The co-executors will have to negotiate how fees are to be apportioned if the will does not state whether the remuneration is to split equally or proportionately or whether only the co-executor who does the actual administration is to be paid.
“After appointment, it is important to set out what each of the party’s responsibilities will be during the administration process. This could include matters such as transfer of vehicles, obtaining insurance over the estate assets, and other practical issues like transferring telephone accounts. This action will help avoid confusion or misunderstanding of each party’s allocated functions.”
He says this clear allocation of tasks should also be done when there is an agent acting for the executor.
“There can be good reasons to appoint co-executors and/or agents to attend to the actual administration process of the estate. The important issue, whether you are a co-executor or a family member, is that you are aware of your role and responsibilities in the particular matter at hand, and to ensure that a constant flow of information is maintained during the administration process,” McPherson says.
3. COSTS: GROSS VALUE
The maximum fees that an executor can charge are 3.5 percent of the gross value of your estate and six percent of income accrued and collected after death. But the executor is not obliged to charge the full amount. These are default rates, meaning that if a professional person or body is nominated as an executor or co-executor and no fee is stipulated in your will, then the default rates apply.
Knott says agents can charge anything they want. “A clever agent will bill for the time spent on the estate, or 3.5 percent or more than 3.5 percent, or a minimum of R10 000, depending on what is most beneficial to the agent,” he says.
But the Office of the Chief Master says the Master will allow only the prescribed executor’s fees as a cost against the estate (unless the Master gives permission for the fees to be increased).
The Act does not allow the Master to interfere in an arrangement between an executor and an agent, the Office says, but regardless of any arrangement, the executor would have to obtain the approval of the Master to increase the executor’s fees above the prescribed rate. “The position of the Office of the Chief Master is that [the Office] will always endeavour to keep costs as low as possible in the administration of deceased estates.”
Knott’s advice is that you, as the testator, should meet the prospective executor if you are contemplating appointing a professional. Ask questions, then make your nomination only when you are happy with the whole picture. “You wouldn’t buy the cheapest TV and you shouldn’t select an executor only on price,” Knott says.
He says that you can determine remuneration in your will, “but obviously you would want to put some limit on it. For example, you would say ‘... for fees of X, as long as the estate is roughly equal to what it is now’.”
At first glance you may think that 3.5 percent of the gross value of your estate will not amount to very much, but it needs a closer examination:
If you are married in community of property, executor’s fees are paid on the value of the joint estate, although only one spouse has died. (In a joint estate in which the husband and wife each have a car worth R150 000, that is almost R12 000 in executor’s fees for the cars alone.)
The following will go into your estate:
Knott says household goods, such as furniture and appliances, would normally be regarded as the property of the surviving spouse or long-term partner. In the case of a single, divorced or widowed person, the household goods would form part of the estate – although the value would normally be quite nominal because the “estate value” of an item is the price for which the executor can persuade someone to buy it.
He says clothing and personal effects, such as books and CDs, are usually regarded as being of no commercial value.
If you make specific bequests in your will (such as leaving an antique to a friend and jewellery to your daughter), the bequests do not form part of the estate, Ho-Yee says. This is because they are regarded as having been made during your lifetime, she says.
The following assets are most likely to stay out of your estate (for the purposes of determining executor’s fees), as long as you have dependants and/or you name a beneficiary (but some may incur estate duty):
It is all very well to try to ensure that your life policies bypass your estate and therefore avoid attracting executor’s fees, but you still need enough liquidity in your estate to pay executor’s fees, as well as the liabilities and expenses the estate incurs, such as attorney’s costs in transferring property (see point 5).
If you do not have enough liquidity, either your beneficiaries will have to contribute cash to the estate in order to keep the assets intact, or the executor will have to sell some possessions or investments to realise some cash. Sales of assets are not ideal, because they may attract capital gains tax (CGT) and assets may be sold in a weak market.
One frequently used option to provide liquidity is a life assurance policy with no beneficiaries, so that the policy goes into your estate and the proceeds can be used to pay expenses and liabilities.
“The insurance industry is well versed in the ability to cover estates for liquidity issues,” Fisa says. But it points out that although a full estate planning exercise may be carried out, it will be nullified if at some point you cancel the insurance or allow it to lapse.
Another pitfall is to fail to update your plan in line with your fluctuating assets and liabilities.
Slightly complicating the picture of executor’s fees is the fact that the Master can override the fees prescribed in the regulations or the fees as negotiated and set out in your will. The fees can be increased or decreased, depending on the circumstances.
Nel says: “The executor can go to the Master and say ‘This estate is a nightmare’, and the Master can increase the fees above the regulated maximum. [The executor’s] fees can also be reduced if the Master decides the executor has made a hash of the estate.”
The family can apply to the Master and ask for a reduction if they feel the winding-up was badly handled. The Office of the Chief Master says: “The family would go about it in the same way as the executor would have applied for an increase. They will have to apply to the Master in writing, setting out full reasons as to why they feel the need for a reduction of the fees. The Master would then request comments from the executor, in order for the Master to be able to exercise discretion.
“Gross negligence on the part of the executor, actions causing damage to the estate, continuously not complying with time frames or requests from the Master, and [failure] to exercise due diligence may all be reasons for the Master to consider reducing the fee of the executor.”
The fees on Walker’s father’s estate were negotiated to three percent because the family accountant took responsibility for the tax return. But Walker feels that the cost to wrap up a modest local estate was far more than was justified by the work involved.
“It amounted to R80 000 in executor’s fees for what seems to us to involve only a few hours’ work. As far as I can tell, from their side, they’ve sent us a few forms to fill in, taken those forms to the Master of the High Court and prepared a draft liquidation and distribution account,” she says.
After Walker complained a number of times about the poor service her family had received, the company reduced the executor’s fee to 1.75 percent.
“Ultimately, I would like to see the law changed so that executors are remunerated for actual work done. My issue with the entire industry is that the [prescribed rate of] 3.5 percent plus VAT is not in any way commensurate with the work they do for you. It’s a random figure.”
Nel says: “I agree. That is why the Act allows the testator to set the fees. If it is not set, it defaults to the 3.5 percent.”
If a spouse, family member or friend is competent to act alone as an executor and is willing to forgo the fees, this is perceived as a cost saving. But will such an executor be able to claim any reasonable expenses from the estate so that he or she is not out of pocket in addition to doing the work “pro bono”?
Knott says they certainly should be claimable. Fisa recommends that the executor discusses the issue with the examiner at the Master’s office who is dealing with the estate, but says it may be more appropriate, once the executor knows what costs have been incurred by him or her personally, to simply charge an equivalent amount as the executor’s fee.
4. COSTS: INCOME ACCRUED
The executor receives six percent of the income accrued and collected from the date that you die to the date of distribution of assets to your heirs. This six percent (excluding VAT) is based on the income generated from sources such as rental, interest and dividends.
Walker was surprised to find out that the executor also claims his or her portion of the interest generated on the income: “When I finally received the cash distribution statement, I found out they are also charging that six percent on the interest that the money earns during the time the estate is being wound up.”
To receive the money coming into the estate – and to pay out expenses – the executor has to open a cheque account in the name of the estate at a bank as soon as the estate has R1 000 in hand. Your existing bank accounts are frozen, Fisa says, unless you were married in community of property and specific arrangements were made with the bank before your death. This sounds clear enough, but it does not always happen in practice.
“It took the trust company two-and-a-half months to close my father’s bank accounts,” Walker says.
“My mom carried on using bank accounts for his business. The money generated from the business that came into the account was claimed by the trust company as income it had generated, and it took six percent of that,” she says.
“Even if bank accounts aren’t frozen, walk away from them instantly.”
After Walker complained to the trust company, it reversed this charge on the business income that was channelled through the bank account that was incorrectly kept open.
She feels the trust company has no interest in finalising her father’s estate and fears there may be pooling of estate accounts similar to the bulking practice Personal Finance discovered in 2006. Four years ago, it was found that Alexander Forbes and other retirement and medical scheme administrators were bulking pension fund accounts to earn a beneficial rate of interest but were not passing on the full beneficial rate to the pension funds.
Walker says: “We received an email from the administrator working on the estate, saying there was a global account for all estates that were being administered by the executor, and that we needed to make sure my father’s debtors used the estate’s name as a reference. Why would they create such a logistical nightmare for themselves? Surely it’s easier to keep each estate separate?”
Knott says an activity such as was carried out by Alexander Forbes does not happen with estates.
“Most companies run a large trust account, and no interest is earned on that account. The trust account is demarcated into individual call accounts, and full interest is paid on funds held there.”
He says cash destined for an estate goes first into the trust account and is then directed into the account in the name of the estate. Expenses incurred by the estate are paid from the trust account, then recouped (“swept”) from the call account.
“In a perfect world, the trust account should have a zero balance overnight,” Knott says. This is not the case in reality because there are always cheques and electronic transfers waiting to clear, and deposits being tracked (for example, a person makes a deposit but does not reference it, so BoE Trust needs to find out who made the deposit). But the intention is for funds to move from the trust account as quickly as possible, he says.
“We are able to get a better rate on estate call accounts because they are housed at one bank and get a fine rate. The whole interest does accrue to the client,” Knott says.
And, he says, the system is safer than having a chequebook allocated to each account, which would increase the opportunities for fraud.
The Office of the Chief Master says: “The funds of each estate should be held separately, as the interest on these funds should accrue to the rightful heirs. The Master also requests proof that the account has been closed at finalisation of the estate. The executor should always be able to account for the funds and interest on the funds of each estate separately.”
The executor does not have to keep all the estate’s money in a cheque account. He or she has the discretion to invest money that is not required for estate transactions in another account. The Administration of Estates Act stipulates that the investment must be in a bank savings account, but in practice the Master gives permission for other low-risk accounts.
Nel says that the Master is concerned only that estate money stays intact, not with the exact type of account. He says that as long as the executor obtains approval from the Master to use a different instrument, such as a money market unit trust, that should be fine. A money market unit trust fund has the advantage of earning a better return than a cheque account or savings account.
There are cases where the need for a separate cheque account is waivered.
The Office of the Chief Master says a practising attorney can use his or her trust account to administer a deceased estate’s funds instead of opening an estate bank account, but must apply to the Master for permission to do so.
The Office of the Chief Master says: “In terms of Chief Master’s Directive 4 of 2007, the Chief Master supports the view of the Law Societies of South Africa that Masters should dispense with the requirement to open an estate bank account in matters where a practising attorney uses his or her trust account to administer the deceased estate’s funds.
“This dispensation is granted on the premise that the executor accepts and retains the responsibility to have deceased estate funds invested in the name of the estate in an interest-bearing account. The attorney must communicate this responsibility to the executor, who must confirm his consent in writing.
“Failure to invest funds not required for distribution or administration purposes will amount to negligence for which the attorney must assume liability.
“The attorney must also undertake to pay into the Guardian’s Fund, on demand of the Master, any funds he or she holds for an estate.”
The Office of the Chief Master cautions that attorneys do not have “blanket permission to use their trust accounts; they must still apply to the Master for permission”.
Ho-Yee cites an instance of when an attorney’s trust account could be used. “In a small estate with very little cash – for example, under R5 000 in cash and with the same amount expected to be paid out in expenses – we write to the Master and ask for the need for an account to be waivered to save on administration and banking costs. With the Master’s consent, we could use the attorney’s trust account to transact in respect of such small amounts,” she says.
5. ADDITIONAL COSTS
The Master allows the executor to charge to the estate all the costs necessary to value, control and transfer assets. This does not extend to the executor’s flights and accommodation. If these costs are incurred, they must be paid out of his or her own pocket, Knott says.
Nel says that if expenses are heavy and higher than an executor would reasonably be expected to incur, such as the cost of flights abroad to sort out a matter, those expenses can be claimed from the estate.
Knott suggests the estate heirs and the Master agree to any abnormal expenses before they are incurred.
In addition to the executor’s fees, the
following costs can be incurred by the estate and should be taken into account when calculating whether you have enough liquidity:
She points out that cancellation is not the only option. It is possible to “keep a bond alive” if it is owned by two parties, such as spouses, life partners, siblings or friends. Not all executors are aware of this, she says, and assume that a bond has to be cancelled and registered in the name of the surviving spouse or partner (or other party) if an outstanding amount is still owed.
To illustrate: if the bond on a property in a deceased estate is in the name of two spouses (and the bond is not settled in full by a life assurance policy), the surviving spouse may want to retain the bond, Ho-Yee says. One reason may be that it comes with a very beneficial interest rate. The surviving spouse can stay on as the sole mortgator if an attorney does a “substitution of the debtor application”, she says.
The bank will consent if the estate has paid its portion and/or the surviving spouse can meet the affordability requirements of the National Credit Act.
Ho-Yee says a bank can charge penalty interest on a bond cancellation in a deceased estate, “but you seldom find this with a deceased estate, because it is a long process and a good executor would notify the bank in good time”.
An executor who fails to notify the bank in good time of cancellation of the bond, and therefore incurs penalty interest for the estate, would be neglecting his or her fiduciary mandate. Ho-Yee says if the heirs can prove that claim, they would be able to deduct the penalty from the commission due to the executor.
A sworn valuation is required if a dispute over the value arises, she says. This means an appraiser will be called in and costs will be involved.
Remuneration of an appraiser is determined by a tariff of fees prescribed by regulations under the Act. The tariff is a sliding scale based on the assets being valued. An appraiser must be called in to value all assets if:
There are certain inescapable time frames imposed by the Act on the winding-up process. The Office of the Chief Master says that based on these time frames, it takes about a year to wind up an estate.
According to the Act:
“The Act also provides that the executor can apply for an extension on these periods, if necessary, and these time frames do not include time for correspondence, lodging of requirements, dealing with objections, amending the account, further accounts and delays with transfer of assets,” the Office of the Chief Master says.
Knott says a reasonable time to wrap up an estate is between one year and 14 months. But it varies enormously, because all sorts of difficulties can crop up. The time depends largely on the nature of the assets, not on their value. It is the same process whether the assets are worth R50 million or R5 million, he says. But an estate of R500 000 could take a long time to wind up.
Elderkamp says a layman, entrusted by the Master to act alone, can wrap up an estate in six months. “Even if it is the first time, a competent layman would be faster than a lawyer, and especially an institution,” he says.
For example, he says, if you personally deliver documents to the Master’s office instead posting them, it can shave weeks off the process. Or you can fix a problem on the spot at the Master’s office, rather than put up with the delays that can arise with remote communication. “It’s amazing how much time you can save in this way,” Elderkamp says.
He believes this sort of personal attention is much more likely to be given when a family member, spouse or friend is involved than if a large institution is dealing with an estate, because “most people – the heirs, the spouse – want to get over a situation like this as soon as possible”.
Nel says if a spouse is the executor, he or she can keep up the pressure on the various parties, such as the Master’s office or SARS, to keep processes flowing or to resolve blockages that may occur, even if the actual administration is being carried out by a third party. “The spouse may not have the time or cannot emotionally handle the winding up of the estate, but I generally find they are more motivated to get closure,” he says.
Walker found that in her father’s estate, the process ran quite smoothly up to the submission of the L&D account to the Master. “Once that legal deadline was met, things seem to slow down drastically. Very little happened in the 18 months following that,” she says.
“It was as if the urgency to comply with the regulations was over, and our file had gone into someone’s bottom drawer.”
Nel says: “I have a similar experience, but can’t say it is universally true. The Master will generally keep the pressure on the executor – we know some offices are not that diligent.”
When trying to find out why “almost nothing has happened for us since the submission of the L&D account”, Walker says emails to the trust company went unanswered for long stretches of time, and she was not told when the person dealing with the estate had left the trust company. Walker discovered this only months later, because the replacement had not contacted the family to introduce himself.
The Office of the Chief Master emphasises that interested parties in an estate need to be kept up to date by the executor with constant feedback, “as the public generally complain about not knowing what is happening in an estate”.
Knott says the winding-up process is drawn-out, and he cites a lack of staff at the Master’s office. “The Master’s office is probably better today than it was 10 years ago,” he says, “but there are still bottlenecks.”
The Administration of Estates Act of 1965, which is in force now, is a revision of the 1913 Act. Knott says the Master has to rubberstamp every step of the way. But in his opinion it is not as bad as it was in the 1970s and 1980s. For example, Knott says, in order to sell a vehicle out of an estate in those days, the Master had to approve the buyer and the amount for which the vehicle was sold.
Fisa says the heirs can at any stage approach the examiner at the Master’s office responsible for the estate file to query the progress of an estate. The Master’s office will follow up with the executor to ensure compliance with the Act. But Fisa says the issue should first be raised with the person who is administering the estate.
“It is possible for an estate to take time to finalise if, for example, a house is in the process of being sold, final tax assessments, estate duty assessment are awaited or even rates clearance certificates are awaited in some municipalities.”
For the Office of the Chief Master, the process would be smoother and quicker if the paperwork was done correctly. “When an estate is reported, care needs to be taken that all relevant documents, correctly completed, are lodged with the Master first time around,” the Office says.
“The L&D account must be lodged on time, information must be correct and calculations double-checked – this will assist the Master in expediently examining the account and providing permission for advertisement. Where documents are not lodged correctly or on time, delays occur.”
Walker checked the work done by the trust com-pany on her father’s estate, and found an error: the L&D account was incorrect to the amount of R5 000. This is one of two things that are holding up the finalisation of the estate. The other is that SARS appears to have lost most of the information lodged by the accountant. “It would be best to resubmit the returns documents,” Walker was told by the trust company in August, more than two years after her father died.
She also reports that the man at the trust company allocated to deal with her father’s estate “appears so swamped with work that he seldom has a chance to get back to us. In fact, the original administrator left the company in November, and had we not phoned in January this year to find out how things were going, we would have been none the wiser.
“We understood his difficult situation, but then we didn’t hear from him at all again until July, a full six months later.”
Knott denies that there are any bottlenecks at companies.
“We don’t overload our staff. In my interaction with other trust companies, I haven’t found this either. It doesn’t make sense for any company to overload staff or to have incompetent staff.
“We have 20 to 25 milestones for each individual estate, and we check constantly on those milestones.
“We are entitled to bank our executor’s fees only when the estate is finalised. It does not make sense to sit on our estates.”
Fisa is working with government institutions to improve the areas that are slowing down the administration process. Specifically, the aim is to:
7. WHO’S BEST?
If you are contemplating nominating a spouse, family member or friend as your executor, consider the following:
In addition, do not choose someone who is bitten by the travel-bug, because, once authorised to act, the executor cannot be absent from South Africa for more than 60 days unless he or she obtains approval from the Master, or applies for approval, or meets certain conditions set down by the Master.
The Master can refuse to appoint your nominee if he or she has been convicted in South Africa or elsewhere for fraud, theft, forgery, uttering a forged instrument or perjury, and has been sentenced to imprisonment without the option of a fine, or to a fine of more than R2 000.
Walker’s father was the sole owner of a small business. Because the family accountant was doing the tax return, this situation meant more work than might ordinarily be the case for a family.
“I took two weeks off work and, together with my sister, we worked day and night to gather all the information required for the final tax returns to give to the accountant,” Walker says.
“My dad had everything well organised, but, since it was solely his business, we didn’t even know what information we were supposed to be looking for!”
In other aspects, Walker’s experience was the same as any that an involved and responsible family may go through.
“We spent a tremendous amount of time learning to understand what was happening in terms of the estate, and separating facts from fiction! Also, trying to get a handle on how someone else runs their affairs takes a lot of time.”
Walker found that her own financial training served her well.
“The trust company sent the L&D accounts a few days before the expiry of the six-month deadline to report to the Master, so we didn’t have much time to examine them properly. A lot of people wouldn’t have seen that one of the accounts showed an incorrect balance to the amount of R5 000.”
Walker, who has a BCom in quantitative management with first-year accountancy subjects, says that unless a family is going to be a passive bystander during the winding up process, someone needs to be able to read a balance sheet.
“It took me two full days to get my head around the L&D account,” she says. “I ended up doing my own reconciliation on Excel so that I could compare the figures back to simple things like the closing balances on the bank accounts, etc. Those closing balances are in no way apparent on the accounts.”
Business interests would require familiarity with the operations of close corporations, private com-panies and sole traders, as well as the implications of loan accounts, “buy and sell” policies and keyman policies. A familiarity with personal tax, estate duty and CGT is crucial.
Elderkamp believes that straightforward estates can be dealt with by a competent layman using the advice of attorneys as required. He has written a step-by-step guide to the process of winding up an estate called Where There is a Will.
“The process isn’t itself difficult, but things that arise out of it cause the problems,” he says.
Elderkamp says if a problem arises, you can seek advice from an attorney on that particular issue and incur expenses related to that problem only.
“An attorney will cost you R700 or R900 an hour for a consultation. In an hour, you can ask a heck of a lot of questions,” he says.
“The Master’s office is not there to provide advice, but personal contact with the Master’s office is extremely helpful, as long as you don’t abuse it. I have done this for five years.”
Elderkamp says co-operation among the beneficiaries is important, and the executor plays an important part in getting the heirs to compromise and in preventing discord. He points out if that there are three equal heirs to all your assets, each of the heirs has an undivided share in each asset. “In other words, each teaspoon has three owners.”
From this it is clear that in winding up an estate, Elderkamp says, you need to choose an executor who can negotiate with beneficiaries and bring them to consensus to prevent delays or costly disputes.
The importance of flexibility and consensus is emphasised when dealing with property.
Lanice Steward, the managing director of Cape Town estate agency Anne Porter Knight Frank, says: “If a property has to be sold, the executor – or beneficiaries – can get stuck on the price they want for it. If this price is not reasonable, the property sits on the market for a long time and costs the estate money. The costs of running the property – bond, rates, etc – add up, frighteningly so.”
She stresses that the executor must be a person who is open to consultation and who can listen to the advice that a good and experienced estate agent gives about the property market. The executor should also be reasonable and accessible and be able to negotiate through the family at a traumatic time.
If you consider nominating as an executor or agent a professional person or a company, bear in mind:
Many Fisa members are also members of the Financial Planning Institute. Fisa welcomes attorneys and lawyers as members, as well as trust companies.
You can check on Fisa membership at www.fidsa.org.za
And while the Administration of Estates Act spells out clearly that the executor takes control of all the papers, documents and accounts, Walker was taken aback by how much the family was left to do.
“A few days after the executors were appointed, they sent us a list of the things we needed to do. We were amazed,” she says. “What a huge battle. This alone took a month of our time. Each service provider and company with which my father had a contract or account wanted a copy of the death certificate.”
Find out early whether the following tasks will be done by the professional executor. They may become the family’s responsibility if an agent or professional co-executor shares administration with a family executor, as is the case with Walker’s father’s estate:
But there may be other insurance matters with which the family will have to deal. Walker says she and her mother had to transfer insurance on two cars into the name of the estate before Walker’s mother could continue driving them.
In addition, if there are firearms that the family wants to retain, the family will have to complete and submit the necessary documents for firearm licences.
Knott says the executor should take charge of the administration, including dealing with these accounts. He says he has even stopped television licences and arranged funerals if necessary. “If there is life assurance that is not part of the estate, we arrange the payment of that as part of good public relations, if there is not already a broker to do it.”
An executor is not obliged to claim the proceeds of policies and annuities outside the estate or arrange for the continuation of pension benefits (if they are to continue), so you need to check upfront whether this will be done.
Ho-Yee says: “Being an executor is so much more than handing in documents to the Master. The executor’s responsibilities are numerous and include attending to every financial and proprietary aspect of the deceased estate; opening, closing and managing relevant bank accounts; and accumulating lists of assets, liabilities, creditors and debtors; and corresponding regularly with the latter.
“The family hands over the serious responsibility to a professional, and it works better that way. We prefer to administer the entire process, rather than splitting executor responsibilities with an heir or family member, as this can delay the process or result in miscommunication or poor service due to a reliance on too many administrators.”
Filing a tax return is not listed in the Act as one of the duties of the executor in the same way that, for example, opening a bank account is, so is filing the final tax return one of the executor’s duties?
Elderkamp says: “The taxman is a creditor and must be paid. You, as an executor, don’t know how much to pay SARS unless you complete a tax form.”
On top of that, SARS has to give clearance that all taxes have been paid before the transfer of any property can go through and other assets distributed to the heirs. So it makes sense for the executor to file the return so that the process of winding up continues without unnecessary delay.
The Office of the Chief Master says: “My understanding is the executor becomes a representative taxpayer in the stead of the deceased and is therefore obliged to submit tax returns as a statutory duty.
“There can be no entitlement to extra remuneration for the task. If an agent acts for an executor, that agent can arrange to be remunerated as agreed and the Master cannot interfere. Notwithstanding any arrangement between the executor and agent, the Master will allow only the prescribed executor’s fees as a cost against the estate.”
8. OFFSHORE EXECUTOR
If you have foreign assets, you may need a separate will and a separate executor, depending on the type of assets and their location, Nel says. This is because foreign jurisdictions do not always recognise an executor who has been appointed in South Africa.
The Cayman Islands, for example, require that the South African executor applies in a court in that country for the resealing of the letters of executorship. (The letters of executorship, when issued in South Africa, are signed by the Master and sealed with his or her seal of office.)
The estate would have to seek the help of lawyers in the Cayman Islands to deal with a court application. This would be costly and would cause long delays. Therefore, the advice is to make out a will that deals specifically with Cayman Island assets, with an appropriate executor.
Nel says: “There is a prescribed form (called MB30) to register a foreign will with a South African Master’s office.
“Having offshore assets may present practical problems when the estate of a South African resident is wound up. If such a resident has only a will in South Africa, the executor of his estate may have to apply for foreign orders to recognise his right to deal with the property.
“It will be even more difficult if the executor is confronted with a foreign language. This may result in uncertainty, as well as a considerable additional cost burden. It may also cause delay in the administration of the estate,” Nel says.
“A solution to this problem is to draw up separate wills in respect of assets situated in each different jurisdiction. This will not affect the estate duty payable, and the executor will be obliged to pay estate duty on behalf of the deceased estate on all South African assets for a non-resident and on all assets, wherever situated, for a South African resident. It will, however, make it easier to control, administer and liquidate the testator’s assets.”
Nel says the jurisdiction where the assets are located is the place where they should be dealt with. “The law of the land administering the assets will then be familiar and certain. Executors are appointed in each will to deal with the administration of the assets situated in their respective jurisdictions.”
Whether you need a separate offshore will depends on where your offshore assets are located and in which products you are invested:
If you hold an insurance policy offshore in a jurisdiction that does not recognise the authority of the South African Master’s office and if you have not nominated beneficiaries, then, assuming there is a valid claim, “the proceeds form part of the offshore estate to be inherited in terms of that offshore will”, Stephan says.
“If there is no [offshore] will, then the proceeds will be paid as per the inheritance laws of that country where the policy was issued and where the insurance company concerned had a licence to operate,” he says. “Therefore, if you do not nominate a beneficiary or do not have an offshore will covering those proceeds, the laws of that country will determine what happens to the money. This could cause problems. It’s best to get proper advice in this regard.”
It is important that the local will and the foreign will or wills work together and not against each other.
For example, a typical will may contain words similar to: “I declare the following to be my last will and testament, revoking all previous wills and codicils made by me.” So if you draw up a foreign will, you would need to phrase it in such a way that it does not revoke your South African will.
Knott questions whether you need a foreign will for each jurisdiction and points out one danger: a foreign will has the effect of revoking a local will unless it is carefully phrased.
Knott says your local will would have to say something like “this is the will for my local assets”. But when your local executor sees wording like that, he or she will be reluctant to sign off on your estate, Knott says. The wording points to the existence of foreign assets – even if in fact you disposed of them in the past and failed to update your local will.
Regardless of whether or not the foreign assets exist, Knott says the local executor will be reluctant to sign off on your estate, because he or she will be taking responsibility that all is wrapped up and settled, even though he or she has not actually been able to investigate those foreign assets and decide that all has been accounted for.
Knott says a local will can do the job of foreign wills equally well if it is properly drafted. In addition, a single will is easier to manage than several documents in different parts of the world, with the potential for conflict.
He stresses that in having a foreign will, you still need a trusted adviser as your executor abroad. In his view, the problem presented by foreign assets is not the absence of a foreign will but the possible lack of a trusted adviser to act as your executor abroad.
“A trusted adviser here in South Africa with a foreign correspondent can work, but it is still not the silver bullet. Each instance needs to be examined.”
9. THE BAD EXECUTOR
You have the right to expect your executor to behave with proper care and diligence, and in the best interests of your estate. This does not happen 100 percent of the time, which is why, for estates where the value of assets is greater than R125 000, a bond of security may be required.
Nel says the bond of security is like an insurance policy and is required because the Master is concerned that the executor will abscond with the money in the estate.
Nel says: “Security is usually in the form of a guarantee provided by an insurance company, referred to as a ‘security bond’ or ‘guarantee policy’.
“The Act does not prescribe the nature or the form the security must take – the only requirement is that the Master must be satisfied with it.
“Although security is required to cover the executor for the due performance of his duties, the Master is normally happy to accept a bond or policy, issued by a short-term insurer, offering fidelity insurance up to the amount of the gross value of the estate’s assets under administration.”
Security is not required in the following cases:
Nel says it is dangerous for you to sign a will that nominates an executor and directs the Master to dispense with security. “I have seen too many instances where the heirs lost money. If it is the immediate family, the risk is smaller but still there,” he says.
The Office of the Chief Master says: “It might be risky, but it is a calculated risk taken by the testator as a compos mentus adult.”
You can take a risk with your family, but you shouldn’t have to accept the waive of security by an attorney, bank or trust company.
“The attorney drawing up the will cannot dispense with security. It is the will of the testator, and he or she must indicate what the provisions thereof should be,” the Office of the Chief Master says.
“Dispensing with security, however, seems to be a standard clause, and testators should be wary of this and be sure that is indeed what they intended.
“In practice it is very difficult, sometimes even almost impossible, for a layperson (a natural person, such as a family member) to obtain security to the full value of the estate, and that is one of the reasons why testators exempt them from this requirement.
“Law firms and trust companies do not have the same challenges in obtaining security.”
Even though the executor does not actually abscond in the night with the money, his or her conduct may be less than good. If a family is unhappy with the executor, they can apply to the Master to have him or her removed.
“It’s not a difficult process to change an executor, but should be considered carefully before doing so,” Ho-Yee says. “The heirs should write to the relevant Master and motivate for the removal and show good cause. The executor can also repudiate the executorship (in other words, withdraw from the appointment) and is obliged to return the original letters of executorship to the Master.”
Knott says among the reasons to apply for the removal of an executor are that he or she disregards instructions or has not lodged the L&D account on time. The Master will warn the executor to comply. If the executor ignores the warning, the Master will have the executor removed. In that case, the fee is always forfeited, Knott says. In addition, when an executor or administrator has been guilty of mismanagement or waste, he or she is responsible for the loss that the estate has sustained.
If an executor fails to perform any of his or her duties as required by the Act, the Master or anyone with an interest in the estate – such as an heir, a legatee or a creditor – can turn to the relevant High Court for help. The executor has to be given at least one month’s notice to get his or her house in order before an application is made.
The Office of the Chief Master says that if the court awards the costs of the application to the Master or another person who brings the application, they are payable personally by the executor, unless the court directs otherwise. While any interested party can make the court application, “if the Master has not thought it fit to make the application himself”, the applicant runs the risk of being unsuccessful in court and of carrying the expenses of the court action, the Office of the Chief Master warns.
“An interested party should not, it is suggested, make the application unless he or she has consulted the Master and obtained at least his or her views on, if not approval of, the application.”
The Office of the Chief Master says the Administration of Estates Act gives the Master wide powers to act against executors who fail to comply with their duties, but urgent measures are needed to protect beneficiaries in “small” estates.
In the case of small estates, currently those with assets of R125 000 or less, the Administration of Estates Act allows the Master to dispense with the appointment of an executor and instead to give directions as to the way the estate is to be liquidated and distributed. The Office of the Chief Master says the Act contains no express powers to act against anyone given directions under these terms.
The Office of the Chief Master believes that the Act should be amended to provide for the appointment of an executor in each estate that has assets and that the Master “may, in accordance with guidelines issued by the Chief Master, dispense with compliance by an executor with any of the requirements of the Act. Master’s representatives should no longer be appointed to deal with estates in a summary manner.” In practice, “small” estates predominate in outlying rural areas, where the administration is not controlled to the same extent as estates in major centres.
“The recommendation that executors should be appointed in all estates and the policy that more resources should be used in estates where beneficiaries are less able to protect their own interests is a step towards correcting this imbalance,” the Office of the Chief Master says.
10. MAKE IT EASIER
Make sure that your family knows where your will is and discuss your choice of executor with them and other major beneficiaries. These steps will prevent delays and reduce the possibility for conflict, speeding up the resolution of your estate, because the sooner an executor is confirmed by the Master, the sooner the administration process can begin in earnest.
Walker says: “I can’t stress strongly enough that spouses, adult children and parents should be talking to each other about this and planning for these terrible events. It can save the family from experiencing substantial secondary trauma.”
If you put yourself in the shoes of your executor for a day, what would you find? Would there be an orderly and up-to-date collection of all the important documents? Or the opposite?
Walker recommends: “Make a file containing your will, life insurance and all other financial documents, such as endowments, retirement annuities. In this file, leave a letter with instructions on how to proceed. It’s really not a lot of work, and well worth it.”
In your file you should keep whichever of the following documents are relevant to you. If it is not practical to keep the documents in the file, keep copies there and indicate where the originals can be found.
Elderkamp suggests that in addition to the above, you make a list of all the people (with contact details if possible) who you would like to be told of your death. And (if relevant) include in your file a letter to your heirs telling them whether you want to be buried or cremated.
“I wouldn’t wish this experience on my worst enemy,” Walker says. “The administration involved in some ways has been like having a second job. And still we are the lucky ones; my mother has been provided for.
“I always used to read newspapers and find some fact that I would use to convince myself it couldn’t happen to me, until the night of that terrible phone call. It can happen to you, no matter how careful you are. Trust me, I know.”
JUST SO YOU’RE IN THE PICTURE
WHO, EXACTLY IS THE MASTER?
There is a Master of the High Court appointed for every provincial division of the High Court of South Africa. There are 14 provincial divisions, so there are 14 Masters across the country.
In addition, there is a Chief Master, located in Pretoria. This role is filled at present in an acting capacity by Advocate Lester Basson.
When we speak about “the Master” in the context of estates and executors, we are generally referring to the office of the relevant Master: the staff who do the administration and who are specialists in their fields.
But at the head of each office is an identifiable person – also called “the Master”. The name and contact details of each can be found on the website of the Department of Justice and Constitutional Development at www.justice.gov.za
According to the website, the functions of a Master’s office include:
WHAT AN EXECUTOR DOES
Assuming there is a valid will and the estate is worth more than R125 000:
1. The nominated executor meets the next of kin to obtain a rough idea of the value of the estate (assets and liabilities). The Master of the High Court must be told of the death within 14 days of the date of death, but it does not have to be the executor who reports the death.
2. The nominated executor lodges with the Master the will, an inventory that reflects the deceased’s assets, a death notice, the death certificate, marital affidavit, a Master’s affidavit to the effect that the estate has not been reported elsewhere and an acceptance of trust (indicating the nominated executor’s willingness to act), David Knott, the head: fiduciary products at trust company BoE Trust and the vice-chairman of the Fiduciary Institute of South Africa, says. In this process, the nominated executor applies to the Master to be formally appointed and granted the powers to administer the estate. This process can take up to six weeks.
3. The Master issues letters of executorship in favour of the executor. Until this happens, the executor has no formal authority and all the assets of the deceased are blocked.
“If the deceased was married in community of property, the assets of the spouse will also be blocked,” Knott says. Any power of attorney or signing power granted by the deceased over an account would lapse.
4. With the letters of executorship in hand, the executor can take control of the estate, allowing assets to move if a spouse needs living expenses.
5. The executor opens an estate account in the name of the deceased as soon as there is R1 000 in the estate. Short-term insurance covering estate assets must be switched urgently to the new account to prevent the policies from lapsing.
6. The executor must advertise the estate so that creditors can register their claims. Expect this to take place about eight weeks after death. Adverts must appear in the Government Gazette and in a local newspaper. Creditors have 30 days to lodge claims from the date of publication of the advert.
7. The executor collects money owing to the deceased’s estate – for example, he or she collects debts and receives outstanding salary and leave pay from the deceased’s employer.
8. A liquidation and distribution (L&D) account for the estate is prepared over the next five to 10 weeks. The L&D account lists the assets and liabilities, and income and expenditure incurred since death, and how the residue will be distributed.
9. The executor must submit the L&D account (with supporting documents if the estate is subject to estate duty) to the Master within six months. If the six-month deadline is missed, the executor has to apply for an extension. If the Master has queries after the submission, he or she informs the executor, who has to respond within a certain time.
10. Once the Master is satisfied that the account is correct, the Master gives approval for the account to be advertised in the Government Gazette and in a local newspaper, Knott says. This means the account must be open for inspection for 21 days at the Master’s office and at the magistrate’s office in the district where the deceased lived to allow any aggrieved person to lodge objections.
11. If there are no objections, the executor submits a final tax return.
12. Once all creditors have been paid and the executor has obtained a release from the Receiver of Revenue that all taxes have been paid, the executor prepares a cash statement and distributes the assets to the heirs. The executor arranges for the transfer of fixed property.
13. The executor provides proof to the Master that creditors have been paid and that assets have been distributed, and also submits all bank statements of the estate bank account.
14. The executor is paid his or her fees after the assets have been distributed.
15. The Master signs off on the estate, and the executor’s duties end.
16. Piet Nel, a senior lecturer in taxation at the University of Pretoria, says if additional property is found more than five years after the initial assessment, and if a supplementary L&D account is required, then the assets are treated as if they were a new estate.
All estates where there are assets and/or a will must be registered with the relevant Master of the High Court.
“If the value of an estate is R125 000 or less, a Master’s representative is appointed, instead of an executor,” the Office of the Chief Master of the High Court says. “This is usually the person named in the will as the executor, or, if the deceased died without leaving a will (intestate), it will be the person nominated by the heirs to act.”
After appointment, the Master’s representative must administer the estate in terms of either the will or, if there is no will, the Intestate Succession Act. He or she does not have to lodge an account of the administration of the estate with the Master, unless asked to do so by the Master. (This is normally required in estates where there are minor heirs.)
After appointment of the representative, the Master normally considers the files of the estate finalised “except where an account of assets and liabilities has been requested by the Master”, the Office of the Chief Master of the High Court says.
This article was first published in the 4th quarter 2010 edition of Personal Finance magazine.