MONEY BASICS WITH MARTIN HESSE
The word “estate” abounds in literature about personal finance and law, and yet I am sure many people don’t fully understand what the word means. Not only is it a clinical legal term; it is too easily confused with the other meaning of the word, which refers to residential or commercial property, as in “wine estate” or “estate agent”.
I love the Afrikaans word for estate: boedel. To me that is far more down-to-earth and descriptive.
Everyone has an estate, even the homeless man in a makeshift tent underneath the bridge. It’s just the size and complexity that differs.
Essentially, your estate is what you own, all bundled together in a boedel. It’s your car, house, Pierneef painting, Persian rug, stamp collection, Krugerrands, computer, cellphone … the list can go on and on, depending on how much stuff you have accumulated.
These are, to use another financial term, your “assets”. Assets also include non-physical things such as shares in a company, cryptocurrency, savings and investments.
An assessment of your estate cannot be complete without also taking into account what you owe – what the financial and legal folk refer to as your “liabilities”. In other words, your debts, including what you owe on your mortgage bond, vehicle finance and credit agreements.
To determine your “net worth” you need to calculate the value of all your belongings (their market value, or what you could reasonably sell them for), add the money you have in investments and bank accounts, and then subtract all your debts.
Importantly, your retirement savings in a recognised pension, provident, preservation or retirement annuity fund, while theoretically part of your assets, are considered separate from your estate for legal and financial purposes. If you die while a member of a retirement fund, the money you have accumulated will bypass your estate and be paid directly to nominated beneficiaries and/or your dependants, as determined by the retirement fund trustees.
Also, you cannot include in your estate what would be paid out on a life insurance policy – this “asset” is an entry on the books of the insurance company that only materialises when your beneficiaries claim against the policy on your death.
When does your estate become important?
There are several instances when your estate would need to be assessed for legal purposes. The main ones are:
- Getting married;
- Getting divorced;
- Declaring insolvency/bankrupcy; and
- When you die.
If you get married, you may combine your estate with that of your partner (marriage in community of property), keep your two estates entirely separate (marriage out of community of property), or opt for only sharing what you accrue during the marriage (marriage out of community of property with accrual). Getting divorced means splitting the two estates again, according to which of these regimes apply.
If you declare yourself insolvent, it is when your debts exceed your assets, and your assets need to be sold to pay your creditors.
Unlike the other three instances, the last is unavoidable: your death. When you die, your estate must be assessed, all debts paid, and the assets that are left over must then be distributed among your heirs.
Deceased estates
Winding up a deceased estate can, again, be simple or complicated, according to the extent and complexity of the things you own and owe. It is done by an executor, who has the legal authority to take charge of your financial affairs after your death. When you draw up your will (which everyone is advised to do, because you get to control what goes to whom), you must nominate an executor. If you die intestate (without a valid will), the state will choose one for you.
Your estate is immediately frozen on your death, and this includes your investments and bank accounts, which may cause problems for those you leave behind.
If the value of your estate (excluding your retirement savings and life policies) is less than R250 000, then an executor may not be required.
All processing of deceased estates, whether above or below R250 000, is done through the Master of the High Court, which must approve all actions taken and finally sign off on the distribution of your assets.
This article first appeared in the September 2021 issue of our free IOL MONEY digital magazine.