Be Prepared for The Cost of Dying

"No matter how much you've been warned, Death always comes without knocking" (Margaret Atwood)

No one wants to contemplate their own passing, but the reality is that sooner or later it is inevitable, and particularly in these dangerous times we need always to be prepared.

The loss of a loved one is always distressing. It can however be compounded by the challenge of dealing with their assets.

Few people appreciate all the costs involved in settling an estate. Understanding these expenses and planning for how to deal with them can make a big difference to those left behind.

Executor's fees and costs

Every estate must be wound up by an executor. Ensure that in your will you nominate an executor you can trust to act with integrity, professionalism and speed.

An executor can charge a maximum fee of 3.5% plus VAT. That equals 4.025% of the value of the estate. Depending on the size and complexity of your estate this fee may be negotiable.

The executor will also incur costs such as advertising to find any outstanding creditors, bank charges, accounting fees, conveyancing on the transfer of property and paying the fees due to the Master of the High Court. Together, these could run into tens of thousands of rands.

Taxes and estate duties

The South African Revenue Service (SARS) levies 20% estate duty on the value of any estate, but there is no estate duty payable on an estate with a net value below the R3.5 million abatement (allowable deduction). Any amount above R30 million will be taxed at 25%. An estate worth R40 million will therefore have to pay estate duties of R7.8 million (R5.3 million on the first R30 million, after the R3.5 million abatement, and R2.5 million on the next R10 million).

These taxes will not, however, be paid on any assets left to a surviving spouse. In that case they effectively 'roll-over' and will only be charged upon the spouse's death.

The estate will also have to pay capital gains tax on any assets that are sold. SARS will also conduct a final income tax assessment.

In addition, South Africans need to consider that if they have assets in other parts of the world, they may be liable to pay estate taxes in those countries as well. There are double taxation agreements in place with many countries that prevent most assets from being taxed twice, but where taxes elsewhere are higher than in South Africa, the estate will still have to pay the difference. Inheritance tax in the UK, for instance, is 40%.

Outstanding debt

The estate will have to settle any debt such as credit cards, loans, or bonds on property. Interest on these debts does not stop accruing when someone passes away, so it is best to deal with them as early as possible.

It is most critical to consider how to handle home loans, especially if they are held over a property in which surviving family members are still living. Sometimes these individuals may not qualify to take over the bond due to their own financial position, which means that the house may have to be sold if the debt can't be settled.

Being prepared - check what cash the estate will have

Even though an estate may have sufficient assets to meet all of these expenses, it can still be a problem if it doesn't have enough available cash. That is because the executor may have to sell assets to free up money.

This not only leads to potential extra costs and taxes but can be traumatic if something like a house where a loved one is living or a car that someone needs for transport has to be disposed of. This is why it is important to prepare an estate to make sure that there is enough cash available.

One way of doing this is to take out a life insurance policy that will pay cash into the estate. This will ensure that your family members aren't left with a potentially major financial burden and face additional stress after your death.

The above is of necessity just a summary of the cost considerations involved, so speak to your attorney about how your will and estate are structured and how you can plan to meet all the costs.