The cost of settling your estate could be higher than you think

You’ve worked hard and are proud to be able to say that your loved ones stand to inherit your home, investments and other assets. But what about the costs of settling your estate – could those reduce the inheritance? With help from the experts at Law for All we explain what those costs are and how you can plan ahead to protect your family’s inheritance.

Did you know that your estate is everything you own AND owe at death

When you pass away, all your assets and debts form part of your estate and your estate has to be wound down or settled, a legal process, called winding-up a deceased estate, needs to take place. This process is managed by an executor and involves paying debts and costs, as well as distributing assets to heirs. It is really important to know that only once the estate has paid all debts and costs can the remainder be distributed to the heirs named in the will, or as per the rules of intestate succession if you do not have a will.

Costs involved in settling an estate

The exact costs of settling an estate depend on the value of the estate and any discounts that may apply, such as to executor fees. Typically, these costs could include:

• Masters Fees: An amount paid to the Master of the High Court, amount depends on the value of the estate with a maximum fee of R7 000.
• Executor fees: Paid to the executor to manage and settle the estate, maximum amount of 3.5% of the gross value of the estate, plus 15% VAT.
• Advertising: All estates have to be advertised in the Government Gazette, sometimes local newspapers as well, so creditors who are owed money are notified of who to contact to claim amounts outstanding, around R1 200 to R1 500.
• Bank charges: A bank account in the name of the estate needs to be opened and managed by the executor, around R600.
• Professional fees, such as for a tax consultant, accountant, or appraiser (a valuation expert): To confirm taxes due, and the value of any property or assets, and to ensure that all costs and calculations are accurate. A per hour rate is usually charged, upwards of R700 an hour.
• Maintenance payments: Such as to minor children or a surviving spouse during the time in which the estate is being wound down.
• Asset maintenance expenses to keep assets, such as a property, in good condition: Includes expenses such as paying home security and gardening services.
• Bond cancellation fees: Cancelling a home loan will incur a charge, around R3 500.
• Estate agent commission: IIf a property is to be sold the estate will have to pay any estate agent commission due, around 5% to 7.5%.
• Transfer costs: Conveyancing costs, Deeds Office fees and bond registration fees (if a bond is to be registered) if a property is to be transferred to an heir, as well as a rates clearance certificates from the local authority.
• Trust costs: If a trust needs to be set up for minor children or heirs to ensure their financial security and manage assets on their behalf, the estate will pay the costs.

The amounts and percentages quoted are as at June 2024, some costs will increase, such as advertising costs that increase annually. Your lawyer, fiduciary expert and financial adviser can give you more information on these and any other costs your estate may be liable for.

Amounts the estate must pay before any payments to heirs

Your estate has to pay the costs detailed above, and any other costs incurred, as well as any outstanding debts. Outstanding debts include taxes, owed by you and/or the estate, and any personal debts at the date of death.

SARS is first in the queue for debt payments, which can include:

• Income tax owed by the deceased and the estate 
• Capital gains tax, such as when an investment is withdrawn or liquidated, or if a home worth over R2 million is sold, or a second property is sold
• Estate duty, when the estate is valued over R3.5 million it is taxed at 20% of the amount over R3.5 million, 25% for any amount over R30 million

Personal debts to be paid may include:

• Maintenance payments in respect of a divorce order, such as a lump sum payment
• Loans and credit agreements such as a home loan, vehicle finance, credit and store cards, bank overdraft or personal loan

The effect of costs, taxes and debts on an inheritance

In the below example, we did a quick calculation to find out how costs, taxes and debts can affect an inheritance.

Mr Dhlomo passed away on 10 April 2024. His will named his wife Mrs Dhlomo as his heir, who was to inherit his assets, which included:

• The family home, valued at R1.2 million
• His unit trust investment, R500 000
• His 5-year-old car, valued at R100 000

Based on the above, Mrs Dhlomo was expecting to inherit assets worth R1,8 million.

However, Mr Dhlomo had debts outstanding, totalling R42 000:

• Personal income tax, R12 000
• Capital gains tax on liquidation of his unit trust investment account, R7 000
• Vehicle finance, R23 000

Mr Dhlomo's estate will have to pay these debts of R42 000, as well as the costs of settling his estate, which amount to just over R115 000. Which leaves Mrs Dhlomo with assets worth around R1,64 million, over R150 000 less than she was expecting! And, if Mr Dhlomo had not had an investment account which could be used to pay these costs, his car would need to be sold, and potentially his home too, to raise the cash!

Planning ahead

There will always be costs an estate needs to pay, but you can find ways to minimise them, or ensure there are funds to pay them, and even negotiate discounts!

1. Life insurance pay-outs for valid claims do not form part of an estate if they are paid directly to a beneficiary. They can be used to settle outstanding debts, such as any loans or taxes, ensuring the estate's assets don't have to be sold. If the costs of settling the estate are high, proceeds from a pay-out can also be used to pay these costs.
2. You can also ensure your debts have credit life insurance, and any home loan term assurance, that will pay outstanding balances in the event of death. You can read more about how to avoid leaving your loved ones generational debt in this blog.
3. You can also work out beforehand any costs and taxes that may be due and set up a savings account specifically to pay these.
4. Finally, you can take out insurance that covers cash shortfalls in your estate, such as the 1Life Wills and Estate plan.
5. In addition, you can negotiate some fees upfront, such as executor fees, and find out if you qualify for any discounts.

Truth About Money, a 1Life Insurance initiative, and Law for All’s Wills and Estate Benefit  includes a free will for you and your spouse, as well as assistance winding up your estate. A 35% discount on transfer and bond registration fees applies if a Law for All attorney is appointed, such as to transfer a family home to the surviving spouse. If Mr Dhlomo, in our example above, had negotiated executor fees to 3% and used the discount on transfer costs, he could have reduced the costs of settling his estate by around R20 000.

Get expert help if you need it

Head spinning? Estates can be complicated matters, even if there are few assets and only one person inheriting. Experts can help you minimise costs and find ways to ensure your debts don't eat into your loved one's inheritance. Help is available from experts such as Law for All, your financial adviser, and a fiduciary expert. You can also chat to a tax consultant about how to plan for and minimise for any taxes due by your estate.

Final words

Your legacy doesn’t have to come with high costs! Plan ahead, not only for your estate costs but also to ensure your debts are paid so that you don’t leave your loved ones generational debt. Consult the experts when planning for your estate, make use of free resources such as Truth About Money, and generational wealth can be your lasting gift to your family.