Even though our clients often turn to highly-regarded specialists for help in estate planning, we regularly review wills that have overlooked some key issues. Many people also hold a range of misconceptions about estate planning. Here are 12 questions we frequently encounter when speaking to clients about their estate planning, which we think may have broader appeal.
1.What’s the difference between an executor and an administrator and who is the most suitable for each role?
The administrator needs to be a professional who can manage the legal paperwork and requirements, which include filing documents with the Master’s Office, producing a liquidation and distribution (L&D) account and advertising the estate. It’s unlikely that you would want your friends and family (including your spouse) to have to struggle with this burden. Dynasty is also not in a position to fulfil this role despite being named executors in some clients’ wills.
We recommend appointing a close, trusted family member or friend as one of the executors. The executors will need to appoint the administrator, who does not need to be named in the will. The executor’s role includes identification and collection of the assets of the estate, the safeguarding and investment of those assets, the payment of debts and overseeing the distribution of the proceeds in accordance with the will of the deceased. Dynasty is willing to act as co-executor where clients request this, which places us in a strong position to negotiate the fees with the administrator, seamlessly provide investment vales and tax-related information, follow up consistently with the administrator to ensure there are no unnecessary delays in the winding-up process, and to work closely with the family.
2. What about if I appoint a bank or law firm as the executor?
We recommend nominating executors of the estate individually rather than naming a single entity or company. This will ensure individual people represent your wishes and serve your heirs’ interests.
3. What executor fee should be paid?
The maximum legally permissible rate is 3.5% plus VAT (where the executor or the person appointed as administrator is VAT-registered). The fee is calculated on the gross value of assets of the estate. For a high net-worth client, this fee can be prohibitive. For an estate where the gross amount is R25 million, this would stack up to more than R1 million. As co-executors we negotiate a lower fee with the administrator (as an example around R100 000 for an estate worth R25 million), depending on the complexity of each situation).
If we are not involved in your estate planning, we recommend agreeing a flat fee structure with your executor and administrator. If the administrator offers conveyancing in its practice, it will often earn conveyancing fees on the transfer of properties to heirs. You need to take this into account when negotiating their fee.
4. Should I invest in policies and products that save on executor fees?
The selling point of many of these structures, for example endowment policies where specific beneficiaries are nominated, is that they save 3.5% in executor fees because they fall outside of the estate. In practice, most of our clients will pay a capped executor fee and so there is no cost saving. In our view, the main benefit of these policies is quicker access to the proceeds because they don’t fall under the ambit of the Master’s Office.
5. How long does it take to wind up an estate in South Africa?
In our experience, it usually takes at least a year and often significantly longer than that to wind up an estate, given the issues at the Master’s Office and SARS. The smallest issues, such as a firearm licence, a trailer licence, or a complication in the transfer of a property can delay the whole estate. In addition, and more especially in the case of high-net-worth individuals, it is important that income tax issues be resolved as speedily as possible. This has two consequences: the tax liability could reduce the estate’s liability for Estate Duty, and the Master of the High Court does not consider an estate as finalised until such time as SARS has issued a letter stating that it has no further claims against that estate. We have a checklist that clients can use to smooth out this process.
6. Can interim distributions be made to heirs?
This is only permitted with the approval of the Master’s Office, which is only granted if the heirs can show that they are, and have been, dependent on the deceased for support and that the need therefore remains. There can, however, be more than one final L&D account produced, so some executors use this to effectively make interim pay-outs to the heirs. Each L&D account needs approval from the Master’s Office and must be advertised and lie for inspection by objectors, so this increases the administration requirement.
7. Can a local trust inherit offshore assets?
No, it cannot, regardless of whether it is a testamentary trust (created after death under the terms of a will) or an inter vivos trust (an existing trust set up while the testator was still alive). Offshore funds would need to be repatriated and invested in South African assets. The local trust, as recipient of the proceeds, would only be able to achieve indirect offshore exposure by investing in a South African domiciled fund that invests offshore.
It might not be obvious that a trust will be established under certain circumstances, such as when grandchildren inherit because their parents have died before the will came into effect. It’s also worth thinking about whether you would want your children or grandchildren who live abroad, or may live abroad in future, to have their inheritance stuck in a South African trust, as this can also have adverse tax consequences.
8. Can I form an offshore testamentary trust to cater for this?
In theory, yes. In practice, most professional trustees will not take on this responsibility because they will only start earning at the date of death. They’re likely to try and make a case for you to form a “freezer” or dormant trust, but this will incur fees during your lifetime.
9. Do I need an offshore will to govern my offshore assets?
No, but it’s possible that an offshore will may expedite access to the foreign assets for the heirs, given the issues at the local Master’s Office.
10. Can my offshore heirs inherit the offshore funds, and the local heirs inherit the local funds?
Yes, but this understanding needs to be made clear to the executors. The will should stipulate how the assets will be distributed and to whom.
11. How do expat South Africans or those that have emigrated inherit from a South African estate?
Formal emigration, often called financial emigration, no longer exists. With that in mind, we have worked with our foreign exchange specialists to assist several families living abroad to access funds from a family member’s estate. The process is easier if the heir still has a South African ID book, tax number and local bank account, but there is almost always a solution, even though the process may be time-consuming.
12. What happens to bank accounts and joint accounts?
These are frozen once the bank becomes aware of the death. Joint accounts do not add any real value in this regard.