Estates and wills: All the basics
THIS week is National Wills Week, as promoted by the Law Society of South Africa, during which many law firms will draw up your will for free, provided it’s not too complicated.
A few basics on estates and wills.
What is your estate?
The word “estate” abounds in financial content. It is too easily confused with the other meaning of the word, which refers to property, as in “estate agent”.
Everyone has an estate, even the man in a makeshift tent underneath the bridge. It’s just the size and complexity that differs.
Essentially, your estate comprises the stuff you own (your assets) – your car, house, stamp collection and cellphone – and financial assets such as shares in a company, cryptocurrency, savings and investments.
Your estate also takes into account what you owe – your debts or liabilities. These are likely to be what you owe on your mortgage bond, car loan and credit card.
To calculate your net worth, add the value of your belongings (their market value, or what you could reasonably sell them for) plus the money you have in investments and bank accounts, and then subtract your liabilities.
Your retirement savings in a recognised retirement fund are considered separate from your estate for legal and financial purposes.
On your death, this money goes directly to nominated beneficiaries and/or dependants, as determined by the retirement fund trustees.
Only when the trustees have no idea whom to give it to – there are no nominated beneficiaries or known dependants – would the money land up in your estate.
The proceeds of life insurance policies are considered “deemed property” in your estate because they materialise only on your death. If an insurance payout is to your spouse, it is excluded for estate-duty purposes.
There are several instances when your estate would need to be assessed for legal purposes. The main ones are:
Getting married: You may combine your estate with that of your partner (marriage in community of property), keep your two estates separate (marriage out of community of property), or opt to share only what you accrue during the marriage (marriage out of community of property with accrual).
Getting divorced: This means separating the two estates again, according to which of the marital regimes apply.
Declaring insolvency: This is when your debts exceed your assets, and your assets may need to be sold off to pay creditors.
When you die: Your estate must be assessed, all debts paid, and the leftover assets distributed among your heirs.
How are deceased estates wound up?
Winding up a deceased estate can be simple or complicated. It is done by an executor, who has the legal authority to take charge of your financial affairs on your death. Your will must nominate an executor. If you die intestate (without a valid will), the state may choose one for you.
Your estate is frozen on your death, and this includes your investments and bank accounts. If the value of your estate (excluding your retirement savings and life policies) is less than R250 000, then an executor is not required – an authorised family member can do the job.
However, all estates, whether above or below R250 000, are processed through the Master of the High Court, which must approve all actions taken and sign off on the distribution of assets.
The executor’s fee can be up to 3.5% (plus VAT) of the gross estate (the value of the estate before tax and other charges) and 6% (plus VAT) on income accrued in the period between your death and the finalisation of the estate. These fees are negotiable and should be decided when the will is drawn up.
The following taxes apply (or not): Estate duty:
The receiver takes 20% on the first R30 million and 25% on anything above that. There is no duty on estates of less than R3.5 million. For the second-dying spouse, an estate up to R7 million minus the exemption used by the first-dying spouse is not taxed.
Transfer duty: There is no transfer duty on a property that passes from the deceased to an heir. However, there are still conveyancing costs to be paid.
Capital gains tax: CGT is payable by the estate on investments that need to be liquidated or transferred into the name of an heir. The exclusion (the amount not taxable) in the year of death is R300 000, as against
R40 000 a year for the living.
Why do you need a will?
Not only do you need a will if you are older than 16, no matter how small your estate, but the will must be drawn up correctly.
You also need to make sure that your intentions are clear and leave no room for misinterpretation.
Legal archives abound with cases where wills have been contested because relatives claiming a slice of the pie have interpreted the will in different ways.
I was shocked to read that 2022 statistics from the Master’s office showed that only one in seven people die with a valid will. The fact remains that the majority of people die intestate.
The Intestate Succession Act spells out how your estate must be apportioned.
Your spouse gets first priority, then kids, parents, siblings, and more distant relatives. That may not be your intention.
Your will should be updated regularly, especially after life events such as marriage, having children, buying a property, and divorce – not necessarily in that order.