Many South Africans have a plan in place to cover funeral expenses when a loved one dies, because most families do not have a large enough emergency fund available to cover the cost of a funeral. This is a good way to indemnify family members from funeral debt when a loved one dies, however, there are many other costs associated with dying for which little planning is done. The expenses do not stop after the funeral. You probably want to ensure that your family will be able to cover all these unexpected costs after your death.
1. Immediate expenses:
When you die, your bank accounts may be frozen and your family will have limited access to money. But they will still have to cover the basic expenses, such as your funeral, travel expenses, grocery purchases and any other immediate expenses related to your death.
Liquidity after death, especially when the breadwinner dies, can cause a family to struggle to cover the daily expenses. You need to make sure your family has access to cash in the days and weeks after your death.
2. Monthly living expenses
Estates can take months to years to become liquidated and families mistakenly believe that the estate will pay monthly expenses such as electricity, rent, school fees and medical aid premiums. The access to estate funds is often withheld until the estate is settled.
This is also why it is important to have a valid Will in the first place, as it speeds up the estate administration process and it gives your family access to the capital once the estate is settled, so that they can survive.
3. Executor fees
You may think that you will not have enough assets or capital to justify drafting a Will, but even if you have only a few thousand rand in your bank account, it is considered an estate. Managing even a simple estate is a complicated administrative process and it is often more cost effective to hire a professional to do it. However, an executor can charge up to 3.5% + VAT of the total value of your estate to undertake the work. So, for an estate worth R3 million, you will pay approximately R120 000 in executor fees. If you do not have this money available, the executor is entitled to seize your assets and sell them at an auction to cover the fees.
4. Administration Fees
After a death, two advertisements must be placed in a local newspaper and the Government Gazette to notify potential creditors. The costs can vary between R1 000 and R1 500, depending on the publication chosen for this. You will also have to pay fees in respect of correspondence entered into with the Master of the Supreme Court as well as a fee to the Master for his role in the administration of the estate.
5. Fees relating to the sale or transfer of property
Whether you sell or transfer a property to a beneficiary’s name, a conveyancer will charge a fee when there is a transfer of ownership. For example, the transfer of a house worth R1 850 000 will result in more than R30 000 in fees from the estate when it is transferred into a beneficiary’s name.
You also need a tariff and water clearance certificate from the city council or municipality before ownership be transferred. It will be issued only if the rates and taxes have been paid in advance, some areas require payment up to six months in advance.
Not only will outstanding property tax have to be paid from the estate before it can be finalised, but the executor will have to determine whether Capital Gains Tax and / or Estate Tax is payable. Most people leave their entire estate to their spouse, but if both of you die and your children inherit everything, then Capital Gains Tax and Estate Tax become due. Your family will have to bear the burden of this additional tax, as well as any further legal costs.
7. Testamentary trust fees
If you leave a legacy to minors, you must set up a trust with your death so that they can inherit your assets. However, trust and ongoing trustee fees can erode their inheritance, on average 1.15% of the net value of the assets is charged to set up the trust and 1.6% is charged annually for the continuous administration of the trust. For example, the total cost of a trust with R1.5 million assets, calculated over 15 years, will amount to more than R377 000.
Most of these fees and costs are unavoidable and people tend not to budget for them in advance, which means their beneficiaries are confronted with rising costs at a time when they are already mourning the death of a loved one and adapting to their change in circumstances.
Most people do not realize that there are cost effective insurance solutions available that can cover these unforeseen costs. If you really want to protect your legacy and make sure that those you leave behind are cared for, you need to have a valid Will and a clear plan of how they will cover all the costs, including the funeral