When you pass, your estate is distributed among your heirs according to your Will. But not before all your debts and any other costs associated with your passing are paid! These can run into the tens, sometimes hundreds of thousands, leaving your family with less than they expected and need! We asked the 1Life experts to give some details on the many costs associated with death so you can prepare and plan ahead.
Your heirs inherit your estate after costs are paid
On death, all your assets, such as a home and any other property, vehicles, investments and savings, as well as your liabilities, which is anything you owe including any costs associated with death, are transferred to your estate. Your estate then pays all the outstanding debts and costs, and the remainder is distributed to your heirs. The higher your debts and costs of death, the less your heirs inherit.
Top tip: Life insurance is one of the few assets that does not form part of your estate! It is paid directly to your beneficiary, so they can continue to pay their expenses such as food, rent or a home loan, school fees and transport costs.
The role of your executor
The executor of your estate will account for all the assets and liabilities in your estate and ensure assets are distributed as per your will or legislation after costs are paid.
You should name an executor in your will, who is experienced in dealing with deceased estates as the admin and legislation can be quite complex.
Costs that are paid out of your estate
As your executor deals with these, your family won’t have too much admin, but the costs can mount up. How much depends on many factors including the value of your assets and outstanding debts. If the liabilities exceed the assets, your estate will be insolvent and your heirs won’t have anything to inherit.
Any outstanding personal income tax, as well as any other taxes owed by your estate, such as estate duty, have to be paid before any money is distributed to your heirs. Estate duty is a tax levied on estates at 20% of the value of estates worth less than R30 million and 25% for estates worth more than R30 million. SARS allows a R3.5 million abatement, so you effectively pay estate duty on estates worth more than R3.5 million.
Capital Gains Tax (CGT) may also be due on assets that are sold by the estate.
Any outstanding debts not covered by credit life cover or other insurance will need to be paid. For example, if a personal loan has an amount outstanding of R15 000, this has to be paid out of the estate’s assets.
Debts to the estate may also be amounts that have to be paid to dependants who have not been named in the will.
Debts cannot be inherited, but a spouse married in community if property may be liable for the deceased’s debts, or if they or another person have stood as surety for a debt.
End of life medical costs
These include any outstanding costs for care prior to death. For example, costs for nursing or palliative care in home or at a hospice, hospital costs, doctor’s and specialist bills. Medical aid, if you have, may cover some or most of these, and if care is in a state facility the amount should be low, or at least affordable. However, any costs not covered will be a debt the estate needs to pay before distributing assets.
Typically, medical costs are high when life begins and when life ends, which can mean bills in the tens, sometimes hundreds of thousands of rands on death.
Winding up estates (finalising the process of paying debts and costs, and distributing assets) is a formal process, done according to specific rules. For example, the Master of the High Court has to be informed and approve the executor. There are numerous costs that are incurred during this process that are paid for out of the estate, including:
- Master’s fee (up to R7 000)
- Advertising costs - to ensure all creditors are aware of the death and can claim any amount due
- Bank charges for the estate’s bank account
- Valuation costs if assets have to officially be valued
- Transfer and other costs associated with selling assets or transferring them into the name of an heir
- Executor fees, paid to the executor for winding up the estate, at a maximum amount of 3.5% of the value of the estate plus VAT
Costs your loved ones have to pay
Certain costs of death are usually paid for by the family, either from their own pockets or using part of their inheritance, including life and funeral insurance pay-outs. These include:
- Funeral costs, which start at around R15 000
- Family living expenses the deceased paid for, such as food, housing costs and transport, as well as caring for pets of the deceased
- Counselling, alternative transport and accommodation costs, for example if the death was a result of a car accident or crime in the home
4 ways to plan ahead
You can plan ahead for these costs to ensure your family is not burdened when you pass, and can inherit the estate you worked so hard to build.
- Funeral cover will ensure the costs of your funeral, gathering and memorial are paid
- Life insurance can help your family manage their finances and pay their living expenses
- Credit life cover can settle the outstanding debts on certain loans, including credit cards and overdrafts
- A valid will is also essential as this will help your executor distribute your assets to your loved ones according to your wishes
Your lawyer, financial adviser or a fiduciary professional can help you with these and advise on other ways to minimise the costs of death.
Top tip: The 1Life Wills and Estate Plan pays out R50 000 in cash within 48 hours, provides a chosen beneficiary with a monthly income for the following 6 months and covers an estate shortfall with up to R10 million. Plus your family will receive a valid, signed and retrievable 1Life Will.
Talk to your family
Finally, talk to your family about your plans. Death isn’t an easy topic to talk about, but being prepared can allow your loved ones time to grieve without stressing about money. Be sure to let them know what insurance you have and how to claim. You should also let your family know where your life file is so they can have all the details they need after your passing. You can read more about a life file in this blog.
Leave your family the inheritance they deserve
Planning ahead for the costs of death will ensure your family inherits assets they can use to continue building their wealth, without the value being reduced by high debt and costs of death. That’s worth planning ahead for today!