How do executor fees and estate duty work?
AMoneyweb reader asked: My father passed away and executor Absa sent a draft for his estate settlement. I looked at the assets and liabilities. My father has a flat valued at R480 000 and owes the bank R350 000. Are they charging 3.5% of R480 000 or 3.5% of R130 000 (R480 000 – R350 000)?
Stephen Katzenellenbogen of NFB Private Wealth Management answers:
The information provided below doesn’t constitute financial advice, but is generic information.
The maximum executor fee that can be levied is 3.5% (excluding VAT). This fee may be negotiable but don’t underestimate the amount of work required to wind-up most estates. Executor fees are charged on the gross value of the deceased estate’s assets which includes all property the individual had, or was due to him, at his death.
In your scenario, the executor fee will be charged as a percentage of the gross value of your father’s flat i.e. on R480 000. Regarding the calculation of executor’s fees, a client’s liabilities aren’t offset against the assets’ value.
A distinction must be made between executor fees and estate duty:
When calculating estate duty, liabilities are considered. This is where the outstanding loan amount (R350 000) is material. Estate duty’s calculated, at a 20% rate, on the total value of the estate (includes property and deemed property) which is reduced by all deductions (liabilities) and then further reduced by the section 4A rebate (abatement on the first R3.5 million of dutiable assets),
The executor fee calculation’s based on the estate’s gross value, as set out in the liquidation and distribution account. Certain assets don’t attract executor fees e.g.: Insurance policies with a beneficiary nomination (unless the policy’s paid to the estate) Policies where the deceased isn’t the owner and proceeds aren’t payable to the estate Usufructs enjoyed by the deceased prior to death Retirement fund benefits People must plan correctly for death. If possible, ensure you have sufficient liquidity within the estate to cover liabilities without having to sell assets. Estate planning is essential for succession planning and must be structured comprehensively.