The winding up of a deceased estate in South Africa remains a challenging and complex process. Surviving spouses and children often face not only the emotional pain of losing a loved one, but also, in many instances, lengthy delays beyond their control.
The general rule is to err on the side of caution and not to make any distributions or advance payments until the liquidation and distribution (L&D) account has lain for inspection free of objections, or after any objections have been resolved, says Jan du Plessis, CEO of the Fiduciary Institute of Southern Africa (Fisa).
However, there are exceptions to prevent financial hardship when the finalisation of an estate drags on for years.
Du Plessis says there are several options for distributing funds or assets before the winding up of an estate. But again, he warns that such measures should only be considered in exceptional circumstances, rather than the norm.
The options
The distributions or advances may need the approval of the Master of the High Court, or the heirs may need to sign an indemnity form to protect the executor from liability. Sufficient liquidity will be an important deciding factor.
Du Plessis notes that Section 11 of the Administration of Estates Act allows a person in possession or custody of the deceased’s assets – where no executor has yet been appointed – to use them for the “bona fide purpose” of a burial and the subsistence of the deceased’s family or household. In respect of funeral costs, it would be wise to approach the Master, who can authorise the release of funds for that purpose.
“The use of funds before the appointment of an executor should only be done in exceptional circumstances,” says Du Plessis.
“Any expenditure incurred prior to the winding up of the estate will have to be accounted for to the executor once appointed.”
An appointed executor can also submit an interim L&D account to the Master. There might be delays dealing with certain assets. For example, if the will states that certain property must be sold but no buyers are forthcoming, or if there is ongoing litigation on behalf of, or against, an estate.
“In these cases, it might be a good idea to submit an interim account.”
The interim account is a statutory mechanism to ensure progress in the process and to protect beneficiaries when finalisation is delayed, allowing the executor to distribute part of the assets to heirs and beneficiaries.
If an executor feels uneasy about making an advance payment or distribution, they choose this option, particularly if the person receiving the payment is an heir and/or creditor and there is sufficient cash in the estate to cover the advances.
Once the Master approves the request, the executor is safeguarded.
It can be risky
An executor can also release funds as an advance at their own risk, but few are prepared to do so because of the possibility of unknown claimants coming forward or unexpected claims against the estate, such as claims from the South African Revenue Service (Sars).
“Executors are more willing to pay an advance if there is a surviving spouse, perhaps the only heir, as well as sufficient liquidity in the estate, clarity on existing claims against the estate, and if the deceased’s affairs are up to date with Sars.”
When an executor knows the client and their specific circumstances, they may be more open to providing an advance payment without approaching the Master.
Generally, the executor will require the heir to sign an indemnity form to protect said executor against potential liabilities.
If any assets, such as a family car, are released from the estate, the executor will insist that they are properly insured. The same goes for other property, including the family home in which a surviving spouse and minor children may be staying before the estate is finalised.
Executors must have a thorough understanding of all assets and liabilities before making any distributions prior to estate finalisation. This is particularly important if the executor does not know the client well.
Red flags and proper planning
“When beneficiaries ask for an advance or distribution, a major red flag should go up if the deceased’s tax affairs are not in order,” warns Du Plessis.
“In the absence of full and accurate information, it is better to refrain from making distributions before the estate is wound up.”
He advises careful estate planning to ensure that loved ones are provided for, particularly before the estate is wound up. This can be achieved in different ways.
“A simple and efficient approach is to have a life policy with the surviving spouse as the beneficiary. Such a policy pays out without the need for an executor’s intervention.”
All that is required is a death certificate, which can be presented to the insurance company to release the funds.
Du Plessis says this is especially useful in cases where there is a spouse and children from a previous marriage, as the children from the first marriage might not be too keen to assist the new spouse. It is also useful in instances where the surviving spouse is not working and there are minor children to take care of.
There may be instances where limited relief is required before the winding up of the estate. However, the safest path remains sound planning that protects loved ones through the entire process.
Brought to you by the Fiduciary Institute of Southern Africa (Fisa).
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