When a property owner dies, their estate must be wound up, and unless their will specifically indicates who inherits it, the property will be sold.
As emotional as this process can be, selling a property from a deceased estate in South Africa also comes with a few legal and tax considerations. Whoever is appointed as the executor of the estate will need to follow the process set out in the Administration of Estates Act and make sure they meet SARS requirements, like Capital Gains Tax and estate duty. By taking things one small step at a time, a smooth sale can be concluded so that you can close the door on this often emotional transaction.
This guide breaks down the key steps and offers tips on managing this difficult and emotionally charged process efficiently…
The importance of a last will and testament
A will is one of the most important documents a person can have, as it ensures that their assets and final wishes are carried out according to their intentions after they pass away. Without a will, the process of wrapping up the estate becomes much more complicated and drawn-out. If you or your loved ones don’t yet have a will prepared, it is advisable to get one drafted as soon as possible.
What happens if there is no will?
If there is no will, the family can nominate a person to act as executor, who must be over 18, of sound mind and not insolvent, and who must still be formally appointed by the Master of the High Court. If there is nobody in the family who takes on this responsibility, the Master has the authority to appoint an attorney or company that specialises in deceased estates as executor.
Either way, and because there is no will, the proceeds of the estate, including from the sale of any property, will be handled according to the rules of intestate succession. These laws are outlined in the Intestate Succession Act, 1987, and they ensure that the deceased's assets go to their closest living relatives in a specific order. In short, dying without a will means you don’t have control over how your assets are distributed, which can lead to disputes, delays, and unintended beneficiaries.
Appointing an Executor
The executor, who is nominated in the will, is responsible for administering your estate when you die, and for honouring any special wishes that are set out in the will. Wrapping up a deceased estate is a lengthy legal process, which is why it is advisable to appoint a legal representative alongside a family member to be co-executors of the will. The legal representative will have a thorough understanding of the process to follow and can walk the nominated family member through every step of the way.
As a first step, immediately following a death in the family, the family has 14 days to report it to the High Court and the death certificate needs to be submitted. The High Court will then officially appoint the nominated executor/s, which, in effect, is the legal process giving the nominated executor/s the authority to manage the estate, which is now known as a “deceased estate”. It usually takes around three months for the Master to issue a letter of executorship. The property of the deceased cannot be sold prior to this step.
What’s involved in selling deceased estate property?
If the person owned property that must be sold, the executor/s must follow a specific process to sell the house:
- The property must be valued.
- The property must be advertised for sale.
- Once an offer is received, the executor/s signs the agreement of sale (offer to purchase) on behalf of the deceased estate.
- Then the executor/s apply to the Master of the High Court for a Section 42(2) endorsement to ensure that the sale and transfer comply with the relevant legal requirements and what is set out in the will. If there is no will, the transaction must comply with the laws of intestate succession.
- In both cases, as a minimum, the executor will have to submit the following documents to the court:
· Certified copy of the signed deed of sale
· Power of Attorney signed by the executor/s, authorising the conveyancer to transfer the property into the new owner’s name
· Consent forms signed by all heirs, confirming that they have agreed to sell the property
· The liquidation and distribution account, which shows how the estate's assets are allocated
· The property’s title deed
· A rates clearance certificate proving that the municipal rates and taxes are up to date
· A SARS Transfer Duty Receipt
- Once processed by the court, the property can then be transferred into the new owner’s name.
Words to the wise:
- If you are an executor and do not have the support of a legal professional, check with your local Master’s office to learn their requirements before you submit your application for a Section 42(2) endorsement to avoid unnecessary delays.
- Depending on how long it takes to get the Section 42(2) endorsement, you may need to revisit the compliance and other documents needed to facilitate the transfer of ownership.
What about taxes, estate duties, and SARS requirements?
There are two things in life that are unavoidable: death and taxes. The executor/s are responsible for notifying SARS of the death and must submit the death certificate and a copy of the will. SARS assesses the estate’s tax liabilities, which include income tax, estate duty, and Capital Gains Tax, to determine if and how much tax is due before any proceeds from the sale can be distributed…
Capital Gains Tax (CGT)
Capital Gains Tax (CGT) is a tax calculated on the profit on the sale of an asset, such as property. Outside of death, this tax is calculated based on the difference between the property's selling price and its base cost (the original purchase price plus any improvements).
However, in South Africa, CGT is applied differently in deceased estates: The base cost of the property is adjusted to its market value at the date of the deceased's death, rather than the original purchase price, which can often significantly reduce the capital gain and therefore the amount of CGT that is due.
CGT is not paid by the heirs but rather from the estate itself. This means that the executor/s must first ensure that the estate has sufficient funds to pay this over to SARS before paying out any profits from the sale of the property, or distributing remaining assets or inheritances to the beneficiaries.
Estate Duty
Estates with a gross value of R3.5 million are exempt from estate duty, and this exemption applies to the first R3.5 million of any estate’s value. After this threshold, estates that have a gross value of between R3.5 million and R30 million are taxed at 20%, and any estate above R30 million is taxed at 25%.
Word to the wise: If you are an executor/s, getting professional help from a tax consultant or financial adviser may help to smooth the tax process.
Executor’s final duties before beneficiary pay-outs
The executor/s must gather all the person’s assets, which could range from property and investments to personal belongings. They must also identify any outstanding debts, which involves publishing a Notice to Creditors in the Government Gazette, allowing creditors to lodge any claims they have against the estate. Only once all the debts are settled and taxes are paid, can the remaining assets be distributed to the beneficiaries – or heirs – as it is stipulated in the will, or according to the Intestate Succession Act.
Are property transfer costs different for a deceased estate in South Africa?
If you inherit a property from a deceased estate, you will not have to pay transfer duty. However, you will have to pay the conveyancer’s fees – usually based on the property's value – when it is transferred into your name. As with any property transfer, there are the costs associated with rates clearance and compliance certificates, which must be paid from the estate. In addition, if the property was mortgaged, that bond must be settled, which could incur charges. Finally, you might have to pay the executor who is entitled to charge a fee (typically 3.5% of the gross value of the estate, plus VAT) for administering the estate, which includes property transfers.
Navigating deceased estate property sales
Winding up a deceased estate is complicated and can take several years, especially if there is no will in place. If you are the executor and there is a property to sell, lean on the expert guidance and support from your local RE/MAX office to provide you with a market assessment of the home’s worth and to facilitate a stress-free sale.
Have more unanswered questions? Here are some related questions – and answers – that might help…
How can I get a will?
Anyone older than 16 can create a will. You can do it yourself with the help of Legal Aid or from your bank. Each year, usually in September, the Law Society of South Africa runs National Wills Week. During this week, many attorneys will draw up wills for free.
What happens if a death and the deceased estate are not reported?
If you don’t report a deceased estate within 14 days of the death, you can be fined or go to prison for up to three months. In addition, all of the deceased's accounts are automatically frozen; nobody can legally access or manage the estate if the estate has not been reported. This also means that creditors may take legal action if creditors are not handled properly. It will inevitably result in a delay in appointing an executor and the distribution of any inheritance.
What is the Administration of Estates Act?
The Administration of Estates Act governs the administration of deceased estates in South Africa. It outlines the process to be followed when someone dies, including the appointment of an executor, the collection and distribution of assets and the settlement of debts.
