Estate Planning – achieving efficiency despite delays at the Master’s Office

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No executor of a deceased estate in South Africa can escape an encounter with the Master’s Office. In the past, that was seldom a problem but unfortunately, things have changed.

Eskom, SAA, Transnet, SARS — and now the Master’s Office?

Yes, indeed; these days the office of the Master of the High Court of South Africa has much in common with our ailing SOE’s. Specifically, there are grave inefficiencies in the Master’s Office processes which result in delays when completing the routine tasks that are part and parcel of administering a deceased estate.

Whether you’re simply reporting the estate to obtain your Letter of Executorship or following up on the query sheet for your Liquidation and Distribution account so that you can finalise the estate, the process is taking longer and longer.

What’s the direct consequence of these delays?

A delay may be a mere nuisance if as the heir you are not pressed for time when it comes to finalising the inheritance. But what if you are the surviving spouse and you are in dire need of cashflow? Suddenly, delays become extremely stressful.

Is there a simple solution?

Just as we find ourselves bypassing Eskom (with solar panels) and abandoning SAA (thank goodness for FlySafair), there is a workaround for delays at the Master’s Office by using a life wrapper or endowment.

Here are the details in a nutshell

  • An endowment policy allows you to nominate a specific beneficiary.
  • This results in the proceeds of the investment being paid directly to the beneficiary a short time after the death certificate being issued.
  • This bypasses the funds being paid into the estate bank account and having to grind through the slow administrative processes of the Master’s Office.
  • The death certificate is usually issued within a week or two, making this a much faster process.
  • The balance of any estate assets and liabilities can then be administered in the usual way, but the pressure is off for the surviving spouse, as their day-to-day cashflow is secured.

So, what exactly is an endowment?

An endowment is an investment vehicle, like a unit trust, with the following exceptions:

  1. You may only withdraw from it once in the first 5 years.
    a. The amount allowed to be drawn is what you contributed plus 5% compounded annually.
  2. Capital gains are taxed at a 12% tax rate and interest income is fixed at a 30% tax rate. These taxes are paid out of the fund and do not form part of your personal income taxes.

Does the endowment still form part of your estate?

Yes, the endowment value will still form part of the assets in your estate and depending on your heirs, will be subject to estate duty. The benefit though is that the cashflow will be paid to your nominated beneficiary before your Letter of Executorship has even been issued.

Should YOU have an endowment policy as part of your estate planning?

As always, the answer to that question is, “It depends on your personal circumstances”.

Beneficiary nominations are also possible on living annuities, life policies and some tax-free savings accounts. So, depending on the existing composition of the investment vehicles in your current portfolio, an endowment may or may not complement them.

Make an appointment to speak to your CERTIFIED FINANCIAL PLANNER® professional about the benefit (or not) of an endowment in your own situation.

By Gareth Leonard, CFP® CA(SA)