There’s no arguing with death but it is perfectly acceptable to insist on negotiating certain costs associated with dying.
“People often don’t realise that the so-called statutory fee for winding up an estate is not cast in stone. It’s a recommended fee that is open to negotiation – if you do so in time,” says Peter Prentice BDO SA Director.
Prentice says the recommended fee payable to an executor is 3.5% of the gross asset value of an estate (before deducting liabilities) plus value added tax.
However, there is no need to take this recommended fee at face value.
“You can negotiate an appropriate fee while you are still alive, either when drafting your will or when nominating your executors,” he says. “If you don’t do so, your beneficiaries will probably just have to accept paying the executor the standard fee of 3.5% plus VAT.”
Depending on the size and complexity of your estate, negotiating the fee upfront can save your beneficiaries significant amounts of money.
“We find there is a crossover point, usually between R1.3 million and R1.5 million of the value of an estate, beyond which the recommended tariff of 3.5% will exceed the time-based cost of winding up an estate. This in effect means that the tariff-based cost of 3.5% may be excessive relative to the time spent by the executor in winding up the estate.”
He says most estates are relatively straightforward to wind up, which is all the more reason to negotiate an appropriate winding up fee.
“It is important to make sure your executors will deliver value for money,” Prentice says. With this in mind, particularly when appointed as executors of large estates, BDO bills out on a time basis or the 3.5% plus VAT rate – whichever is less.
Another factor to take into account when doing your estate planning is the further charge that executors can claim in respect of income earned by the estate during the period between date of death and date of distribution to beneficiaries.
“Subsequent to the date of death, the executor will realise and accumulate the proceeds of certain assets and invest the proceeds,” he explains.
“The executor is entitled to charge 6% plus VAT of all the income earned from those investments.”
This again underlines the need to minimise your beneficiaries’ financial load and make sure they receive value for money from your executors.
“Value for money means that ideally, your estate should be attended to correctly and as speedily as possible – bearing in mind that the Masters offices have slowed down quite considerably,” says Prentice.
“It currently takes between six months and a year to wind up an estate, and complicated estates will take even longer.”
He says open channels of communication between your beneficiaries and the executors are critical.
“Your beneficiaries should be kept in the loop so that they know what is happening at various stages in the winding up process. Most importantly, you need to make sure your executor is someone you trust.”
Peter Prentice - BDO SA Advisory Service Director