In South Africa, there are common misconceptions that your debt dies along with you or alternatively, that a loved one’s debt has died along with them. The sad truth is that debt does not die with you and will need to be dealt with by those you leave behind, along with all liabilities of your Deceased Estate.
A Deceased Estate is made up of an individual’s net worth at any point in time, thus less all his/her liabilities. The same applies to a Deceased Estate. Credit therefore continues after the death of a Debtor (the “Deceased”) and Creditors are entitled to claim the balance of the outstanding debt owed directly from the Deceased’s Estate.
Who is responsible to pay the Debt and Liabilities in a Deceased Estate?
The nominated Executor will be tasked with the administration of the Estate whose sole function is to protect the assets of the Estate, pay any debts and liabilities owed by the Deceased, and to distribute the balance of the Estate’s assets to the beneficiaries of the Estate.
In terms of Section 7 of the Administration of Estates Act 66 of 1965, as amended, when a person with assets dies, his/ her Estate must be reported to, and be registered at, the office of the Master of the High Court in the jurisdiction where the person was ordinarily resident within 14 (fourteen) days of the date of death by lodging a Death Notice among all other reporting documents. The purpose hereof is to ensure an orderly winding up of the financial affairs of the Deceased, and the protection of the financial interest of the heirs.
After the Estate has been reported, the Master appoints an Executor by issuing a Letter of Executorship (if the deceased’s assets have a gross value of more than R 250 000.00) or a Letter of Authority in terms of Section 18(3) of the Act. Letters of Authority entitles the nominated representative to administer the Estate without following the full procedure set out in the Administration of Estates Act.
Requirements that an Executor has to comply with in relation to the Debt and Liabilities of the Deceased
1. Advertisement of the Estate
Once Letters of Executorship/Authority have been issued and received from the Master of The High Court, an advertisement needs to be placed by the Executor in the local newspaper that circulates in the area where the deceased resided and in the Government Gazette. This advertisement calls for all Creditors of the Estate to lodge their claims against the Estate within a period of 30 days from the date of the advertisement.
2. The Liquidation and Distribution Account
A Liquidation and Distribution Account (hereinafter “the L&D”) must be lodged by the Executor with the Master of the High Court within 6 months after the Letters of Executorship have been received.
The drawing up of the L&D is the next step in finalising the Estate and is normally completed once all the relevant information and/or documents and/or credit payments requested when the Estate was initially reported, have been received.
The L&D should reflect all the assets and liabilities in the Estate, the cash and liquidity situation, administration costs and shows how the balance will be distributed to the heirs. The values in the account reflect the values as at the date of death and may therefore differ from the values on the latest bank statements.
Once the L&D has been completed, it is delivered to the Master for examination thereof with all the documentary proof of the entries. If the Master is satisfied with the contents of the account, he provides the executor with the necessary approval to advertise the L&D.
Advertisement of the Liquidation and Distribution Account
After the necessary approval is received from the Master, a second advertisement is placed in the local newspaper that circulates in the area where the Deceased resided and in the Government Gazette.
This advertisement provides that the L&D will be laying open for inspection for a period of 21 days from the date of the advertisement at the local Magistrate’s Court in whose jurisdiction the Deceased resided, as well as the relevant Master’s Office.
It further calls for any person with an interest in the Estate to lodge an objection against the L&D at the Master of the High Court within 21 days, should he/she have a reason to do so.
What happens when the Estate is insolvent?
If the liabilities exceed all assets in the Deceased Estate, the estate is then deemed to be insolvent. In such an instance the Executor will notify the Creditors of the insolvent status in writing and the Estate will then be handled according to the regulations of the Insolvency Act 24 of 1936 and Administration of Estates Act 66 Of 1965 as amended.
As seen above, Debt does not die with a Deceased and the Debt along with the Liabilities of a Deceased Estate has to be paid by the Estate. It is also important to have a valid Last Will and Testament executed while you are still alive and nominate an Executor that is qualified to administer the affairs of an Estate.
SchoemanLaw can assist with drafting of all Last Wills and Testaments and the administration of all Deceased Estates.
Written by Shannon Vengadajellum, Attorney, SchoemanLaw Inc