Category Life Insurance

Cash shortfalls in an estate may have unnecessary negative consequences for beneficiaries

14 August 2019 GTC

Estate planning is a challenging task at the best of times, but even meticulous planning can be undone if an estate does not have sufficient liquidity to satisfy the compulsory administration costs and liabilities due in the event of death.

According to Trisca Hattingh, head of Fiduciary Services at leading wealth and financial advisory firm GTC, the issue of liquidity tends to be overlooked by many, resulting in unnecessary negative consequences at an already difficult time.

“Having sufficient liquidity in an estate refers to the level of cash available to cover the administration costs, such as the fees for the executor and master, as well as any outstanding liabilities from debts raised by the deceased.”

Hattingh sees many estates – both large and small – where individuals mistakenly think that liquidity and solvency are the same thing. Hattingh believes this confusion explains why cash shortfalls have become a frequent occurrence in recent times.

She details: “Solvency can be explained as a scenario where the total assets in your estate exceed the total liabilities. Insolvency, therefore, is the event where - after the sale of every last asset - there is still not enough money to settle the liabilities in your estate. This also means that there will be nothing left for heirs to inherit.”

Liquidity, on the other hand, refers to whether an estate has sufficient cash - or assets which can easily be reduced to cash - to settle the liabilities and immediate costs, without the need to sell assets that would otherwise be left as an inheritance for beneficiaries.

“Therefore, it is not enough to simply have a solvent estate. An estate with a cash shortfall lacks liquidity and can cause unforeseen negative complications in the administration and winding up of an estate,” she says.

In the event of a cash shortfall, the executor may either request that the beneficiaries settle this themselves - if they wish to maintain specific bequeathed assets - or they may be forced to sell non-liquid assets, such as houses or other properties to raise the money.

“While it is unpleasant to have to handle when a loved one has recently died, consideration must be given to the deceased’s liabilities – including mortgages, vehicle finance and other personal loans because these do not dissolve upon death. These must be settled by the executor, from the estate, after which time the distribution of the balance of assets may take place,” she says.

In Hattingh’s experience, the house, car and furniture are, in many cases, the only significant assets in an estate.

“If an executor has to dispose of these to make up the cash shortfall, this can be especially tragic for the surviving spouse and children, who may be left without a car to drive or even a roof over their heads.”

She urges families to familiarise themselves with the assets in their joint or separate estates to reduce the risk of a cash shortfall.

“It is a good idea to do an inventory of the amount of money available in savings or investment accounts, as well as being aware of which life policies will be payable to the estate, to alleviate any cash shortfalls. Life insurance policy proceeds can easily be used to settle liquidity shortfalls within the estate. Professional financial planners often make use of these inexpensive policies to ensure that families maintain assets upon death. Furthermore, ascertain which liabilities will be covered by credit life insurance and will be settled from such insurance, rather than being a liability against the estate.”

Hattingh provides a basic breakdown of the lesser-known element of administration costs associated with winding up of a simple estate, with a gross asset value of R 1 million:


Cost in Rands (R)

Advertisement to creditors


Advertisement of liquidation and distribution account


Postages and petties


Estate late bank account – provision for bank charges


Executor’s fees (3,5% on R1 million, plus 15% VAT on fees)

40 250,00

Master’s fees

1 800,00

Conveyancing attorney: estimated transfer costs

12 000,00

Conveyancing attorney: estimated rates clearance costs

4 000,00



Total costs

59 674

A simplified example showing administration costs associated with winding up an estate with a gross asset value of R1 million.

She explains that the size of an estate is likely to affect some of the costs, such as executor’s and master’s fees (though the latter is capped at R7 000), as well as conveyancing costs.

“It is also worth remembering that an estate is liable for income tax assessment until the date of death and depending on the assets and liabilities in the estate, these may attract estate duty and capital gains tax as well.”

Hattingh maintains that the best way to avoid unforeseen negative consequences for loved ones is by way of thorough estate planning with a professional financial adviser.

“Do not underestimate the value of estate planning – regardless of how insignificant you may think your estate value is. Completing an estate or financial plan with your financial adviser is the best way of ensuring that your loved ones will be left cared for and receive all the assets you intend for them to have, without having to sacrifice your home, means of transport or future income streams to cover your liabilities,” she concludes.

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