Written by Roy Bregman, admitted attorney with over 51 years' experience in
wills, deceased estates and estate planning.
Last updated: 24 October
2026. Figures reflect the 2026 Budget, effective 1 March 2026.
|
Key Takeaways • An estate
can be wealthy on paper and still unable to pay its bills. Estate duty,
capital gains tax, executor's fees and debts must be settled in cash before
your heirs receive anything. • Estate duty
is 20% on the first R30 million of the dutiable estate and 25% above that,
after a R3.5 million deduction. Since 1 March 2026 the capital gains
exclusion on the deemed disposal at death is R440,000.
• If the cash
is not there, your executor may have to sell your shares or your business
property in a hurry, often at a poor price. • A will that
matches your shareholders' agreement, life cover earmarked for estate costs,
a funded buy-and-sell agreement and, where suitable, a trust can keep your
business intact. |
A business
owner dies leaving a successful company, a commercial property and very little
in the bank. On paper, the family is wealthy. In practice, the estate cannot
pay its bills.
Estate duty,
capital gains tax on death, the bond, executor's fees and creditors all have to
be settled before the heirs receive anything. If there is not enough cash, the
executor has to raise it. That can mean selling shares to a co-shareholder at
the wrong price or putting the property on the market in a hurry.
In 52 years of
winding up estates, this is one of the most common problems I see. It is also
almost always avoidable. This article explains why it happens, what the courts
have said recently and what you can do about it now.
Why can a wealthy estate still run out of cash?
A wealthy
estate runs out of cash because an estate pays its bills in money, not in
shares or buildings. Lawyers call this a liquidity problem. Liquidity simply
means having enough cash, or assets that can quickly be turned into cash, to
pay what is owed.
Business owners
are especially exposed. Most of their wealth sits in unlisted company shares,
loan accounts owed to them by the company and business premises. None of these
can be handed to SARS or to the bank. They have to be sold first.
What does an estate have to pay before the heirs inherit?
An estate must
pay all debts, taxes and administration costs before anything is handed over to
the heirs. The executor sets these out in a liquidation and distribution
account, which is the estate's final balance sheet, and it must be approved by
the Master of the High Court.
Estate duty
Estate duty is
a once-off tax on what you leave behind. After debts and costs, a deduction
(called an abatement) of R3.5 million is subtracted. The balance is taxed at
20% up to R30 million and 25% above that. Everything you leave to a surviving
spouse is deductible, which postpones the tax until the second death rather
than cancelling it. Estate duty is due within one year of death, and interest
is charged after that.
Capital gains tax on death
The law treats
you as having sold everything you own at market value on the day you die. This
is called a deemed disposal. The growth in value of your shares and property
since you acquired them becomes a capital gain in your final tax return. The
2026 Budget raised the exclusion in the year of death from R300,000 to
R440,000, but on a business built over decades the tax can still run into
millions.
Executor's fees and other costs
Unless your
will says otherwise, the executor is paid according to a set tariff: 3.5% of
the gross value of the assets, plus VAT if the executor is VAT registered, and
6% of income earned after death. Conveyancing, bond cancellation, valuations,
Master's fees and municipal rates clearance figures add to the bill.
Bonds, overdrafts and suretyships
Many owners
sign suretyships, which are personal guarantees for the company's debts. On
death, banks often call up these guarantees or freeze facilities. The estate
may then have to pay the company's debts as well as its own.
|
Cost |
How it is
worked out |
When it
falls due |
|
Estate duty |
20% up to R30 million, 25% above, after a R3.5 million
deduction |
Within 12 months of death |
|
Capital gains tax |
40% of the net gain is taxed at your income tax rate
(maximum effective rate 18%) |
On assessment of the final tax return |
|
Executor's fee |
3.5% of gross assets plus VAT, and 6% of income after
death |
When the estate account is approved |
|
Debts and bonds |
Full amount owing, including suretyships called up |
As creditors prove their claims |
|
Transfer and admin costs |
Conveyancing, valuations, rates clearance, Master's fees |
Throughout the administration |
A worked example
Take an owner
with company shares worth R30 million, a commercial property worth R15 million,
R1 million in cash, a R5 million bond and no surviving spouse. By my rough
calculation, the estate would need about R19 million in cash: roughly R5.9
million in capital gains tax, R5.9 million in estate duty, R1.9 million in
executor's fees, the R5 million bond and other costs. It has R1 million in the
bank.
Can my executor sell my business or property without my family's agreement?
Yes, if cash is
needed, the decision to sell belongs to the executor. Under section 47 of
the Administration of Estates Act, the heirs approve in writing how and on
what terms an asset is sold. If they cannot agree, or an heir is a minor, the
Master of the High Court decides the terms instead.
Your company
documents can tie the executor's hands further. A shareholders' agreement or
Memorandum of Incorporation (the company's founding rules) may force the estate
to offer the shares to the other shareholders first, often at a formula price.
If that formula is out of date, your family may receive far less than the
shares are worth, while SARS may still value them at market value for estate
duty.
What have the courts said recently?
Two recent
judgments of South Africa's highest courts show why the detail of your will and
your structures matters.
Your will can decide what your executor is paid
Sabdia N.O. and
Another v Soma and Another [2024] ZASCA 174 (Supreme Court of Appeal, 12
December 2024). "N.O." stands for nomine officii, meaning the
person acts in an official capacity, here as executor.
Dr Sabdia's
sons were his executors. One was an attorney whose firm defended the estate in
litigation over a Pretoria property and won costs. The Taxing Master, the court
official who checks legal bills, refused the firm's fees, saying an executor's
tariff fee already covers all work done for the estate.
The Supreme
Court of Appeal disagreed. Section 51(1)(a) of the Administration of Estates
Act lets a testator, the person who makes the will, fix the executor's pay. Dr
Sabdia's will clearly allowed his executors to charge professional fees, so his
wishes prevailed. The lesson for business owners is that your will can shape
how your estate is run and what it costs.
A trust is not a tax-free pipe
Thistle Trust v
Commissioner for the South African Revenue Service [2024] ZACC 19
(Constitutional Court, 2 October 2024).
The Thistle
Trust, an inter vivos trust (one set up during the founder's lifetime),
received capital gains from other trusts and passed them straight on to its
beneficiaries in the same year. It argued it was merely a conduit, a pipe
through which the gains flowed, so only the beneficiaries should pay tax.
The majority of
the Constitutional Court held that the gains were taxable in the Thistle Trust
itself. It did, however, refuse to allow SARS to pursue a penalty, finding the
trust had acted on reasonable legal advice. The lesson is that a trust can be a
powerful planning tool, but only if it is structured and run with sound tax
advice.
How do I stop my estate from having to sell my business?
You stop a
forced sale by planning for cash now, while you can still choose how. Each of
the tools below solves a different part of the problem, and most business
owners need a combination.
|
Tool |
What it
does |
Watch out
for |
|
Updated will |
Directs who inherits what and can fix executor's pay |
Must match your shareholders' agreement and company rules |
|
Life cover payable to the estate |
Puts cash in the executor's hands for duty, tax and costs |
Proceeds are usually counted for estate duty |
|
Funded buy-and-sell agreement |
Co-owners buy your shares with policy payouts, so your
family gets cash |
Outdated valuation formulas; you must pay none of the
premiums |
|
Trust |
Moves future growth out of your estate |
Loan accounts stay in your estate; the trust must be
properly run |
|
Bequest to spouse |
Deductible for estate duty; capital gains can roll over |
Only postpones the tax to the second death |
|
Annual donations |
R150,000 a year can be given away free of donations tax |
Reduces your estate slowly, not overnight |
What steps should I take now?
Start with a
clear picture of what your estate would owe and how it would pay. Then close
the gaps one by one.
1.
Draw up a liquidity
statement. List your assets, debts, likely tax and costs, and the cash
available on death.
2.
Read your will
alongside your company documents. Your will, shareholders' agreement and
Memorandum of Incorporation must point in the same direction.
3.
Fund and update your
buy-and-sell agreement. Check that cover matches today's value of the
business and that the premium structure keeps the payout out of your estate.
4.
Earmark life cover
for estate costs. A policy payable to your estate gives the executor cash
on day one.
5.
Consider a trust and
annual donations. Take tax advice before moving assets.
6.
Choose an
experienced executor. Consider fixing their remuneration in your will.
7.
Review every two to
three years. Revisit your plan after any Budget change, sale, marriage or
new business venture.
Can your estate pay its way?
The real
question is not what your estate is worth. It is whether your estate can pay
its way without selling what matters most. With a coordinated will, the right
cover and properly drafted agreements, your family can keep the business you
built, rather than watching it sold to settle a tax bill.
Bee at Ease!
Frequently asked questions
How much estate duty will my estate pay in South Africa?
Estate duty is
charged at 20% on the first R30 million of the dutiable estate and 25% on
anything above that. The dutiable estate is what remains after debts, costs,
bequests to a surviving spouse and a R3.5 million deduction are subtracted.
SARS expects payment within one year of death, after which interest runs.
Can my executor sell my business without my family's consent?
Yes, if cash is
needed. The decision to sell belongs to the executor, but section 47 of the
Administration of Estates Act gives the heirs a say in how and on what terms
the asset is sold. If they cannot agree, or an heir is a minor, the Master of
the High Court approves the terms.
Does life insurance count towards estate duty?
Usually, yes.
Policies on your life are generally treated as part of your estate for estate
duty, even if paid to a named beneficiary. A beneficiary-nominated policy pays
out quickly but does not give your executor cash. A policy payable to your
estate does, so earmark one for estate costs. Properly structured buy-and-sell
policies are excluded.
What is a buy-and-sell agreement and how is it funded?
A buy-and-sell
agreement is a contract between business owners: when one dies, the survivors
must buy, and the estate must sell, the deceased owner's shares at an agreed
price. Each owner takes out life cover on the others. If the deceased paid none
of the premiums, the payout is excluded from their estate for estate duty.
Does a trust reduce estate duty in South Africa?
It can. Assets
held in a properly run trust are not part of your personal estate, so future
growth escapes estate duty. However, loans you make to the trust remain estate
assets, interest-free loans attract a deemed donation, and the trust pays its
own tax. A trust must be set up and run with professional advice.
Is your estate ready? Speak to us today
Do not leave
your family to raise millions in a hurry. We will review your will, your
company documents and your estate's cash position, and show you exactly where
the gaps are. Bregman Moodley Attorneys Inc. has been taking the sting out of
legal problems since 1974.
Call: +27
(0)11 646 0335
Email: roy@bmalaw.co.za
Website: bregmans.co.za
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