“Life insurance and executor’s fees. What’s the connection?” If you die you need a valid Will! And when you have a Will in place, there’s usually an executor whose been nominated to wind up your estate. And just like everyone else that executor needs to be paid. So where is the money going to come from? Have you even considered this?
“Wow, I never thought of that! How much are executor fees?”
The current statutory rate for winding up a deceased estate is 3.99% (VAT inclusive). That’s 3.99% of the total value of the assets that fall into your estate when you pass on. Granted, certain discounts on that statutory rate can be negotiated but that’s going to depend on the value of your estate. The bigger your estate, the more bargaining power you have.
“So what does life insurance have to do with a deceased estate anyway?”
It creates liquidity (cash) in your estate so your executor can start settling your debts. The executor is also going to need to write out a cheque for his services (he does that first) and if there isn’t any liquidity in your estate, that’s going to be highly problematic. He might have to sell off assets to free up money.
“But how much money are we actually talking about here?”
It might be more than you actually bargained for. Let’s look at a quick example.
What is your home worth? Let’s assume R2 000 000. And your car? Again, let’s work on a figure of R350 000. You’ve also got R150 000 in a unit trust portfolio and a second little property at the coast worth R750 000. Add all these assets up and the sum total is R3 250 000.
You pass away, those assets fall into your estate, 3.99% (executor’s fee) is charged on the value of R3 250 000 and your estate is in for R129 675. It’s not chump change is it?
“But surely I get to knock off the liabilities on the assets before the executor takes his fee?”
Nope. That’s not the case. Executor’s fees are based on the gross value of the assets which fall into your estate.
“So are you suggesting that I make a life insurance provision for this expense?”
Yes, life insurance is pretty cheap nowadays. Work out what the executor’s fees are going to be to wind up your estate and make sure you add that to your total life insurance requirement.
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Until next time.
The InsuranceFundi Team