Over the last while, we have been discussing a crucial aspect of your will that requires proper consideration: your executor. We have looked at what an executor does in part 1, who you can actually choose to be an executor in part 2, and how you go about nominating your executor in part 3. If you have not read any of these earlier posts, we highly recommend you read these posts in order! Please also subscribe to our blog if you would like to keep up to date with these posts.
In this post, we look at the costs involved with your executor. Costs are an important aspect to consider because whoever you nominate as your executor will be paid from your estate. You need to be happy with what you are paying and to whom. Also, what you are paying to your executor potentially affects certain bequests to other beneficiaries. If you are aware of what you will have to pay, then you can make an informed decision as to who you want to nominate.
What does an executor cost: Gross value
The maximum fee that an executor can charge you on the gross value of your estate is 3.5 percent. But the executor is not obliged to charge this full amount. This is the default rate, which means that if no amount is stipulated in your will and a professional person or body is nominated as an executor or co-executor, then the default rate applies.
The default rate does not apply to agents, however. Agents (working with the executor) can charge whatever they want, in a way that is most beneficial to them.
You might think that 3.5 percent is not that much, but let us take a closer look at the statement: “3.5 percent on the gross value of your estate”.
- “3.5 percent”: An executor will charge for VAT if he or she is registered for VAT, which takes the fee up to 3.99 percent.
- “Gross value”: This means what an asset is worth, not what it is worth minus what you still owe on it. If you are married in community of property, the executor’s fees are paid on the value of the joint estate even though only one spouse has died.
- “Of your estate”: To understand this, we need to look at what assets go into your estate. Investments in shares, unit trusts and exchange traded funds; fixed property (such as your house, holiday flat or undeveloped property); vehicles; cash; cash equivalents (such as RSA Retail Bonds); gold coins; fractional ownership; and collectables, such as artworks, rare carpets, jewellery and antiques all form part of your estate. Various other assets may or may not be included, depending on various circumstances. But from this list alone, you can understand that 3.5 (3.99) percent on these assets can translate to a large cost.
This is what the executor can charge you on the gross value of your estate. This needs to be taken into account when deciding who to nominate as your executor.
What does an executor cost: Income accrued
An executor also receives 6 percent of the income that is received from the date you die to the date of distribution of assets to your heirs. The 6 percent excludes VAT. It includes income generated from sources such as rental, interest and dividends.
What does an executor cost: Additional costs
An executor can also charge the estate for all costs necessary to value, control and transfer assets. This does not include the executor’s flights and accommodation.
It is clear, then, that an executor will cost a sizeable portion of money. This is why the decision of who you will nominate as your executor should be carefully considered. You want someone who will do the job well, but you do not want to incur too great a cost to your estate. If you want to nominate a professional to be your executor, you should meet the prospective executor. Ask questions and make your nomination only when you are happy with the entire picture.
If you need any further information on the topic of executors or writing your will, please do not hesitate to contact us at email@example.com. And if you found this post helpful, please subscribe to our blog for future posts!