Insolvency and Liquidation

 

 

Generally, life insurance policies with nominated beneficiaries do not form part of the deceased's insolvent estate. The proceeds from such policies belong directly to the beneficiaries and are not accessible to the deceased's creditors. However, if the estate itself was the nominated beneficiary, then the proceeds would form part of the estate and be subject to creditors' claims.

Generally, a surviving spouse or family members do not inherit the deceased's personal debts if the debts were solely in the deceased's name. However, there are exceptions:

  • Joint Debts: If debts were held jointly (e.g., a joint bond or credit card), the surviving joint owner becomes fully responsible.
  • Suretyship/Guarantee: If a family member stood as a surety or guarantor for the deceased's loan, they would be liable for that debt.
  • Marriage in Community of Property: If the deceased was married in community of property, the joint estate is generally considered insolvent, and the surviving spouse's half of the joint estate would be affected.

In an insolvent estate, debts are paid in a specific order of priority as per the Insolvency Act. While specific categories can be complex, generally, the order is:

  • Administration Costs: Expenses related to winding up the estate (e.g., executor's fees, legal costs, Master's fees).
  • Funeral Expenses: Reasonable costs associated with the deceased's funeral.
  • Secured Creditors: Creditors who hold security over specific assets (e.g., a mortgage bond over a property). They are usually paid from the proceeds of the sale of that specific asset.
  • Preferent Creditors: Certain types of creditors have a statutory preference (e.g., outstanding salaries of employees, certain taxes).
  • Concurrent/Unsecured Creditors: Creditors without any specific security (e.g., credit card debt, personal loans). If there isn't enough to pay them in full, they receive a pro-rata share.
  • Deferred Debts: Certain debts, such as those between family members, may be deferred to the last.

No, debts do not automatically disappear upon death. Any debts solely in the name of the deceased must be paid from their estate's assets. If the estate's liabilities surpass its assets, it is declared insolvent.

As a creditor, you must submit a claim against the estate within the specified notice period (usually 30 days) advertised by the executor. The executor will then assess your claim and, if valid, include it in the liquidation and distribution account for payment according to the legal order of preference.

Show all FAQs in Category

Insolvent Deceased Estates

Navigating Loss and Debt - Expert Guidance for Insolvent Deceased Estates

The passing of a loved one brings immense emotional challenges, which can be compounded by the unexpected discovery of an insolvent estate. While deceased estates are now more transparent through online tracking systems, the administration of an estate with more liabilities than assets requires specialized legal expertise. At VDM Attorneys, we understand these complexities and provide compassionate, clear guidance to families and executors during such difficult times.

Understanding Deceased Estate Administration

When an individual passes away, their estate (comprising assets, income, and liabilities) vests in the Master of the High Court. An Executor is appointed to manage and wind up this estate. The process is governed by the Administration of Estates Act 66 of 1965 and can be intricate, highlighting the importance of appointing an experienced attorney as Executor in your Will.

Who Winds Up the Estate?

The Master of the High Court supervises the winding up of an estate. The specific Master's Office with jurisdiction is determined by where the deceased resided for the 12 months prior to their death. South Africa has various Master's offices across its provinces

The Executor, or Executors, will manage the estate under the Master's supervision. They may appoint specialist agents (such as conveyancing attorneys for property transfers or litigation attorneys for disputes) through a special power of attorney to assist with specific tasks. SARS, the deceased's relatives, spouse, heirs, and beneficiaries (legatees) are all involved in the process.

Types of Estate Appointments based on Value

Estate Value Master's Appointment Administration Process
Less than R250,000 Master's Representative Appointed under Section 18(3) of the Administration of Estates Act. Simpler, quicker process; full procedure of the Act is not followed.
Greater than R250,000 Executor (Letters of Executorship) Appointed by Letters of Executorship. Follows the full winding-up process as set out in the Administration of Estates Act.

Key Steps in Winding Up a Deceased Estate

  • Executor Appointment If a Will exists, it typically nominates an Executor. If not, heirs must nominate an Executor Dative by completing a "Nomination to Act as Executor" form and submitting a J192 affidavit with next-of-kin particulars to the Master.
  • Information Gathering The Executor collects comprehensive information on all deceased's assets (property, shares, vehicles, etc.) and liabilities.
  • Application for Letters of Executorship The Executor applies to the Master for Letters of Executorship, confirming their appointment. This involves submitting documents such as the Death Certificate and Notice, Original Will, an Inventory of assets, and Acceptance of Trust as Executor.
  • Debtor and Creditor Notice Once Letters of Executorship are issued, a notice inviting debtors and creditors to lodge claims against the estate must be published in the Government Gazette and a local newspaper.
  • Liquidation and Distribution (L&D) Account The Executor drafts the L&D Account, detailing assets, liabilities, administration costs, and proposed distribution to heirs.
  • Master's Examination The L&D Account is submitted to the Master for examination (approx. 2 months), who may issue a query sheet for further requirements.
  • Public Advertisement Once confirmed by the Master, the Account is advertised online (as per Circular 6 of 2025, no longer strictly printed in Government Gazette/newspaper) and in a local newspaper. It must be freely viewable online, circulate in the deceased's last residential area, and in some cases, be in both English and Afrikaans.
  • Inspection Period The Account lies open for 21 days for any objections.
  • Finalisation If no objections, the Executor finalises the estate, pays creditors, hands over inheritances, and transfers fixed property to heirs.
  • Proof of Distribution The Executor provides proof to the Master that all creditors have been paid and heirs have received their inheritances.
  • Insolvent Deceased Estates When Liabilities Exceed Assets

Upon death, a person's debts do not simply disappear. Any debts solely in the deceased's name must be settled from the estate's assets. The situation becomes significantly more complex when the estate's liabilities surpass its assets – this is an insolvent deceased estate.

Administration of Insolvent Estates

If the Executor determines the estate is insolvent (even after collecting debts owed to the estate), it must be administered in accordance with Section 34 of the Administration of Estates Act 66 of 1965. The Insolvency Act 24 of 1936 also plays a crucial role in the administration and distribution process.

Executor's Duties in an Insolvent Estate

  • Notification The Executor is obligated to notify the creditors, the South African Revenue Service (SARS), and the Master of the High Court that the estate's liabilities outweigh its assets.
  • Creditor Instruction This notification will inform creditors that, unless a majority (in number and value) instructs the Executor in writing (within a period of at least 14 days) to surrender the estate under the Insolvency Act, the Executor will proceed to liquidate (sell) all assets in the estate.
  • Sale of Assets The Executor must inform creditors of the manner and conditions of the intended sale, offering them an opportunity to object. Valid objections will be investigated and decided upon by the Master, who will then direct the Executor on how to proceed.
  • Liquidation and Distribution Account After selling assets and collecting debts, an L&D Account is drafted and lodged with the Master's Office for confirmation. This account provides for the distribution of proceeds according to the order of preference prescribed by the Insolvency Act (secured, preferent, or concurrent claims).
  • Advertisement and Inspection The L&D Account for an insolvent estate also lies open for inspection for 21 calendar days, with an advertisement placed in a local newspaper and the Government Gazette (or online equivalent).
  • Distribution Once distribution is approved, the Executor distributes the proceeds. If insufficient funds remain, creditors may have to write off the outstanding debt (which may be VAT deductible for them).

Special Considerations

  • Marriage in Community of Property If the deceased was married in community of property, creditors may be able to attach assets forming part of the "joint estate," potentially including assets acquired and registered in the surviving spouse's name.
  • Life Policies with Nominated Beneficiaries Fortunately, monies paid out from life policies to nominated beneficiaries do not form part of the insolvent deceased estate and cannot be claimed by creditors. However, if there are no nominated beneficiaries, the payout will form part of the deceased estate and be distributed to creditors.
  • Other Important Considerations
    • Executor Dies If an appointed Executor passes away, their office is automatically terminated. A new Executor must be nominated by heirs and appointed by the Master.
    • Unclaimed Deceased Estates Unclaimed monies due to heirs (especially minors if not held in trust) or untraceable heirs are paid to the Guardian's Fund. After 30 years of remaining unclaimed, these funds are forfeited to the State.

Clear Answers for Complex Times for Insolvent Deceased Estates

At VDM Attorneys, we pride ourselves on explaining complex legal processes, including those involving insolvent deceased estates, in clear and simple terms. We are dedicated to ensuring you are fully informed and supported throughout this challenging period.

There is no need for you to do this alone, contact us at VDM Attorneys for a consultation today.