Death does not bring an end to a person’s financial and tax affairs. When a person dies, his or her estate must ordinarily be registered and administered in accordance with Zimbabwe’s estate administration laws. Before beneficiaries receive their inheritance, the executor must identify and secure the assets of the deceased, establish and settle liabilities, address applicable taxes and administration costs, prepare the necessary estate accounts and ultimately distribute the net estate to those entitled to inherit.

An important   and sometimes overlooked aspect of estate planning is therefore liquidity.

A person may leave substantial wealth in the form of a family home, investment properties, shares, a business or other assets but very little cash. The estate may consequently be asset-rich but cash-poor. Taxes, Master’s fees, executor’s remuneration and administration expenses may nevertheless have to be settled before the estate can be finalised. In extreme cases, insufficient liquidity may require assets to be realised simply to meet the costs of administration.

Understanding the potential costs of death is therefore an important part of effective estate and succession planning.

1. The Master’s Fees – 4% of the Gross Estate
One of the most significant costs associated with administering a deceased estate in Zimbabwe is the Master’s fees. The current prescribed Master’s fees is calculated at 4% of the gross value of the estate, including revenue of the estate. This is an important distinction: the Master’s fee is calculated on the gross estate, rather than on the amount ultimately inherited by beneficiaries. It should also not be confused with estate duty. An estate may therefore have no estate-duty liability and nevertheless remain liable for Master’s fees.

This has significant consequences for estates consisting predominantly of immovable property. A family may inherit a valuable house but have insufficient cash available to meet the costs associated with administering the estate. Where the estate itself does not have sufficient liquidity, beneficiaries may have to provide funding, or the executor may ultimately have to consider whether an asset should be realised to meet legitimate estate liabilities and administration expenses.

Estate planning should therefore address not only who inherits, but also how the costs of transferring that inheritance will be funded.

2. Executor’s Remuneration – A Separate Cost
The Master’s fees must also be distinguished from the remuneration payable to an executor or professional estate administrator. Under the Administration of Estates Act [Chapter 6:01], a professional executor is entitled to remuneration for the administration, distribution and final settlement of the estate. The deceased may make provision for remuneration in a will or other instrument, while remuneration remains subject to the supervisory jurisdiction of the Master. The applicable prescribed tariff provides for executor’s fees calculated as below:

– 5% of Gross Asset Value: Calculated on the gross value of all movable and immovable assets comprising the estate at the date of death.
– 5% of Collected Income: Calculated on all rental income, dividends, interest, and revenue collected by the executor during the course of administration.

Accordingly, the 4% Master’s fees and executor’s remuneration are separate charges. They should not be treated as one expense. This distinction can materially affect the amount ultimately available for distribution to beneficiaries.

3. Estate Duty – When Does It Arise?
Estate duty is a separate tax imposed under the Estate Duty Act [Chapter 23:03], read together with the Finance Act [Chapter 23:04]. The current law provides that only the portion of the relevant estate value exceeding US$100,000(or its local currency equivalent), constitutes the dutiable amount for purposes of the applicable threshold. The maximum applicable rate is presently 5% of the dutiable amount.

A common misconception is that Estate Duty is automatically levied as a flat 5% on the gross asset value of everything owned by the deceased. In practice, the Estate Duty Act provides essential statutory deductions, exemptions, and exclusions that must be applied first to establish the precise dutiable amount.

How Is the Dutiable Amount Determined?
At its simplest, the calculation begins with the property included in the deceased estate and then considers the deductions permitted by the Estate Duty Act. These may include, where the statutory requirements are satisfied:

• reasonable funeral and death-bed expenses;
• qualifying debts and liabilities of the deceased;
• administration and liquidation costs allowed by the Master;
• qualifying amounts and deductions specifically recognised by the Estate Duty Act;
• the value of the deceased’s family home; and
• the value of one motor vehicle accepted by the Master as the family motor vehicle.

The resulting amount is then considered against the applicable US$100,000 threshold in determining the amount upon which estate duty is chargeable. The calculation should therefore be undertaken on the facts of the estate rather than by applying 5% to the gross value of the deceased’s assets.

The Family Home Is Particularly Important
The Estate Duty Act expressly recognises the family home in determining the dutiable amount. The legislation contains a detailed definition of what qualifies as a family home. Broadly, it concerns the dwelling which was the deceased’s sole or main residence, together with qualifying associated land and structures, subject to the statutory requirements. The value of the family home is deductible in determining the dutiable amount.

Similarly, the value of one motor vehicle accepted by the Master as the family motor vehicle is deductible. These provisions can materially reduce and in appropriate cases eliminate an estate-duty liability. They do not, however, necessarily eliminate the other costs associated with administering the estate.

4. Interest on Unpaid Estate Duty – Delay Can Become Expensive
Estate duty should not be left unresolved indefinitely. The Estate Duty Act provides for interest on unpaid estate duty. Where an assessment has been made and duty is not paid within the applicable period, interest may accrue on the unpaid amount. Importantly, where assessment is delayed beyond twelve months from the date of death, the legislation contemplates interest becoming payable from a date twelve months after death on the difference between the duty ultimately assessed and any deposit made on account of the duty. The applicable rate of interest is prescribed from time to time by the responsible Minister.

Delay in administering an estate can therefore have a financial cost. Executors should identify potential estate-duty exposure early, obtain the necessary valuations and tax advice, and where appropriate consider making a payment or deposit rather than waiting for the estate to be finalised.

5. Capital Gains Tax and the Sale or Distribution of Estate Assets
Capital gains tax should also be considered whenever an estate contains immovable property, shares or other specified assets. Importantly, the Capital Gains Tax Act [Chapter 23:01] contains an exemption for amounts received or accrued on the realisation or distribution by the executor of a specified asset forming part of a deceased estate.

This does not mean that capital gains tax can be ignored in every transaction involving inherited property. The subsequent disposal of an inherited asset by a beneficiary is a separate transaction and may have its own tax consequences.

6. Transfer and Conveyancing Costs
Where an estate contains immovable property, beneficiaries should also budget for the legal and administrative costs associated with transferring title from the deceased estate. These may include:

• conveyancing fees;
• Deeds Registry charges;
• valuation costs;
• rates clearance and related municipal requirements;
• advertising costs;
• costs of obtaining certificates and other supporting documents; and
• professional fees arising from the administration and transfer process.

Not every transfer from a deceased estate attracts the same taxes that would arise on an ordinary sale. The applicable exemptions and nature of the transaction must therefore be examined before assuming that ordinary transfer taxes apply.

What Does the Estate Actually Have to Pay?
Families should therefore distinguish between the different categories of expenses that can arise following death:
(a) Master’s fees – presently 4% of the gross value of the estate, including estate revenue;
(b) executor’s remuneration – a separate administration cost determined levied at %
(c) estate duty – potentially payable at up to 5% on the dutiable amount after applying the statutory deductions and threshold;
(d) interest on unpaid estate duty – potentially arising where estate duty is not dealt with within the statutory periods;
(e) property transfer and conveyancing costs – where immovable property must be transferred;
(f) valuation, advertising and administration expenses; and
(g) professional and legal costs – particularly where the estate is complex, contested or involves businesses, trusts, companies or assets in more than one jurisdiction.
 

The cumulative effect of these expenses can be significant. Beneficiaries in an Estate may inherit substantial wealth, yet immediately following death, the estate may have to fund Master’s fees, executor’s remuneration, valuations, estate duty where applicable, professional expenses and transfer costs. If the estate has insufficient liquid funds, the executor and beneficiaries may face difficult choices, including raising finance, contributing funds or disposing of an asset. A comprehensive estate plan should consider both the destination of wealth and the liquidity required to transfer that wealth efficiently.

Death has both legal and financial consequences. The administration of a deceased estate can involve Master’s fees, executor’s remuneration, estate duty, transfer costs, professional expenses and, where estate duty remains unpaid, interest. Estate planning should therefore begin during one’s lifetime – not after their death.

Our Estates Practice Group advises individuals, families, executors, trustees and businesses on estate planning, succession, taxation, trusts, property structuring and the administration of deceased estates. For further information or assistance: info@mmmlawfirm.co.zw

This article is intended for general information only and does not constitute legal, tax or financial advice. Estate and tax consequences depend on the circumstances of each estate and professional advice should be obtained before taking or refraining from any action.