Can your estate pay its own costs?
Many people assume that because they own a house, cars, and a retirement fund, their deceased estate is financially secure. However, wealth on paper is very different from actual cash in the bank.
Estate liquidity is the measure of how much accessible cash an estate has available to settle its immediate debts and taxes. If an estate lacks cash, the executor is legally forced to sell off the family's physical assets to pay the bills.
The mandatory costs of dying
When a person passes away, their estate immediately faces a series of mandatory financial obligations. These must be paid in cash before any heir is allowed to inherit.
- Outstanding debts: the full balance of any home loans, vehicle finance, and credit cards.
- Executor fees: the executor is legally entitled to charge up to 3.5% (plus VAT) on the total gross value of the estate. On a R3 million home, that fee alone exceeds R120,000.
- Taxes: the South African Revenue Service (SARS) claims any final income tax, capital gains tax, and estate duty owed.
- Administration costs: fees for the Master of the High Court, advertising in the Government Gazette, and conveyancing attorneys to transfer property titles.
The forced 'fire sale' trap
An executor cannot simply transfer a house to a beneficiary if the estate still owes money to the bank or to SARS. If there is a cash shortfall, the executor is legally required to raise the missing money.
Often, this means the executor must sell the family home, a farm, or business shares. This can lead to a distressed sale where assets are auctioned quickly and below market value, completely defeating the intentions set out in the deceased's will.
How life insurance fixes the shortfall
To protect physical assets from being sold, estate planners use life insurance strategically as a cash injection.
By taking out a specific life policy and naming "my estate" as the beneficiary, the policyholder guarantees a lump sum will pay directly into the estate's bank account upon their death. The executor uses this cash to settle the bank, SARS, and their own fees, preserving the physical property so it can be transferred safely to the heirs.
The danger of retirement funds
A common mistake is assuming that a large company pension or retirement annuity (RA) will provide cash for the estate.
Under Section 37C of the Pension Funds Act, retirement savings do not fall into the deceased estate. The fund trustees pay that money directly to financial dependants. Because that money bypasses the estate entirely, the executor cannot use it to settle a home loan or pay estate taxes.
Bridging cash for the family
Estate liquidity is not just about paying the executor and SARS; it is also about family survival.
When a person dies, their bank accounts are immediately frozen. It can take months, or even years, to fully wind up a complex estate. A separate life insurance policy that nominates a spouse as the direct beneficiary pays out quickly, providing the surviving family with immediate cash to buy groceries and pay school fees while the formal estate process drags on.
Terms used on this page
- executor
- The person or institution appointed to wind up a deceased estate — collecting the assets, paying the debts and costs, and distributing what remains to the heirs.
- estate duty
- A tax levied on the total value of a deceased person's estate, payable before the remaining assets are distributed to heirs.
- conveyancer (transferring attorney)
- The specialist attorney who moves ownership of a property from seller to buyer at the deeds office. Chosen by the seller, but paid by the buyer.
- section 37C
- The rule in the Pension Funds Act that puts a retirement fund's trustees — not your will — in charge of dividing your fund benefit among your dependants and nominees when you die.
- liquidity
- How quickly and easily an asset can be converted into cash without losing its value or facing restrictions.
Sources
Reviewed July 2026