When the owner dies, the business still needs a number — and a guess is the most expensive one
A business is usually the largest and least liquid asset in an estate. The figure the executor settles on drives estate duty, capital gains tax and what each heir actually receives. Here is why that number needs to be independent and defensible — not a placeholder.
When a business owner dies, the company does not pause out of respect. Staff still need paying, customers still need serving, and somewhere in the middle of the grief an executor has to attach a value to the owner’s interest in the business and report it to the Master and to SARS. That single figure does more work than almost any other number in the estate. Get it wrong and the cost lands on the people the owner was trying to provide for.
Where the number actually goes
The valuation of the deceased’s interest feeds three separate decisions, and they pull in different directions.
First, estate duty. The business interest is an asset of the estate, and the dutiable estate is taxed once the abatement and allowable deductions are applied. A higher value means more duty.
Second, capital gains tax. Death triggers a deemed disposal of the owner’s assets at market value, so the business interest can generate a CGT charge in the deceased’s final return — again driven by the value placed on it.
Third, and most personally, what each heir receives. Where one child inherits the business and another inherits cash or property, the value of the business decides whether the will is honoured fairly or whether one beneficiary is quietly short-changed. That is the version that ends up in a dispute.
The rates and thresholds for estate duty and CGT change from year to year, and the deductions interact in ways a tax adviser should confirm for the specific estate. But the structural point does not change: the value of the business is the lever under all three outcomes. It is the last number anyone should leave to a round guess.
Why the accountant’s figure usually isn’t the answer
The instinct is to take the net asset value off the latest financials, or to ask the company’s accountant for a number. Both are understandable and both are usually wrong for an estate.
The accounting net asset value reflects historic cost and tax-driven depreciation, not what a willing buyer would pay. A profitable services business can show almost nothing on its balance sheet and be worth several million rand; an asset-heavy business can show a large balance sheet and be worth less than the assets, because it cannot earn a proper return on them. And the company’s own accountant is not independent of the family — which is exactly the objection the Master, SARS or an aggrieved heir will raise if the figure is ever tested.
A defensible estate valuation works the other way around. It establishes what the interest was worth at the date of death — the value date is fixed and cannot be moved to suit anyone — on a proper basis of value, normalising the earnings for the owner’s own remuneration and any once-off items, and then sense-checking the result against the net asset position as a floor. Where the business cannot run profitably without the person who has just died, that has to be priced honestly, not wished away.
The owner-dependence problem
This is the hard part of valuing a business in an estate, and the part a placeholder number always ignores. Many owner-managed businesses are worth a great deal with the owner in the chair and considerably less without them. The relationships, the technical knowledge, the personal guarantees to the bank — these often walk out the door with the founder.
A valuer has to ask the uncomfortable question: how much of the maintainable earnings survives the owner’s death? If a meaningful share depends on the deceased personally, the defensible value is lower than the going-concern figure the family would like to see. Inflating it to honour the deceased does the heirs no favours — it raises the duty and the CGT today against earnings that may not materialise tomorrow.
The discount nobody mentions
If the estate holds a minority interest — say the deceased owned 30% alongside two surviving partners — there is a further adjustment that catches families out. A minority holding that cannot control the company, and cannot easily be sold to an outsider because of pre-emptive rights in the shareholders’ agreement, is worth less per share than a controlling stake. Discounts for lack of control and lack of marketability apply, and they are legitimate. They reduce the value reported to SARS — which usually helps the estate — but they have to be supported by the actual rights and restrictions, not pulled from the air, or they will not stand if the figure is challenged.
What a defensible estate valuation gives the executor
The point of doing this properly is not tidiness. It is protection. A written, independent valuation pinned to the date of death gives the executor a figure they can defend to SARS if the duty or CGT is queried, a figure the Master can rely on, and a figure that lets the executor distribute the estate without one heir later claiming the business was undervalued to favour another. It converts the single riskiest number in the estate from an exposure into a documented, reasoned position.
It also has to be timely. Estates have their own pace, but the financial information rarely improves with age and the value date is already fixed — so there is no advantage in delay. Once the financials and the answers to a few key questions are in hand, the work moves quickly.
If you are administering an estate that holds a business interest, the first conversation is free. No pitch, no pressure — send me the one question you have and I’ll answer it personally, by WhatsApp or email. Where a full valuation follows, the fee is fixed and scoped to the estate, never contingent on the figure, and most are completed within about a week once I have the information I need.