Preparing for the Worst

Preparing for the Worst

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Preparing for your unexpected death may not be the most uplifting topic to talk about but it is very important in order to save your loved ones from any additional pain and suffering after your death. If you are one of the many people concerned that your partner or spouse will have to worry about money in addition to the stress and grief they will suffer if something happens to you, here are a few points to consider.

  • Ensure that your partner has access to money for the immediate expenses – preferably a bank account in his or her name.

    In practical terms, if you are married in community of property, or even if you are married out of community of property but only have a joint bank account, the bank manager is legally obliged to stop any access to your account the moment he is informed about your death. Most banks will handle the situation with compassion and, after having certified the amount in the account for estate purposes, will allow the surviving spouse to draw money for their immediate needs. But if they do not have an account it might mean that they will have to go through the process of opening an account in their own name.

    Having access to money does not mean that they have your pin and can continue to draw money from your account – this can be construed as theft from a deceased estate or defrauding the estate. The executor will have to take action as it might limit his ability to administer the estate.

  • The funeral costs will have to be paid even before the undertaker is prepared to move the body from the mortuary. Undertakers do not do funerals on ‘credit’. Make sure your surviving spouse has sufficient money available, or access to money (a loan from a child or family member, even sufficient credit in a credit card will do) to pay for the funeral. The funeral costs are usually reimbursed by the estate to who-ever paid for it, so it does not have to be a gift. Even a basic cremation – cheapest coffin, small service in the undertakers’ rooms – starts at about R12 000. And the minister and organist will have to be paid in cash. Other ways to ensure there is money for a funeral is to confirm if your family members can access your risk cover policies. Some employers offer a funeral benefit with their employee benefit schemes, while some of the insurance companies also allow family members to take an advance (sometimes as much as R50,000) on your risk cover policy – however, this might be subject to conditions. As a last option you might consider a funeral policy. If this route will be your way of preparing for the costs of a funeral, just make sure that the paper work has been done correctly and that the person you have nominated to claim the money can do so without any hassle.
  • Most people are worried about where the money will come from for the surviving spouse’s living expenses until the estate has been finalised. This is a real concern as it could take a number of months before the executor of the estate has been officially appointed by the Master of the High Court – and until the executor is appointed, he cannot legally give the surviving spouse the money for living expenses, even if the estate has sufficient capital for the purpose. The good news is that in most instances, if the estate has sufficient assets in it, it is not necessary for the estate to be finalised (which on average takes about 18 months) before the surviving spouse can access some of the capital. Most executors will arrange for the spouse to get some money for living expenses and things like rates & taxes.

    An option to ensure that your spouse has immediate access to capital is to nominate your spouse as the beneficiary on some of your insurance policies. This should pay to her/him directly and in a reasonable time – unless the death claim is delayed because the cause of death is due to violence such as murder, hijacking or an accident caused by a drunk driver. In such a case the underwriters will wait for a police report before they will pay the benefit – and this can take up to two years.

    If you assume that your spouse will get immediate money from your retirement fund, be aware that the trustees of any retirement fund – such as your pension fund at work or your retirement annuities – have 12 months in which to pay the benefit to your dependants. This is to ensure they make 100% sure that they pay to whoever has been financially dependent on you. This might not be a problem if you have an uncomplicated family structure, but with our modern families where you may have your children, your spouse’s children, and children from a previous marriage, this could be a serious problem.

    On the positive side, for retired people whose income comes mainly from their living annuity, most administrators of these funds will change the ownership of the structure as soon as they have the necessary documentation – your spouse therefore might miss one month’s income, but would soon after continue receiving a regular income. However, make sure he or she is nominated as a beneficiary on your living annuity investment.

  • The bond and other liabilities. One would think that your bank will be lenient because your spouse is to deal with your death and the estate is anyway responsible for settling all your debt. In practice, the bank doesn’t care – they want their money back. The best way to provide for this is to have a ‘bond’ policy which is payable to the bank in the event of your death. If the bond is less than the benefit on the policy, the bank will pay the rest to your estate.
  • As financial planner, I have heard some gory stories about the family and the deceased’s will – such as the search for the last will and testament that starts even before the deceased’s body has been removed to the mortuary. The lesson is to keep updated records and ensure that your spouse knows where to find the documentation – and maybe one other trustworthy person in case you die at the same time.

The most important gift that you can give your spouse is not to leave him or her in the dark about your affairs. Keep them up to date on the details of your estate plan, so that he or she can know what the situation is in the event of your death.

Of course, the first step is to have a financial planner draft a detailed estate plan to see if there is enough money and assets in your estate to cater for all your debts and sufficiently provide for your loved ones. A good estate plan will also advise on the most appropriate options to deal with all of the above issues.

Hesta van der Westhuizen
Hesta van der Westhuizen CFP is a Certified Financial Planner at Consolidated Financial Planning and has a BCom-degree and Advanced Post Graduate diploma in Financial Planning Law. She is also Chairperson of the Financial Planning Institute’s Risk committee. For more information please visit: www.consolidated.co.za