The ability for families and retired couples to plan effectively to protect their financial future can be hampered when just one person is entirely responsible for all financial matters.
That’s according to Jenny Williams, wealth planning specialist at leading financial and wealth advisory business GTC.
“Our team routinely consults with clients who are surprised – or even bewildered – when they find themselves to be the surviving spouse following a partner’s death,” she says.
Williams highlights that, particularly with the older Baby Boomer and Generation X population, financial affairs are managed solely by the husband, although this is less the norm with Generation Z.
“As it is statistically proven that most women outlive their husbands, leaving them out of important financial matters, particularly those specific details which are key to the daily management of family affairs, seems counter-intuitive,” says Williams. “An unexpected accident, serious illness, or a death will leave a surviving spouse with the onerous responsibility of having to make immediate financial decisions, often far beyond anything they have previously experienced.”
When the surviving spouse is out of the loop, they are left unaware of the location or status of investments and policies, or any of the withdrawal conditions or limitations relating to these. How much the car costs to service, what the home levies are, and what the gardener gets paid are facts painfully gleaned, usually whilst in a state of bereavement.
A common catchphrase heard in many South African households from the husband is: “Don’t worry darling, everything is under control.” While this is meant to be reassuring, the opposite is often the outcome.
So, what is the solution? How does a family or a couple fairly distribute responsibility for financial planning and management?
Williams says that other family members need to be empowered with all the relevant financial and home management information, particularly the other spouse, and this responsibility should be extended to children or other family members.
She says that there are two important criteria of family-wide financial empowerment: knowledge and authority.
Knowledge relates to specifics of the family’s finances and to “contextual knowledge” that helps to inform decisions regarding involvement in future planning. To accomplish this, the other important family members – be they a partner, spouse, or relevant child - should be invited to regular financial planning meetings held with the family’s financial adviser.
“More specifically, it is vital that more than one family member has access to – and knowledge of – a list of active policies and investments, debt obligations, account payments, bank accounts, and safe custody details,” says Williams. “Access must include knowledge of where these assets reside, as well as where keys, passwords, pin numbers and associated identity information can be found.”
Some of the important information that family members should be aware of:
• Do you have life, disability, or funeral policies, and if so, where are these documents stored?
• Are these policies up to date as regards beneficiary nominations? When last were they checked and updated?
• Do you know which policies apply and what will be payable? It is not enough to merely know of the existence of policies such as life cover. Different policies have different terms. This may have a significant impact on the amount being paid out and when it is paid out.
• Policies that cover life-changing illnesses may only pay out under specific conditions. It is therefore crucial that a surviving spouse, or other responsible person, knows under what conditions one can claim.
Williams also cautions that while the deceased may have significant assets, these are often not immediately available in the form of cash.
“A death is often accompanied by liquidity constraints even as ongoing debts are required to be settled. The winding up of an estate is often undertaken with long delays and subsequent cash-flow constraints,” she says.
Policies payable to the estate instead of to specific beneficiaries will contribute to settling estate duty obligations and other ongoing estate debts, though these proceeds do incur executors’ fees, which a beneficiary nominated policy would not. Structuring policies so they can be used to pay for these duties, without compromising the ability to pay for children’s education, for example, should be planned and discussed with an accredited advisor – and both spouses – long before death is realistically anticipated.
A will is a crucial component of estate planning and should be kept up-to-date and easily accessed upon death, by other family members.
“Our advisers always recommend that, in addition to the will, a letter of intent should be written for the surviving family members, explaining the nuances of how the financial affairs of the household are structured. This could describe assets that might not be traditionally accessible through the main banking account, such as Krugerrands or foreign investments,” Williams says.
It’s also important for younger families to encourage children to participate in the family financial planning processes. Ideas include using pocket money to teach children the basics of savings and financial literacy, or having open discussions about financing the family car, how this works, the repayment options and monthly commitments, the effect that it will have on the family budget, the maintenance and insurance costs and other hidden expenses.
“Financially educated children become better financially prepared adults,” says William. “They also are able to share the burden with a single parent after the death of the other.”
These types of discussions are more likely now that children and parents are often at home together (a positive by-product of Covid), as well as it being more accepted that both parents take responsibility for financial affairs.
In terms of signing authority, it is recommended that spouses keep (some) separate banking profiles – preferably separate accounts, but at the least a separate credit card in each of their names. This avoids issues such as blocked or frozen accounts in the case of the death of the single account holder.
It is important to know that even though spouses may empower a family member with a general power of attorney, this does not necessarily hold sway at all banking institutions. It is recommended that a Banking Power of Attorney be secured officially at each bank, in person.
Sharing knowledge and authority is empowering. Financial knowledge is about more than just money, translating into confidence, security, and shared goals.
“Distributing financial knowledge and authority amongst a household doesn’t just prepare that household for future financial security and succession, it strengthens it for today,” Williams says.