Insights

Heartache of death and liquidity… 

by | Mar 25, 2024 | Advisory Services | 0 comments

How often do you do a budget?  Some of us might do a budgeting exercise monthly, some of us never, but how often do you think of having a budget for death…  It sounds silly, but think about it… 

Charity starts at home…

One needs to consider, how much money your spouse or partner will need on your passing to cover expenses for example school fees, rates & taxes, levies, electricity, insurance, medical aid, phones, services for example DSTV and Wi-Fi and streaming platforms, etc. (no one wants to push the exit button and leave your teenagers without Wi-Fi, it will be a recipe for disaster!)

Plan for it by making sure your dependents have access to sufficient cash to cover at least 3 to 6 months’ expenses or until such time that the Executor can either take over these payments or can distribute funds from the Estate. 

Planning could also include:

  1. Savings accessible to your spouse / heir(s), which can ensure quick cashflow to cover monthly expenses, on your passing.
  2. Make sure your spouse/ partner or heir(s) know what your monthly expenses are, by keeping an updated life file.
  3. Ensure your partner or spouse has his / her own bank account, which will not only give them a sense of security, but it will make life easier to transfer important debit orders when an account already exist. 

Every so often, we see heirs / family members withdrawing funds from the deceased’s bank account shortly after his / her passing. It comes as a big surprise, when we request the heirs or family members to refund these withdrawals because of liquidity issues in the Estate to cover liabilities and administration cost.  Proper planning can prevent this.   

Life’s lessons applicable to estates… 

Liquidity issues in Estates is on the rise, due to the current economic environment, we see more and more estates with assets, such as Unit Trust investments, share portfolios, fixed properties, etc., but with limited or no cash, which causes a liquidity issue. 

How can you avoid this? 

  1. Planning & knowledge – know what Executor’s fees are charged on your Estate, what other administration expenses there will be, and what your liabilities are…  and do not forget the tax man! Friendly warning:  be careful of policies that are linked to a specific service provider, executor service, or your Will, as when you want to change the service provider, your executor, or Will to another company, this policy will lapse, and you will lose the premiums that you have paid and will have no benefit cover.    
  2. Educate your spouse / partner / heir(s) to not withdraw the cash in your account after your passing, it’s illegal and can lead to a cash shortfall in your estate, to which your heirs may need to contribute.

What does it mean if there’s a cash shortfall in your estate?  It means the Executor will sell assets to create liquidity, this can mean that the beneficiaries will inherit less than what was expected, or worse case, nothing at all.  

But now you have passed away, your heir(s) have depleted your accounts, and you did not make provision to cover costs / liabilities – now what? 

The Executor will in consultation with your heir(s) decide to:

  1. Request the heirs to contribute towards the cash shortfall (keeping in mind, this is not an insolvent estate, where the liabilities exceed the assets, it’s merely a cash shortfall due to insufficient liquidity.  Abatement of legacy might be applied, meaning that an heir needs to contribute proportionally to the estate, pro rata in line with the inheritance.
  2. Sell assets (this should only happen after consultation and agreement with the heir(s)) – the executor will sell movable assets and redeem investments (partially or in full) first. As a last resort will the executor sell a fixed property unless otherwise agreed.

How can we assist? 

There is a fine line between the cold hard truth of the red tape and paperwork of estate administration, and the emotional side of people going through one of the most traumatic experiences of losing a loved one. It is important to find the right balance to ensure you leave a legacy and good memories.  

All these options have an emotional impact on your heirs, especially if the option is to sell a family home, or something of sentimental value. 

Request us to do an Executor’s Fee calculation for you, when we draft or review your Will, by doing this you can determine what the administration expenses will be in your Estate, and you can plan accordingly. 

Should you need more specific and tailor-made plans and structures, contact us at Sentinel International for peace of mind. 

Author: Marietjie Strauss