Frozen estates — how to plan for the everyday while your affairs are wound up

Question

We are married in community of property and worried that if one of us dies, everything will be frozen for months or maybe years while the estate is wound up. I don’t want the survivor begging the Master of the High Court for an allowance just to buy groceries. What can we do to prevent this?

Answer

The sad reality in South Africa is that estates are taking a long time to be finalised. Before anything meaningful can happen, the Master of the High Court must issue letters of executorship, and that alone can take weeks.

From first notification to final account, eight months is quick, and three years is not unusual. During that period, accounts in the name of “Mr & Mrs” can be locked, debit orders bounce and a well-off family can find itself short of cash.

However, you can create a structure that keeps money flowing to the survivor while the estate machinery grinds on.

Understand what actually freezes

In a community-of-property marriage, you and your spouse own a joint estate. On the death of either, this joint estate is in effect frozen until an executor is appointed and can act. This does not mean that every rand is untouchable.

What typically causes problems is the everyday joint current account and the debit orders that run off it. If the account is in both names or the bank has recorded it as part of the joint estate, it will be stopped as soon as the bank is notified of the death. Sole-name accounts are normally accessible to the surviving owner, and this distinction is the lever we use.

The easiest way to reduce “freeze risk” is to close the joint transactional account and run two individual accounts, one in each spouse’s name. You can split your monthly income streams so each account receives enough to cover that person’s standing debits and day-to-day spend. The point is that if one spouse dies, the other’s account keeps working the next day.

As a rule of thumb, aim to keep at least 12 months’ living expenses in each spouse’s own name. It sounds conservative, but it buys emotional breathing room.

Attach beneficiaries

Check that your life insurance policies name your spouse rather than the estate as a beneficiary. Similarly, with your investments, if there are beneficiaries attached, the proceeds can be paid outside the estate and without waiting for the executor.

If you are older than 55 and have a retirement annuity (RA), convert it to a living annuity. This can accelerate the payout mechanics for your spouse because the living annuity pays directly to beneficiaries. RAs often take a while to pay out as the board of trustees need to check that there are no other deserving dependants.

The key action is to audit every policy and investment, and confirm that a beneficiary is attached where the product allows it.

If either of you has a life annuity that guarantees an income for life, ask what happens on first death. Is it a single-life annuity that ends, or a joint-life with a 50%, 75% or even 100% continuation? If the income will reduce, build that reduction into your cash-flow plan now so the survivor isn’t blindsided.

Update your will

A good will is one that is up to date, unambiguous and executable without drama. If you’ve changed bank accounts, added endowments or moved RAs into living annuities, your will should harmonise with this structure. Avoid gifts that depend on selling illiquid assets under time pressure.

Choose your executor wisely

The executor plays a key role in the speedy execution of your estate. The executor should be big enough to have the resources to deal with the Master’s Office and financial institutions efficiently, but not so big that you become a reference number in a call centre queue. Ask who will physically work on your estate, what their pipeline looks like and how they communicate. Negotiate a fee in writing. A competent, responsive executor is worth months in saved time. DM

Kenny Meiring is an independent financial adviser. Contact him on 082 856 0348 or at financialwellnesscoach.co.za. Send your questions to kenny.meiring@sfpwealth.co.za

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.