Can children afford to lose both their parents?

Many investors who are parents tend to overlook the bureaucracies and legalities that are involved in a death.

IN the world of financial planning, part of building a wholesome and robust plan for yourself and your family is preparing for the eventuality i,e. your demise.

This is why we take precautions such as getting a life insurance plan – to ensure that in the eventuality of your death, the financial stability that you’ve built for your family is minimally affected.

However, is your financial planning robust enough to withstand a double tragedy?

In the event where your children lose both their parents, do they have the right financial contingencies to maintain their lifestyles? Or will they have to fend for themselves on top of all the tragedy that has happened?

You may think that this is a redundant question. You may be thinking that with the insurance payouts, investments and Employees Provident Fund’s between you and your spouse, your children should be able to continue with their lifestyles without worrying much about finances.

In my experience, this is not usually the case.

Many investors who are parents tend to overlook the bureaucracies and legalities that are involved in a death, particularly in a double death where both parents are gone and unable to provide any input on their accumulated estate.

Let’s take the example of the case of Mr and Mrs Lee that I came to know of a few years back.

Mr Lee was a successful contractor while Mrs Wong was a full-time housewife.

They were typical upper middle class wage earners and investors, actively putting aside and growing their family’s finances.

Tragically, Mr and Mrs Lee were involved in a fatal car crash while driving home one night and passed away.

Family members immediately rushed in to help the children, aged nine, 12, 16 and 20.

But as Mr and Mrs Lee were both very private with their finances, no one knew where to look for their will, nor were they aware if they even had one, to begin with.

It took months before one of their aunts found the will under the couple’s bed while assisting to spring clean their house.

Even though Mr Lee had the foresight to appoint his brother as the executor of his will, Mr Lee had assets accumulated in Singapore, Australia, the United Kingdom and Malaysia.

This made it challenging for his brother to gather all the information on his assets.

It finally took two years to clear the estate administration process and make the assets available to the children.

However, during those two years, family members had to raise money from friends and family to fund the children’s upbringing, and help finance the education of the oldest child who was pursuing a degree in law in the UK at the time of the parent’s death.

The case of Mr and Mrs Lee’s estate administration isn’t all that unusual.

Many families go through difficulties in freeing assets of a loved one after their demise.

However, in an event of a double tragedy, the circumstances can be more challenging. Here’s why:

In a single tragedy where one parent passes away, there is still the remaining parent who can help close this gap through work or their own savings while they wait out the administration process.

In a double tragedy, both the husband and wife’s assets will be frozen while waiting for the grant of probate of Letter of Administration (where both have passed away without a will).

It may take months or up to several years before all the administrative matters can be sorted out and the assets freed.

This could prove challenging for the surviving family members to finance their day-to-day living requirements, as parents usually only hold limited amounts of cash under their children’s names.

The financial crunch is even more critical, if they have a child or children studying overseas.

There is a high possibility for insurance payouts to be frozen in the event of a double tragedy, as chances are both husband and wife will appoint each other as the beneficiary of each other’s insurance policies.

In the case of the death of one parent, the payment of the proceeds does not fall under the estate of the deceased, therefore allowing the surviving spouse to use the money immediately.

If the beneficiary (the spouse) is deceased before receiving the payout from the policy, the money will fall under the estate of the deceased spouse, and would then need to await clearance.

Knowledge of assets

Further complications may arise even when a will has been written.

As there is no surviving spouse in a double tragedy, chances are no one has the knowledge of the bank accounts and assets the deceased possess.

In some cases, the location of the will itself is up for question, as well as the location of personal identification documentations.

Executor and guardian appointments

Spouses often name the other as the executor of their will.

This shortsighted arrangement may further delay the estate administration process; it leaves no executor or guardian in the event of a double tragedy.

On the other hand, experience has shown that without a living parent or spouse, the level of commitment and dedication by another appointed executor to move the estate administration process will hardly be the same.

Thus, burdening your loved ones further when the monies cannot be released promptly.

Making the preparation

Preparing for a situation where both you and your spouse are gone, does require more foresight than planning for your own demise alone.

To avoid any complications or unpleasant situations, I recommend taking the following precautions:

> Appoint a guardian and executor for your will to take into account the circumstances of a double tragedy.

This means appointing an alternate guardian and executor in case your spouse meets his or her demise with you.

It is also important that you appoint someone that you trust as a guardian to your children, and someone who you can rely on to make the right decisions for your children.

> Establish a private trust structure. It is unwise to assume that extended family members will be able step in to help out financially. Your extended family may run into financial difficulties themselves.

Besides, why put the burden of your children on others if you can help it?

Therefore, one of the best solutions to prevent your children from having an uncertain future is to establish a private trust.

As it is not part of the deceased’s estate, you ensure that your children have access to finances that can support their daily living while waiting for the estate administration to be cleared.

> Keep your will in the right place, and if possible, inform your children or someone you trust about its location.

This part may be tricky, as you’ll need to select a place that is easy enough for your dependents to locate for probate application, but not accessible enough for anyone to stumble upon.

> Draw up an inventory of assets. Keep an updated list of all the inventory and assets that both you and your spouse own.

This list may require some time to draw up as there are usually several assets or monies that we overlook and take for granted.

In an event of a double tragedy, your legal executor would have an index of all your accumulated assets, along with the location and access details.

This will make the whole estate administration process a breeze to execute.

Anticipating a double tragedy and planning for it is no doubt a grim activity to carry out.

No parent wants to imagine a painful future where they won’t be around to care for their children. Many find it difficult and overwhelming to contemplate such situations. However, if you plan it well, this momentary unpleasantness will go a long way in protecting your children from financial troubles in an already tragic situation.