Will your family avoid a cash-flow crisis on your death?
When you die, your bank accounts are frozen and, if you are married in community of property, your spouse’s may be too. You need to ensure that your loved ones have enough funds to live on immediately after your death. If you have not made provision for this, they need to know what to do to avoid being cash-strapped.
The law and its practitioners are not as inhumane in this regard as you may have been led to believe. In fact, those involved in the administration of a deceased estate, including the Master of the High Court, the executor of the will, law firms and banks, are not prevented from making funds available to cover the funeral and the living expenses of dependants. The Administration of Estates Act specifically makes provision for these expenses.
When a person dies, his or her assets must be frozen so that the executor or administrator of the estate can correctly assess the value of the estate and, once all claims on the estate have been settled, distribute the remaining assets to beneficiaries in terms of the will. What cannot be allowed to happen is that someone with access to those assets transfers them in any sizeable quantity out of the reach of the executor without the executor’s knowledge.
A recent blog by Bellville law firm VisagieVos Attorneys outlines the process for winding up an estate:
• “The death must be reported to the Master of the High Court, and the will [which, if correctly drawn up, must name the executor, who could be an individual or a company such as a law firm] must be sent to the Master’s office.
• “The Master will then formally appoint the executor by sending him or her an executor’s letter and allocating a unique estate number to the estate. This estate number will be used in all future correspondence with the Master’s office.
• “As soon as the executor has been appointed, he or she should open a new bank account in the name of ‘Estate Late XYZ’ according to the stipulations of the Administration of Estates Act. All monies belonging to the deceased (and his or her spouse in the case of a marriage in community of property) in any other bank accounts will be transferred to the new bank account in the name of the estate.
• “All estate funds will then be administered in the estate’s bank account by the executor until the liquidation account (statement of assets and liabilities) is approved by the Master and has been open for inspection and remains unchallenged. The executor will then be in a position to distribute estate assets and finalise the administration of the estate,” VisagieVos says.
Once the executor has been appointed by the Master, he or she is in a position to grant the surviving spouse a cash advance to cover living expenses.
However, VisagieVos notes, it can take from three weeks to three months, or even longer, for the executor to be formally appointed by the Master. The banks, on the other hand, will freeze accounts immediately on being notified of the death, which is the responsibility not of the executor but of your immediate next-of-kin.
It is this interim period, between the banks freezing accounts and the executor being appointed, that may present a cash-flow problem for your dependants.
Ideally, you should prepare for this, just as you need to make other preparations in the event of your death, such as drawing up a will. The options are:
• Put aside or save up an appropriate amount – for example, to cover the funeral and four months’ living expenses for your dependants – in an account in a spouse’s or dependant’s name to which your dependants will have access.
• Take out a life policy or funeral policy, even for a relatively small amount (say, R150 000), to cover the funeral and four months’ living expenses for your dependants. Providing there are no hitches, such as an assurer questioning the validity of a claim, such a policy will normally pay out relatively quickly after your death.
Your spouse has the following options open to him or her in the face of being cash-strapped:
• If your death is not sudden – for example, you are afflicted by a terminal illness – and your spouse is the only beneficiary, Werner Greeff, a partner at VisagieVos Attorneys, says your spouse should withdraw enough money for the funeral and four months’ living expenses before you die.
• If you die suddenly, Greeff says, your spouse may make a withdrawal before notifying the bank of your death.
Your spouse must keep records for the executor of the withdrawal and what it was used for, so that the executor can include it in the liquidation account as maintenance expenses.
• Take out a personal loan from a bank (see “Standard Bank”, under “What the banks do”, below).
WHAT THE BANKS DO
Theoretically, all accounts belonging to a couple married in community of property should be frozen on the death of one spouse, because the assets form part of a joint estate. In practice, however, the banks will freeze your accounts if you die, even if your spouse has signing powers, but they will usually not freeze accounts that are in the name of your surviving spouse alone.
Personal Finance asked the big five banks to outline their policies, particularly in the case of couples married in community of property. Their responses are as follows:
Riaan Botha, the national manager, Absa Wills, Estates and Trust Services, says: “Prior to the appointment of the executor, the Administration of Estates Act allows for the funds in the communal estate to be accessed in order to provide for a suitable funeral for the deceased, or for the subsistence of his or her family.
“Once appointed, the executor is legally bound to freeze the accounts of the joint estate. However, in practice, the spouse is permitted to continue transacting on his or her personal accounts. This is the stance taken by Absa Trust in support of the spouse and to ensure continuity in the management of his or her living expenses.”
The Capitec legal team says Capitec does not freeze the surviving spouse’s savings account. “Should the surviving spouse require funds from the deceased spouse’s account for the funeral expenses, they can approach the Master of the Court, who will issue a letter requesting us to release a stipulated amount for the funeral expenses of the deceased. If we receive this letter, signed and stamped by the designated official, we assist in transferring the funds to the nominated party,” Capitec says.
First National Bank (FNB)
Vijay Morarjee, the chief executive of FNB Fiduciary, says: “We are not in the practice of freezing the separate account of the surviving spouse, unless instructed to do so by the executor of the community-of-property estate.
“Many surviving dependants of the deceased (or of the surviving spouse in a joint estate) are not always aware of the provisions and concessions contained in the Administration of Estate Act regarding interim distributions from the deceased’s accounts for the costs of a suitable funeral, for the maintenance of his or her family and preserving or maintaining any part of their property.
“There are various alternatives that can be leveraged to provide liquidity. Some of the common approaches include the use of trusts, funeral policies and life cover.”
Trish Brown, Nedbank’s senior legal adviser for retail and business banking, says: “ While we are legally obliged to freeze all bank accounts that form part of a joint estate where the clients are married in community of property, we do try to assist our clients as much as we can. The surviving spouse must arrange for the appointment of an executor as soon as possible. We will take instructions from the duly appointed executor, who is empowered in law to provide for the funeral expenses and living expenses of the surviving spouse.
“To the extent allowed in law and under certain exceptional circumstances, and against the provision of relevant documentation, we may consider allowing the surviving spouse to use funds to pay for funeral and living expenses before the executor is appointed.”
“Legally, the bank is not permitted to allow a surviving spouse to have access to a deceased’s bank account. The surviving spouse can, however, approach the bank for access to a credit facility in his or her personal name in order to pay for funeral or living expenses prior to the executor taking charge of the estate. These applications are subject to the normal credit evaluation rules,” Standard Bank spokesperson Ross Lindstrom, says.