Living your partner’s dying wish

Jonathan Faurie, FAnews Journalist

Death is never an easy topic to think or talk about, however, it is necessary. The reality of the world today is that it is a more dangerous place than it was 50 years ago, and premature death is a reality. What type of a conversation are you having with your clients regarding this?

Spouses depend on each other for a lot of things. Aside from emotional support, one spouse often relies on the other spouse for financial dependence. Are we prepared for the dreaded situation where one spouse outlives the other? Are your clients in a position to take on their partner’s dying wish of living a financially sound life?

Saying goodbye to loved ones

The issue of spouses outliving each other can be a complicated situation with many aspects that need to be dealt with. These were some of the topics outlined in Sanlam’s recent Life Surprises Survey.

Karin Muller, Head of Growth Market Solutions at Sanlam Personal Finance, says that while clients may not think that there are major ramifications to this, the problem is more complicated than they realise.

“The financial implications of spouses outliving each other will vary based on how the family’s finances are structured. If people do not plan financially for the likelihood that they will outlive their partners, they may find themselves in financial dire straits, especially if their partner was the breadwinner. This is especially pertinent if the family did not plan together for the financial implications of the breadwinner passing away before the rest of the family,” says Muller.

She adds that many people in the survey also indicated that they had to unexpectedly support dependents. The issue of financial security is not necessarily only restricted to the remaining partner, but can have an impact on the broader family structure. The imperative is a conversation amongst family members to ensure that planning for life’s unexpected ‘surprises’ actually happens, and that every family member understands what their financial situation and responsibilities will be.

The role of the adviser

This is serious business, and demands a strategic conversation with an adviser to formulate a short-term and medium-term saving strategy to overcome this challenge.

“First and foremost this journey cannot be attempted without the assistance and guidance of a trusted adviser. During the annual holistic financial planning discussion between the adviser and his client, a comprehensive analysis of needs should be conducted to ensure that any changes within the family are considered and appropriate solutions are suggested. A proper financial plan will consider different scenarios; either one partner passing away before the other, as well as what will happen if they both pass away. It is important to consider this when you structure your will and your retirement income,” says Muller

Clive Hill, Legal Adviser at Sanlam Trust says when buying pension annuity, it is important not to select a package that would give the surviving partner the lowest pension even if you are on a tight budget. Expenses tend to increase over time and need to be anticipated. He also says that you need to pay a lot of attention on how your will is structured because it may have a significant impact on the financial position of the surviving spouse. “People sometimes do not provide specifically for their surviving partner in their wills, leaving the main assets to their children, and what is left to the spouse, which is often not enough,” says Hill.

Are South Africans forward looking?

There have been many reports in the industry about the poor savings culture that is prevalent in South Africa. We prefer to live in the now and hope that the future will take care of itself. This is a problematic approach as it does not leave any room for the reality that life happens. There is a significant chance of a life event, death or critical illness, financially impacting a family then the future miraculously sorting itself out, and if you are not financially prepared for life events, you may find yourself in dire straits.

“While life insurance is a very important element of financial planning, it is only a portion of individual financial planning. The possibility of outliving one’s partner calls for a holistic perspective on financial planning, and can take into account other forms of saving to secure the financial future of a family. Apart from ensuring that a regular income is available to the surviving partner, it is essential for the financial planner to have established in advance what implications the Capital Gains Tax and Estate Duty levied on the deceased estate could have on the surviving spouse’s financial well-being,” says Muller.

The importance of life insurance

More importantly though, is purchasing life insurance from an early age. Although the last insurance gap statistics by True South Actuaries and Consultants, conducted on behalf of the Association for Savings and Investment South Africa (ASISA) showed that insurance policy sales increased by between 9% and 10% per annum since 2010, the South African insurance gap increased to R24 trillion in 2013 from R18.4 trillion in 2010. These figures show that the gap has widened by between 9% and 10% per annum - exceeding inflation by about 3% over the period. The insurance gap has remained largely unchanged at around 60% over that three year period.

“The biggest danger of this gap is that there are many people who are not prepared for life’s unexpected events. The Sanlam Life surprises survey shows that the impact on people’s lives if they are not financially prepared for these events can be devastating, both financially and emotionally,” says Hill.

Editor’s Thoughts:
Short-term sacrifices are often needed in order to achieve long-term gains. The points highlighted in this newsletter are not pleasant think about, but they are necessary in order to secure the financial freedom of clients later on in life. Financial planning needs to be strategic, diversified and well-rounded in order ensure that every challenge that life throws at your clients will have adequate financial backing to overcome them. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.