WHAT HAPPENS IN A DOUBLE TRAGEDY

IT is common for spouses to prepare for the possible loss of one spouse or parent.  But rarely do they prepare for the worst-case scenario - the loss of both their lives concurrently.

Take a case in hand.  Samy and his wife are in their mid-40s.  Samy is a high earning cardiologist with his own practice while his wife stays at home looking after their children.  They have three, aged 10, 15 and 19.  The eldest child is studying medicine in Britain.

The couple handle all matters related to financial decisions and planning.  In short, nobody but the two of them have knowledge of their assets and financial plans.  The couple have purchased a substantial amount of insurance to protect the family from any sudden loss.  Samy had written a will way back when the couple were having their first child.

The worst happens.  Both Samy and his wife die in a car accident.

The grief of the losses put aside, reality demands that financial matters be addressed promptly, or chaos could set in.  There's only one problem - no one knows where the will is kept or who the substitute executor is.  Eventually, they find the document but only after four months.

As it turns out, Samy has accumulated a substantial amount of assets in the country as well as abroad.  That also makes it a tad difficult for the executor to gather all the relevant information.  As a result, it takes almost two years to settle all the estate matters, and for the financial resources to be made available to the children.  During that time, the executor and other family members have had to continue to maintain the livelihood of the children, especially the one studying in Britain.

Most people understand the importance of estate planning and the consequences of not having a will.  Some, however, are quite comfortable with the distribution of their estate as per Distribution Act.  They are also not so worried with the delays in the distribution of estate because they would have provided enough assets under their wife's name, be it in cash or properties.  In short, it is not such a big issue for the family if they were to pass away without any planning at all.  This scenario is especially true to those who have high net-worth.

Unfortunately, this scenario is only valid with one assumption.  The assumption is that when you pass away, your spouse is there to take over everything.  However, we must not forget that our spouse can also pass away together with us.

In the case of a single tragedy, the spouse can be expected to diligently attend to the estate administration and distribution matters.  In most cases, he or she would have known whether you have left a will or not.  If yes, he/she would probably know where you kept it.  He/she will prepare all the necessary information and documents to be filed in court.  He/she will transfer the assets to the beneficiaries accordingly.  In the case where there are minors, you can also expect he/she to manage the assets for the children until they grow up.  The situation is not so complicated for the case of a single tragedy if there is a trustworthy spouse to attend to all the chores.

One of the most common mistakes made in estate planning is to overlook and underestimate the serious implication of a double tragedy, where husband and wife both pass away together.  This mistake happens not only to those who have not done anything about estate planning but also those who have done a certain level of estate planning.

 The Complications of a Double Tragedy

1.         In the event of the demise of both husband and wife, both estates will be frozen at the same time pending the application of Grant of Probate or the Letter of Administration (in the case of both dying without a will).

In most cases, where only very small and insignificant amount of cash is held under minors' names, there would practically be no financial resource available for the children.  If there is any child studying overseas, for example in the US or Britain, the financial difficulty becomes even more critical.  It may take from a few months to years before all the administration matters are settled and the assets become available for the children.  In a single tragedy, most of the family can expect the surviving spouse to continue to earn some income or have some savings in their names to maintain the living standard during this transitional period.

2.          In most families, the insurance proceeds would be frozen into the estate of both husband and wife.  The reason is simple. in most families with minors, husband and wife inevitably will appoint each other as the beneficiary of each other's insurance policies.  A trust policy is created under Section 166 of Insurance Act 1996 where the payment of proceeds does not form part of the estate of deceased policy owner.

 Such an arrangement is very useful for the single tragedy situation because the surviving spouse does not have to wait until estate administration is completed to use the money.  However, according to the book entitled Payment & Distribution of Policy Moneys by Jaswinder Kaur and K. Karunamoorthy, the appointed nominee's death before receiving policy moneys will not prohibit their estate from receiving the policy moneys beneficially.  As a result, in the situation of both passing away together, the insurance proceeds which is expected to be available outside the estate will go into each spouse's estate pending the estate administration clearance together with other assets.

3.          The estate administration process is further complicated in the event of a double tragedy even when there is a will.  In most families, the next best person who knows about your financial information other than yourself is your spouse.  That is not possible in the event of a double tragedy.  With the lack of readily available information, it will further delay the estate. administration process as compared to the situation where there is a surviving spouse.  In addition, the surviving spouse is normally more committed and feels the urgency to expedite the estate administration. in the absence of a surviving spouse, a trusted person may have to be appointed the executor to attend to the estate matters.  It is very unlikely then to find the same level of commitment and dedication as a surviving spouse.

4.          In most families, a will has been written with each spouse been appointed as executor of each other's estate with no substitute executor and guardian been appointed. This is a will that does not take a double tragedy into consideration.  The will would not have its executor and guardian in the event that both spouses pass away together.

It would then be complicated to appoint an administrator of estate and guardian for the minors.  It would further delay the administration process and cause more inconvenience for the dependents.

 SOLUTIONS

1.         Appoint a guardian and substitute executor in the will A will must be written with the consideration of a possible double tragedy in mind.  As much as we do not want a double tragedy to happen to us, we need to take every precaution to prepare our family for such an eventuality.

 2.       Establish a private trust structure

In the event that both husband and wife's estates are frozen, there would be no other source of income to support the children.  In most families, we can expect other siblings to take the initiative to support the children during such a situation.  However, there is no guarantee that they can afford to maintain the children's livelihood, especially if there are children studying overseas.  One of the ways to support minors in times like this is to set up a private trust to take care of them.  The main advantage of a private trust is that it is not part of the asset owner's estate, hence, the trustee can use the income and principal of the assets in the trust to support the livelihood of the children until the other assets in the estate are readily available to the children.

3.       Keep the will in the right place

To  keep the will in the right place is a challenging job.  You need to make sure that it is securely kept to ensure confidentiality of the content of the will and at the same you also need to make sure that the will can be located or retrieved for probate application.  As a result most of the times it is only your spouse who knows the whereabouts of your will.  In the absence of both you and your spouse, if the location is so secretly kept that no one else knows, then the will cannot be located and this would defeat the purpose of writing the will.  Even if it is finally located, the time taken would have further delayed the estate administration process and brought more inconvenience to the dependents.

 4.         Draw up inventory of afl assets

In estate administration, one important duty of the executor or administrator is to ascertain the extent of the assets and liabilities of the deceased.  If the deceased's estate is large and complex, the task becomes more complicated as the estate comprises all types of assets in different countries or in the names of nominees.  In most situations, the next best person to have all these information other than yourself, is your spouse.  In the event of a double tragedy, it is very unlikely that any other person who would have such information about your financial matters.

Hence, it is important to draw up an inventory detailing all your assets and the location.  Such an initiative would help to make the administration of your estate easier and more expeditious, especially in the event of a double tragedy.

TheSTAR BizWeek dated Saturday 14 February 2004

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