Portfolio

Life is uncertain, so plan wisely

Shashi Singh | Updated on December 25, 2019 Published on December 24, 2019

Bequeath your assets judiciously and share investment documents with your loved ones

Last month, while talking to one of my friends, I came to know that one of our common colleagues had recently passed away. It came as a big shock to me because he was in his early 40s, and appeared healthy. He was extremely busy but stress never showed on his face. He was always smiling, highly approachable and would go the extra mile to help everybody. Obviously, it was too early for him to leave this world.

He is survived by his wife, his parents and two children aged 11 and 7. He was the sole breadwinner and was earning reasonably well. He was a rising star at work, loved and admired by all. He had given a good life to his family including good education to the kids.

His wife, a well-educated woman, had been in a dilemma on whether or not she should take up a full-time job or a part-time one. She chose the latter. She wanted to see their off kids to school and pick them up when school closed. She did not want to miss the joy of seeing them grow. Since their family could afford it, it was an easy decision for her.

My colleague used to be extremely busy, and hence never found the time to gain in-depth knowledge of financial planning and investments. His investment approach was chaotic and mostly driven by inputs and advice from folks in his inner circle.

A large amount of his money was earning a meagre 3.5-4 per cent in the bank savings account. He had bought a few endowment policies to appease his father and cousins, which would not return much at maturity. His early investments in real estate had done well and that encouraged him to take bigger bets in the area with borrowed money but that did not work for him.

Demonetisation and the implementation of the Real Estate Regulatory Authority (RERA) Act resulted in curbs on black money transactions, reduction in demand and price stagnation in real estate. He had bought a home where his family was residing and owned another house and a piece of land.

His equity exposure was largely through company stocks. This was significantly concentrated exposure which had performed well earlier but was languishing in the last five years.

His death changed everything for his wife and the rest of the family. But life has to go on.

Inventory of assets

The first and foremost task for his wife was to get an inventory of all the assets. She knew very little about the family’s finances, as all the financial transactions were initiated, negotiated and closed by him. Her husband tried to ‘educate’ her a few times but it was invariably postponed. He had not shared with her any physical or digital documents with a comprehensive listing of assets owned by them.

She started gathering the details. She did not have the user id and password of the email address registered at the bank so she was unable to check any relevant historical digital communications from the bank.

She went through all the physical financial documents kept at home. She reached out to her husband’s bank relationship manager and his close friends to garner additional details. Further, she collated a list of assets but was not sure if it was comprehensive. This is still work in progress.

Her husband had an account in a private bank and another in a public sector bank (PSB). While she was the nominee in the former, the latter had not been updated with a nominee, since her husband had opened the account a long time back.

In the absence of a Will, the PSB account required additional documentation as the bank had to ensure that the balance reached the right beneficiary per the Hindu Undivided Family Act.

Her husband had taken a term life insurance for ₹50 lakh, which was an impressive amount when he had initially taken it in his bachelor days, but inflation had reduced its worth.

At the time of taking the policy, the nominee was his father, which he neglected to alter in due course of time. The claim filing process was cumbersome as his wife had to arrange for multiple documents to prove the validity of the claim and identity of the claimant, which in this case was her father-in-law. She had to make multiple visits to the insurance office with her father-in-law to get the claim paid.

My colleague had good health insurance coverage from his company. While he wanted to take another family floater health insurance outside the company, it never materialised. With his death, his family lost the company’s health cover. His wife is now working to port her husband’s company family floater to a private insurer.

Her husband was covered through the company’s group life insurance policy. His company facilitated the insurance payment through the insurer. He also had life cover via Employee Deposit Linked Insurance (EDLI), being a member of the EPF at the time of death. The company supported his wife in reaching out to the EPF Office to claim the Provident Fund amount and the insurance claim through EDLI.

My colleague had around ₹9 lakh in his PPF account but here, again, the nominee details were not updated. Since the amount was more than ₹1 lakh and there was no Will, his wife was required to procure a succession certificate to prove claim ownership. She is in the process of procuring the certificate but the process is cumbersome.

Real estate investments

He had purchased land with the hope of getting good returns but its value, instead of going up, has come down by 20 per cent over the past five years. His wife wants to sell the piece of land as she has heard horror stories of land grabbing in that area.

My colleague had also bought a house in another city which he had let out. But the rental income is a meagre 2-3 per cent of the value of the house. Good tenants were hard to come by, he found, and the house stays vacant for approximately two months in a year. Now, his wife finds it difficult to monitor and maintain that property as it is in a different city. She wants to sell it at the earliest and move the proceeds into a more liquid investment instrument.

The last few months have been extremely challenging for her. Losing a loving husband who provided solid financial and emotional support, and taking over his role to care for the family, have not been easy.

In hindsight, she wishes she had taken an active interest in family finance and worked closely with her husband to get the planning done. This would have ensured that the non-negotiables — such as comprehensive term life insurance — were in place. A family floater health insurance outside his employer would have ensured continuity in health coverage. The balance in the savings account should have been deployed in the right debt investments to give inflation-beating returns. The right asset allocation would have trimmed exposure in illiquid assets such as real estate. The equity investment in a single stock should have been diversified via mutual funds.

From an operational perspective, easy access to all key documents, and having joint accounts and nominees for all investment instruments, is a no-brainer. To tie up loose ends, creating a Will would have ensured a smooth transfer of assets to the heirs.

The writer is a SEBI-registered adviser and founder of finmyn.com

Published on December 24, 2019
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