The parents of the deceased man are retired and depended on their only son for partial financial support as their pension is meagre. The daughter in law refuses to support them further. She says she is being realistic. There is now only one income, and there are two children who would soon go to college. She is staring at another 20 years of work fraught with risks of being laid off. Not a secure job like the ones her in-laws held.
The insurance proceeds, deposits and investments are substantial, but the parents are not listed as nominees in any of the financial assets. The wife points out that the household runs on her salary, and the man’s salary was mostly saved and invested. They dipped into it for large acquisitions like the house they lived in. She enabled building these assets and these will support her for the rest of her life.
How does one manage and allocate the family finances? How does one determine what belongs to whom? And who is to decide the beneficiaries of a person’s estate if the family is uncomfortable going to the courts?
Consider the finances of the man’s parents. They led a simple life but could not save much. They belong to a generation that took responsibility for the siblings and treated the household’s finance as one common pool. They adjusted and compromised their needs and wants and saw it as the way to live.
The next generation to which the man and his wife belonged is mostly nuclear. They kept their finances pooled but spent it mostly on themselves and saved for specific financial goals for themselves and their children. They sought financial independence as a goal and did not imagine depending on their children when they retired. The wife is thus unable to empathise with her in-laws. She may be persuaded to part with a lump sum for them, but nothing beyond that. The relationship is strained and that does not help.
There is a popular practice of asking for pooling and bifurcation of the household’s finances. The husband and wife keep their earnings and use and invest it in their own names. But they create a pooled third account for the household from which they fund all the common expenses and goals. If one likes to support one’s parents, or siblings, one does it from their own incomes.
But how would this arrangement work if one passes away unexpectedly? Wouldn’t the nominees and beneficiaries in the assets left behind by the deceased use it anyway? Even if there are other claimants?
Managing a household’s finances is an exercise that must maintain the interests of everyone who has a share in the financial assets of the household. There is only a limited pool and there are multiple claimants and many priorities. Clarity about what belongs to whom must mark the way these assets are built, maintained, shared and passed on.
If the man had retained his parents as nominees in any of his assets—the PF, PPF, any one of the insurance policies—they would have received a share of his wealth. If the other claimants do not go to court, they could have accessed these assets. Or better still, if he had a Will and had the foresight to name his parents in the eventuality of him preceding them in death, matters would have been easy.
We hold the power to allocate resources in a manner we see as fair and equitable. But when there is an entanglement of many households, there are tough questions. The woman asks: If I had passed instead of my husband, would he have taken responsibility of my parents? Why is it that I have to take on a responsibility when I have limited resources?
The lessons from this episode are clear.
First, relationships may be fine and amicable when people involved can talk, express their views and settle their differences. When these relationships break down, and when irreconcilable differences come up, there is no choice but to divide the finances and assets clearly. Earlier it is done, the better. Death can make it much tougher.
Second, while the option to seek legal recourse is available, it can be tedious, expensive and time consuming. Resorting to a family settlement that everyone with financial interests can participate, negotiate and arrive at after discussion might benefit all parties. It is important to have an independent counselor.
Third, while many old timers cringe at the idea of my money, your money and our money, that trifurcation might reduce stress. In many households, the man and the woman may differ in their goals, risk preferences, spending and saving habits and their choice of assets. Keeping their books separately might preserve their financial independence and priorities.
Fourth, we unfortunately live through times when parents are frequently outliving their children. The pain of losing a child is searing. If that also comes with a serious financial setback, at an age and life stage when one is not able to earn income and acquire more assets, it is even more cruel. One cannot overemphasise retirement planning and financial independence.
Fifth, discharging our roles with consciousness about our mortality is not something many of us can do easily. It is only when there is death in the immediate family or friend circle, that we consider the horror briefly. Then we soon forget and move on. Ordering our financial lives with that thought in mind, would save those that we loved dearly even as we parted, from pain and suffering.
It is difficult to take sides in this story. The parents will suffer as much as the immediate family the man left behind. But who will take responsibility for whom and at what cost is a question that money alone cannot solve.
(The writer is Chairperson, Centre for Investment Education and Learning.)
