Opinion – From Grão to Grão: What did I learn from my father’s death?

The death of a loved one always comes sooner than expected. We believe there will be plenty of time to plan, but this proves to be insufficient. Even professionals used to guiding clients are surprised by the fatality. This was the case of André Arantes, who is a financial planner, holder of CFP certification by Planejar.

Unfortunately, the lessons about this moment end up being lost as, most of the time, it is very painful to discuss this subject.

The postponement of the discussion while still alive with the heirs takes its toll with the death of the loved one.

Due to his role as a financial educator, Arantes accepted this interview to share his experience, both theoretical as a financial planner, and practical through what he went through with his father and in guiding his clients.

I transcribe his teachings below.

How to deal with the financial bureaucracy resulting from the succession process in an emotionally very sad moment?

The entire process of losing a dear relative is very painful and, despite the whirlwind of emotions, we need to seek serenity to face a large bureaucracy related to the probate process. This process involves not only the collection of various documents, but also a conversation that can be complicated between the heirs to define the best way to carry out the division of assets. In this sense, the best alternative would have been to start succession planning while still alive. However, for predominantly cultural reasons, families have difficulty dealing with this issue. The complexity as well as the costs grow if it is left for later.

What was planned?

Unfortunately, in my case only a small portion of the equity was planned. While still alive, a Life Insurance policy was acquired and invested in a pension fund. The use of these two instruments usually pays relatively quickly, does not depend on the formal inventory process, has no legal costs and can even bring a reduction in taxes, since in current legislation we do not have the incidence of the ITCMD (Transmission Tax Cause of Death and Donation), which, depending on the state, varies between 4% and 8%. Therefore, it was very important as a short-term source of funding for my mother, as well as for inventory costs.

And for other applications, how should you have prepared for investments?

Assessing ex-post, my father should have a larger proportion of his capital in pensions and a smaller proportion in other fixed income investments or funds. His situation was favorable for investment in private pension. He was debt-free and his retirement income and some rents were sufficient to maintain a low-liquidity standard of living. Additionally, through pension products we are also able to apply in different strategies (eg Fixed Income, Equities, Multimarket, etc.) with their varied risk levels and return expectations. Therefore, there was no need to use other investment vehicles with your age and condition.

You said your father earned rent. With regard to real estate, what should you have done before?

With regard to real estate, as my parents had no interest in the sale, I believe that it would have been much better if they had donated them while they were still alive, with reservation for usufruct. This process consists of anticipating the transfer of ownership of the asset, but the use and eventual rental income remain with the owner who made the donation. The division can be done in one more way, the easiest and most direct, from the point of view of calculating the “fair value”, is for each heir to receive an equal fraction of each of the properties, but in case of a greater amount of assets, one can alternatively direct them one to each heir. This second method has the advantage of offering greater freedom for everyone to do what they want with the property received at the end of the usufruct without the need for agreement from others. However, it is more difficult to reach a consensus on the values ​​at the time of the division, as real estate market prices can vary a lot and we will only have the concrete value at the time of the sale. Additionally, there may be more than one interested in the same property and this may generate some conflict. As you can see, this is a complex issue that, if done in advance, avoids additional worry and fights when mourning.

With all this learning, how have you been guiding your mother regarding the succession process?

Thus, given all the learning we have had, as much as I hope that we will still have a long time to live together, I have been guiding my mother to better prepare her succession process through:
– Transfer of all properties with your usufruct,
– Increased contributions to pension plans; and mainly,
– Encouraging the use of part of your property to further unite our family.
In this sense, as everyone in the family is working and financially stable, we have agreed that it is much better for her to use a small part of this capital to fund a trip together to enjoy her children and grandchildren than to leave a slightly larger bank balance.

Michael Viriato he is an investment advisor and founding partner of Investor’s House

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