David Hurford, CEO of Fairheads Benefit Services

For much of my career in employee benefits and trust administration, I have watched families grapple with one of life’s most difficult transitions: how to care responsibly for loved ones when a breadwinner passes away. Over the past few years, that concern has become more urgent as families, employers, and trustees seek clarity on how best to protect vulnerable beneficiaries in an increasingly complex financial world.

At Fairheads Benefit Services, we’ve seen a growing interest in  umbrella trusts becoming a central part in conversations about providing for loved ones. Umbrella trusts offer a practical way to safeguard assets and keep things running smoothly. Advisers and trust professionals are starting to appreciate their advantages: no need to register a new trust deed, professional governance, cost efficiencies through scale, regulatory oversight, and the comfort that funds are managed independently of family dynamics at a time when emotions often run high.

But there is another vehicle that also deserves far greater attention in the estate planning process than it currently receives: the beneficiary fund.

Beneficiary funds

Beneficiary funds are not new. They are run on exactly the same lines as an umbrella trust but operate under different laws (the Pension Funds Act as opposed to the Trust Property Control Act). Retirement fund trustees have been using beneficiary funds since 2009 as a mechanism to receive and administer lump-sum death benefits, particularly where minor children or dependants of deceased retirement fund members require ongoing financial support. What is striking, however, is how often these funds remain misunderstood, underutilised, or dismissed as niche solutions suitable only for very specific circumstances.

My view is that is time to change the narrative around beneficiary funds and highlight what an effective tool it can be in estate planning.

One reason for their limited uptake is perception. Beneficiary funds are sometimes seen as a paternalistic instrument, a vehicle in which trustees or administrators impose decisions on families, stripping guardians of agency and control. This perception is not only outdated; it is fundamentally wrong.

At Fairheads, our experience is quite the opposite. We see beneficiary funds as collaborative tools. They are designed to come alongside guardians, not override them. The objective is empowerment, not control: enabling guardians to make better-informed decisions, supported by professional administration and governance, while ensuring that the funds entrusted for minors are used sustainably and in line with their long-term interests.

This distinction matters. In many households, guardians are doing the best they can under difficult circumstances, often without the financial expertise or emotional bandwidth to manage large lump sums prudently. A beneficiary fund introduces structure, discipline, and oversight – not to undermine guardians, but to support them. In practice, this often leads to better outcomes for children: more consistent provision for education, healthcare, and daily living, and a reduced risk that funds are depleted prematurely.

How beneficiary funds work in practice

In practical terms, beneficiary funds are designed to mirror the real financial needs of dependants over time rather than forcing a once-off capital decision. Typically, the fund pays a regular monthly income to the child’s guardian or caregiver to cover day-to-day living expenses such as food, housing, and clothing, providing stability and predictability for the household. In addition, the guardian can submit motivated capital requests for specific needs such as school fees, tertiary education, medical expenses, or other costs. Education should remain the main focus. Capital requests are assessed by the beneficiary fund’s trustees to ensure they are reasonable, appropriate, and aligned with the beneficiary’s best interests. Unsustainable amounts are discussed with the guardian or caregiver to make sure they understand the impact it has, and more often than not a middle ground is found. This dual structure, combining ongoing income with controlled access to capital, helps ensure that funds last for as long as they are needed, while still giving guardians meaningful input and flexibility in caring for their dependants.

Tax benefits

Perhaps the most overlooked aspect of beneficiary funds, however, is the substantial tax advantages they can offer when compared to alternative structures.

No tax is paid within the beneficiary fund itself, and income earned on the assets is not taxed in the hands of the individual beneficiary while it remains in the fund. This means that investment growth is not eroded annually by income tax or capital gains tax at either fund or beneficiary level, allowing the full benefit to compound over time. For minors and vulnerable dependants in particular, this tax neutrality can significantly enhance the long-term value of death benefits and materially improve financial outcomes. As a simple example, for a guardian earning R15,000 per month, if she were to invest a lump sum of R500,000 outside of a beneficiary fund, she would have to pay R9,000 tax on the investment returns, whereas there would be no tax payable in the beneficiary fund.

Self-selection

Another misconception is that beneficiary funds are only available at the discretion of retirement fund trustees, with little influence from fund members themselves. While it is true that trustees ultimately exercise discretion, individuals are far from powerless. By indicating on their retirement fund nomination form that trustees should consider the use of a beneficiary fund, members can provide meaningful guidance. This does not guarantee that a beneficiary fund will be used as trustees must always act in the best interests of beneficiaries. But clear member intent is an important input into that decision-making process.

In considering selection of a beneficiary fund, members should also be aware that it is not only minor children who can be catered for. We are increasingly seeing them used to assist elderly dependants as well. As longevity increases and family structures become more complex, there are growing numbers of cases where elderly parents or other vulnerable adults require ongoing financial care after the death of a spouse or child. Beneficiary funds can offer a practical, regulated solution in these circumstances, providing continuity of care while ensuring funds are managed responsibly.

Conclusion

“Mainstreaming” beneficiary funds does not mean sidelining umbrella trusts or other vehicles. What it does mean is giving beneficiary funds the visibility and consideration they deserve, acknowledging their flexibility, their tax efficiency, and their capacity to support vulnerable dependants with dignity and care.

This point speaks to a broader issue: education. Too few people understand the range of tools available to them when planning for the financial wellbeing of their dependants after death. Conversations about death benefits are often delayed, avoided, or reduced to a tick-box exercise. Families place enormous trust in administrators, advisers, and trustees at moments of profound vulnerability. We owe it to them to use every appropriate tool at our disposal.

Beneficiary funds should not be treated as peripheral but, rather, properly understood and thoughtfully applied, as integral to estate planning.

ENDS