David Hurford, CEO of Fairheads Benefit Services

A beneficiary fund exists to make sure that the money left to minor children of deceased retirement fund members is used to meet their educational and general wellbeing needs.

Beneficiary funds use sophisticated models to calculate how much money can be paid out as regular income to support payments to the child’s caregiver, as well as capital payments needed for annual educational or other critical expenses. This calculation aims to ensure that the benefit is not depleted before the child reaches the age of majority (when they become eligible to receive the balance left in the beneficiary fund).

As far as possible, the beneficiary fund should aim for there to be an amount remaining when the child reaches majority, to enable them to continue with their schooling or start up a small business.

But what happens if tragedy strikes and the child dies before they reach age 18?

First, it is important to understand some context around beneficiary fund members. Almost 70% of the children we look after are cared for not by their parent, but by a caregiver. A caregiver is defined in the Children’s Act 38 of 2005 as any person, other than a parent or legal guardian, who factually cares for a child. It is not uncommon for the caregiver not to approach the courts to obtain legal guardianship of the child as this can be an expensive and onerous process.

If a child dies any remaining benefit in the beneficiary fund is paid to the child’s estate. It is unlikely that they would have prepared a will (although in South Africa, you are able to draft a will once you reach the age of 16 years old, as long as you are of sound mind), and any money paid to the estate will be dealt with in terms of the Intestate Succession Act 81 of 1987.

The process is overseen by the Master of the High Court, where the caregiver or guardian must make representation to the Master that they be appointed as the child’s representative. This involves submitting a range of documents, including:

• Death notice
• Original or certified copy of the death certificate
• All original wills or documents intended as such (if any)
• Next-of-kin affidavits
• Completed inventory forms (essentially a list of all assets)
• List of creditors of the deceased (essentially a list of all liabilities)
• Nominations by the heirs for the appointment of a Master’s representative
• Undertaking and acceptance of Master’s directions
• Declaration confirming that the estate has not already been reported to another Master’s Office or Magistrates Court

Once all the forms and documents have been submitted and the fees paid, the Master will then consider the application. Where the estate is below R250 000 the guardian or caregiver is issued with a Letters of Authority, and where it exceeds R250 000 the guardian or caregiver is issued with a Letter of Executorship. While the scope of authority granted to the Executor and the Representative is different, these letters essentially allow them to open a bank account in the name of the estate late child and for benefits to be paid into the account.

While the published SLA for appointing a representative or executor is 120 days, recent turmoil within the Master’s office have resulted in long delays.

As mentioned, where the child did not prepare a will, the laws of intestate succession will apply. These laws in essence set out who receives the benefits. Put simply, the benefit is paid out in order as follows:

• The spouse of the deceased (it is unlikely that the child would have been married), then
• The descendants of the deceased (it is unlikely that the child would have had children of their own), then
• The parents of the deceased, then
• The siblings of the deceased (only if one or both parents are predeceased), then
• Extended family (nieces, nephews, aunts, uncles or cousins).

In circumstances where the child has no spouse, no children, their parents have predeceased them, no siblings and no relatives, the estate will be forfeited to the state.

In summary, when a member of a beneficiary fund dies, the remaining benefits are paid to their estate. While the process described above sounds relatively straightforward, it can prove to be overwhelming for many who have never dealt with these types of matters before. Add to that the inefficiency of the Master’s Office and this can be a truly daunting experience.

ENDS