Johan Strydom, Trust Product Head at FNB Fiduciary
When it comes to life insurance, naming your minor child as a beneficiary may seem like the most natural decision. But according to Johan Strydom, Trust Product Head at FNB Fiduciary, this well-intentioned move can lead to unintended consequences and even financial risk.
“Most parents assume that naming their child as a beneficiary guarantees protection of their life assurance benefits,” says Strydom. “But legally, minors can’t receive policy payouts directly. That’s where things get complicated.”
The Legal Catch
South African law prohibits life insurers from paying proceeds directly to minors due to their limited legal capacity. Instead, the funds are handed over to the child’s legal guardian often without oversight or guarantees that the money will be used in the child’s best interest.
This becomes especially problematic in cases of divorce or family disputes. For example, an ex-spouse who is the legal guardian could receive the full payout, even if the policyholder intended the funds to benefit the child exclusively.
The Estate Route Isn’t Ideal Either
Some policyholders try to plan for this issue by nominating their estate or a testamentary trust as the beneficiary. But this approach has its own drawbacks. The estate must first be administered a process that can take months before any funds are paid to the trust and becomes available for the child. Funds payable to the estate may also be used to settle debts or estate costs, leaving less for the child.
“Delays in estate administration can leave minor beneficiaries without access to funds when they need it most,” Strydom explains. “And that’s not what any parent wants.”
A Trust is a smarter Solution: The Minor Beneficiary Trust
To address this gap, FNB Fiduciary has introduced the Minor Beneficiary Trust, a professionally managed trust designed specifically to receive life assurance policy proceeds intended for minors.
This trust which has already been registered with the Master of the High Court can be nominated directly on the policy. It offers:
- Immediate payment of funds upon claim approval
- Immediate access of funds and payments to and on behalf of the child
- Professionally managed for each child by professional trustees
- Full transparency and oversight
- Protection from estate liabilities
- Capital growth and investment until the child reaches a specified age
“This trust provides for a easy to understand alternative and gives parents peace of mind,” says Strydom. “They know the money will be managed responsibly and used for the child’s benefit not diverted or delayed.”
Why It Matters
In a country where financial planning is increasingly complex, especially for families, the Minor Beneficiary Trust offers a practical and protective solution. It ensures that life insurance does what it’s meant to do: secure a child’s future.
“Estate planning isn’t just about ticking boxes,” Strydom adds. “It’s about making sure your intentions are honoured, and your children are protected when you’re no longer here.”
ENDS
