Minor Beneficiaries and Estate Planning
When a new year kicks off, everyone becomes so busy with their daily routines that before you know it, it will be Easter. Everyone starts with the best intentions and new year resolutions just fade away over time. It is still true that the majority of South Africans don’t have a Will or a financial plan. We are often faced with complicated and delayed death and funeral claims because of insufficient detail. Each year retirees are surprised when they learn the full financial impact of retiring. In the next series of articles, we will try and assist you to plan better for 2023 and beyond. The first article will focus on Wills and estate planning, specifically if you have minor children.
Why do you need a Will?
Two important reasons to have a valid Will is:
Assets like a house or a car or certain personal items form part of your estate, which will need to be divided after your passing. This is done by the executor of your estate, based on your Will. If you don’t have a Will, the estate will be administered in terms of the Intestate Succession Act and your personal wishes will not be considered.
If you have minor children, you need to specify who will be their guardian and what will happen with their inheritance, specifically if there is no surviving spouse or guardian at the date of your death. In the absence of a surviving parent or legal guardian, a minor’s inheritance must be transferred to the Guardian’s Fund which is administered by the Master of the High Court.
Very important, the Master requires the original Will, not a certified copy. Without the original Will the estate will be handled in accordance with the Intestate Succession Act (Unless you approach the High Court for an order), so know where the original Will is at all times.
If I don’t have any assets, do I still need a Will?
In terms of the Administration of Estates Act of 1965, an estate should only be reported to the Master, if the deceased left assets and/or a Will. If you do not leave any assets, there is no duty to register the estate. However, if you have minor children, we strongly recommend that you have a Will with a clause that deals with their guardianship and inheritance in case both parents or guardians are deceased.
What is an Executor, and do I need to nominate an Executor?
The person who will handle the administration of your estate after you have passed away, is called an executor. An executor is appointed, either by you nominating the person in your Will or by your heirs proposing it to the Master. where the estate amounts to R250 000 or more.
The estate must be reported by an interested party to the Master’s Office in which jurisdiction you lived, within 14 days of your passing.
If the value of the assets is R125 000 or less and you did not leave a Will – the estate may be reported to the nearest Magistrates Court.
Estates with a value of less than R250 000 don’t need an Executor, or all the normal formalities required. A Master’s Representative is appointed to administer the estate and the process is quicker to finalise the estate.
Group Life policies, Funeral policies, Life policies and your minor children
If you have minor children, you must carefully consider your group life policies and life insurance policy nomination forms. Children under 18 may not receive these pay-outs directly. If you nominate minors, the funds will be managed by their legal guardian until they reach the age of 18. If the minor has no legal guardian, the proceeds will be paid into the Guardian’s Fund, where it will be administered on their behalf, until the minor reaches age 18.
You can also set up a testamentary trust in your Will with the minor children as the beneficiaries to the trust. You would then need to nominate the testamentary trust as the beneficiary on your policy. In the event of your death, the proceeds of the life policy would be paid into the trust and managed on behalf of the minors.
Remember that if you nominated your estate as the beneficiary on your life policy the heirs of your estate may not receive the full proceeds. The proceeds of the policy may be used to cover the costs of winding up the estate or to settle debt before heirs can receive inheritance. It is good practice to take out life cover to cover the costs of finalising the estate.
From 2021, you also need to nominate a beneficiary on your funeral policies, otherwise the benefit will be paid to your estate.
Retirement funds (Including Retirement Annuity and Preservation Funds)
The allocation of retirement fund benefits is regulated by Section 37C of the Pension Funds Act. The main aim of the Act is to ensure your financial dependants are looked after. Financial dependants could be your minor children but also any other individuals who are dependent on you, for example former spouses, or family members that you look after financially. Your nomination forms and even your wishes in your Will may be considered but financial dependence will be the key deciding factor by the Trustees. Trustees will also take factors like the age of children, their potential to earn income, etc. into account. Trustees can also allocate benefits to financial dependants even if they were not nominated as beneficiaries on your policy. The Trustees have 12 months to finalise the allocation of benefits and it is important that you update all your nomination forms regularly to ensure the trustees have enough detail to consider.
In some cases, minors’ benefits could be transferred to a beneficiary fund, specifically set up by the Retirement Fund trustees to manage their benefits. In most cases however, the legal guardian will be responsible to manage the benefits on their behalf and to choose where best to invest.
As you start the new year, consider if your Will and all your life policies’, retirement annuities and your retirement fund nomination forms are up to date and reflecting your true wishes. Your Futura Benefit consultant will gladly help, should you require assistance.