First published in the Daily Maverick 168 weekly newspaper.

With the third Covid-19 wave well underway and a two-week Level 4 lockdown, there has never been a better time to ensure that your dependents and your minor children, in particular, are financially provided for.

Hilary Dudley, managing director of fiduciary services at wealth management specialist Citadel, says the first step is making sure that you have an updated, valid will in place. If you die without a will, your estate or assets will be distributed under the provisions of the Intestate Succession Act.

“The heirs who receive your estate in terms of the Act may not be in accordance with your wishes,” she says. “Drafting a will is not a once-off act and you should regularly revisit your will, taking into account any changes in your family’s personal circumstances and using clear language that cannot be misinterpreted,” she adds. For example, if you enter into a second marriage and have children with your second spouse, your will should address how your assets will be split between the children of your first marriage and those from your second marriage.

If you do not have a will, your child’s inheritance will be paid into the State Guardian’s Fund, which can mean a lengthy, onerous process before your child is able to access those funds on reaching the age of majority or 18.

If you want to avoid this, you can set up a testamentary trust as part of your instructions in your will. This is essentially a trust which is triggered on your death and remains in place until your child reaches a certain stipulated age.

Johan Strydom, head of growth at FNB Fiduciary Services, says this could be at age 18, but most parents opt to keep the trust in operation until their children are 25 or older and, hopefully, more financially responsible. “Your will serves as the trust deed in the case of a testamentary trust. You should nominate trustees who you think are capable and best placed in terms of their financial acumen and ability to look after your child’s inheritance. It’s a good idea to keep functions separate and objective and not have the guardian as a trustee,” he says.

Strydom says trustees are more objective when it comes to managing the assets and ensuring that the guardian has access and can pay for daily expenses that may be incurred. The trustees should also agree to take on this role beforehand so that this responsibility is not a surprise when your will is revealed after you die.

Suitably qualified people to act as trustees could include a certified financial planner and/or someone with legal qualifications, such as a lawyer. You can also negotiate trustee fees while you are still alive. The trustees may ask for a higher or lower fee when they are actually administering the trust, based on their duties.

Guardianship

Moremadi Mabule, head of wills at Sanlam, says it is also vital to nominate a guardian for your minor child in your will. Your child’s biological parents are their natural guardians. “Regardless of whether you are married or not, both parents have full parental rights and responsibilities. If you are the sole surviving guardian, you should appoint a fit and proper person as a guardian, in the event of your death,” she says.

You can also appoint co-guardians in your will, for example, if there is a step-parent who wishes to be involved. Mabule notes that co-guardianship is possible but must be practical: for example, individuals should live close to each other. “The decision [on guardianship] should always be in the child’s best interest. If the surviving parent is not a suitable guardian, then, as the upper guardian of all minors, the court may give the guardianship to any other person who applies,” she says.

 The rights of adoptive children

“Adopted and biological children are treated the same in terms of the right to inherit,” says Mabule.  “An adopted child can inherit from his/her adoptive parents and their parents’ blood relatives. The child would also be able to inherit from their step-parent if that person formally adopts the child.

 Dealing with the practicalities

When you die, there are different financial pay-outs that will be triggered. Strydom says you would deal with each one differently:

1.     Life insurance policies: If you nominate your minor child as a beneficiary, the life assurer will have to pay the child’s legal guardian or pay the money to the Guardian’s Fund, which is administered by the Master of the High Court and receives all assets and funds on behalf of minors. “This is a problem because you ideally want the money to go into the testamentary trust provided for in your will. Check with your life assurer [whether] you can stipulate a testamentary trust created in terms of your will for the benefit of a minor child as your beneficiary nomination, Strydom advises. He says most life companies will accommodate you, but if the life assurer does not want the beneficiary to be a trust that will be created in the future, then you can nominate your estate as the beneficiary. The executors of your estate can then pay the money over to the testamentary trust. Estate duty will be payable on your life insurance, and you should account for this and other fees such as executor fees when calculating your life assurance needs.
2.   Retirement benefits: Although you are asked to sign a beneficiary form when you join a retirement fund, these funds are governed by the Pension Funds Act. The fund trustees have 12 months to determine who your dependants were and then they have the discretion to distribute your retirement benefits as they see fit. “For example, if you were single when you joined the fund and nominated your brother as beneficiary, but you had a wife and child by the time you died, the trustees have the discretion to overrule your beneficiary nomination and pay the benefits to your spouse and child,” says Strydom. “So you can nominate your minor child as the 100% beneficiary but, in this case, it is just a guideline and the ultimate decision lies with the trustees.”
3.   Physical assets: You can stipulate that your physical assets should be sold so that their value can be realised and added to the funds in the testamentary trust. If there are family heirlooms or expensive assets such as Le Creuset crockery that you want to be maintained for your child’s benefit, then you can stipulate this in a “wish list” that will be an addendum to your will. “When it comes to fixed property, it doesn’t make sense for a testamentary trust to retain a fixed property and try to extract value from that property. The trustees will have discretion in assessing the circumstances. For example, they may need to appoint a rental agent to ensure the property is leased to good tenants, and the trust will be liable for levies, rates and taxes, and maintenance,” Strydom says. He adds that returns on a single property are typically not as good as those on a more liquid and flexible investment, so, in most cases, trustees end up selling the property and investing the money in the trust. DM168

Next week: Should you use a testamentary trust or a beneficiary fund?

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for free to Pick n Pay Smart Shoppers at these Pick n Pay stores.