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If you have nominated
someone other than a dependant as the beneficiary of your retirement funds,
your wishes might not be honoured when you die, even if you have made that
person the sole beneficiary of your entire estate.
“This is because pension fund legislation favours dependants above all other claimants and your fund’s trustees are obliged to override your Will if dependants exist,” says David Knott of Private Client Holdings.
“This is where retirement funds, whether Retirement Annuities, Pension, Provident or Preservation Funds, differ from other investments.”
According to Knott, in terms of the Pension Fund Legislation, dependants are defined as a spouse, children (biological, adopted and stepchildren) or anyone proven to have been or to have become financially dependent on you or entitled to maintenance from you.
“When you die the trustees are legally obliged to identify any dependants and while all information is treated as confidential, this process may reveal information you might not want your family to know.
"Having identified any dependants, the trustees first need to establish their financial circumstances and then allocate your Retirement benefits to them as they see fit,” says Knott, who warns that the needs, and claims, of your non dependant beneficiaries will only be considered at this point.
“Unfortunately this process can take quite a while, as much as a year after your death. This can lead to frustration on the part of your beneficiary and financial hardship if they were banking on receiving your benefits sooner.”
“Take the following hypothetical situation as an example,” says Knott:
Joe is married to Mary and has nominated her to receive all the benefits from his Pension Fund. Mary is also the sole heir in terms of his Will and stands to inherit a substantial amount from the estate. Joe and Mary have two adult children, one of whom is mentally challenged and still lives at home and is supported by Joe.
However – following Joe’s death the Fund Trustees investigate and discover that Joe has been supporting an illegitimate child who is a minor. Having regard to all the facts and the needs of dependants, the Trustees over-rule Joe’s wishes as they consider Mary to have been adequately provided for in terms of Joe’s Will.
The Trustees accordingly award 75% of the capital for the benefit of the minor illegitimate child, and the balance is paid to the adult mentally challenged child to supplement her income.
Knott advises that if no dependants are found within a year after your death, the trustees have to pay the benefits to your beneficiary, but only if your estate is solvent. If it isn’t, then your Retirement Fund capital must be used to fund the shortfall of your estate before any benefits can be paid to your beneficiary.
“If no dependants are found within a year and you haven’t nominated any beneficiaries of your Retirement Fund, the trustees will pay out a lump sum to your estate. But if you have nominated a beneficiary, no dependants can be found and your estate is solvent, the trustees of your retirement fund will pay your beneficiary a lump sum (from which tax may be deducted).
"Alternatively, your beneficiary can choose to transfer the benefit to a living or life annuity, which is exempt from Estate Duty.”
Knott further advises that if your beneficiary is a minor or legally incapacitated adult, the trustees may pay the benefit to a beneficiary fund or your beneficiaries’ parent or another person who has a legal responsibility for him or her, or, the benefit can be paid to a trust if that was your instruction.
Even if you haven’t nominated a trust, payment can still be made to a trust if your beneficiary or his or her legal representative nominates the trust, and the nomination is approved by the Board of Trustees.
“By partnering with a company such as Private Client Trust you are given peace of mind that the executor of your estate will ensure that your retirement benefits are structured in such a way that the beneficiary you choose to receive your retirement funds will ultimately receive these benefits,” concludes Knott.
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“This is because pension fund legislation favours dependants above all other claimants and your fund’s trustees are obliged to override your Will if dependants exist,” says David Knott of Private Client Holdings.
“This is where retirement funds, whether Retirement Annuities, Pension, Provident or Preservation Funds, differ from other investments.”
According to Knott, in terms of the Pension Fund Legislation, dependants are defined as a spouse, children (biological, adopted and stepchildren) or anyone proven to have been or to have become financially dependent on you or entitled to maintenance from you.
“When you die the trustees are legally obliged to identify any dependants and while all information is treated as confidential, this process may reveal information you might not want your family to know.
"Having identified any dependants, the trustees first need to establish their financial circumstances and then allocate your Retirement benefits to them as they see fit,” says Knott, who warns that the needs, and claims, of your non dependant beneficiaries will only be considered at this point.
“Unfortunately this process can take quite a while, as much as a year after your death. This can lead to frustration on the part of your beneficiary and financial hardship if they were banking on receiving your benefits sooner.”
“Take the following hypothetical situation as an example,” says Knott:
Joe is married to Mary and has nominated her to receive all the benefits from his Pension Fund. Mary is also the sole heir in terms of his Will and stands to inherit a substantial amount from the estate. Joe and Mary have two adult children, one of whom is mentally challenged and still lives at home and is supported by Joe.
However – following Joe’s death the Fund Trustees investigate and discover that Joe has been supporting an illegitimate child who is a minor. Having regard to all the facts and the needs of dependants, the Trustees over-rule Joe’s wishes as they consider Mary to have been adequately provided for in terms of Joe’s Will.
The Trustees accordingly award 75% of the capital for the benefit of the minor illegitimate child, and the balance is paid to the adult mentally challenged child to supplement her income.
Knott advises that if no dependants are found within a year after your death, the trustees have to pay the benefits to your beneficiary, but only if your estate is solvent. If it isn’t, then your Retirement Fund capital must be used to fund the shortfall of your estate before any benefits can be paid to your beneficiary.
“If no dependants are found within a year and you haven’t nominated any beneficiaries of your Retirement Fund, the trustees will pay out a lump sum to your estate. But if you have nominated a beneficiary, no dependants can be found and your estate is solvent, the trustees of your retirement fund will pay your beneficiary a lump sum (from which tax may be deducted).
"Alternatively, your beneficiary can choose to transfer the benefit to a living or life annuity, which is exempt from Estate Duty.”
Knott further advises that if your beneficiary is a minor or legally incapacitated adult, the trustees may pay the benefit to a beneficiary fund or your beneficiaries’ parent or another person who has a legal responsibility for him or her, or, the benefit can be paid to a trust if that was your instruction.
Even if you haven’t nominated a trust, payment can still be made to a trust if your beneficiary or his or her legal representative nominates the trust, and the nomination is approved by the Board of Trustees.
“By partnering with a company such as Private Client Trust you are given peace of mind that the executor of your estate will ensure that your retirement benefits are structured in such a way that the beneficiary you choose to receive your retirement funds will ultimately receive these benefits,” concludes Knott.
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