Beneficiary funds – an alternative to trusts for employment benefits

Losing a parent can be difficult, and those left behind will not only suffer emotional stress but financial stress too. However, financial stress can be avoided or minimised if you take the time to plan your estate carefully and leave something behind for your children or partner who relies on your income. These funds can be kept and managed in a trust account also known as a beneficiary fund.

“Government’s 2009 amendments of the Pension Fund Act require that trustees of pension funds must ensure that some funds from the pension of a deceased parent meet the basic needs of any minor children, such as food, clothing and school fees,” explained Standard Bank.

Mthokozisi Bhengu, institutional channel manager at Standard Trust Limited, highlighted the importance of having a beneficiary fund in place to ensure that your child is properly taken care of. However, he also stressed that these need to be set up in such a way as to ensure that your child gets the most out of the fund.

The beneficiary fund

Banks such as Standard Bank, Nedbank, Absa and First National Bank (FNB) offer services that allow for beneficiary funds to be set up, ensuring that your children are financially looked after in the event of your death.

When a parent dies and funds are left to the child or children of the deceased, the trustee must look at the specific circumstances of the children. Based on the children’s circumstances, the trustee will determine how to split the money. The money is then given to the beneficiary fund managers, and a separate fund is opened for each child.

Once the fund has been opened, the trustee and the guardian of the children will make arrangements for the funds to be paid out either monthly, quarterly or yearly, depending on the amount of funds available at the time of the parent’s death, and the length of time before the account is to be terminated.

In general, beneficiary funds only last until the child turns 18. By this time, the fund is either depleted, or the funds are transferred into the child’s personal bank account. However, if the child wishes to keep the funds in the beneficiary fund, they can inform the bank of their decision to do so.

The funds will be distributed according to the individual needs to each child. Bhengu explains that beneficiary funds take into consideration the specific child and what their needs are.

For example, a six year old child will need the money in his or her beneficiary fund to last much longer than a 12 year old child. Therefore the younger the child may receive less money on a regular basis as it has to be stretched over a longer period of time.

Bhengu explained: “The child’s needs take priority. [Our] beneficiary fund managers work closely with the guardian to be certain that all decisions are taken in the child’s best interests. This is one of the reasons we speak all eleven official languages at Standard Trust Limited.”

When special needs arise, Bhengu points out that it is possible for special payment requests to be made, in order to access funds. However, each request is examined on an individual basis, as funds need to be carefully monitored to ensure that the funds do not deplete before the child reaches 18.

There are processes in place to ensure that the funds are transferred to the right people, and that no money is lost. Each year the guardian will be required to submit a Certificate of Existence which has to be signed by a commissioner of oaths to confirm that they are still looking after the child and the child’s funds.