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Last will has no bearing on pension fund death benefit

09 April 2014 Muvhango Lukhaimane, Pension Funds Adjudicator

A last will is not binding on a pension fund death benefit which is specifically excluded from forming part of the deceased estate.

This was the gist of a ruling by Pension Funds Adjudicator Ms Muvhango Lukhaimane following a complaint concerning the distribution of a death benefit.

Mr F Templin was employed by eThekwini Municipality from 5 February 1982 until his death
on 22 June 2013. He was a member of the KwaZulu-Natal Municipal Pension Fund (first
respondent).

He was married from 22 June 1996 until he divorced on 11 February 2008.

In terms of his will, Mr Templin equally bequeathed his estate to his nieces Ms Shannon Igesund and Ms Casey Leigh De Lange.

Furthermore, he concluded and signed a nomination of beneficiary form in terms of which he
nominated his former wife (second respondent) to receive a 100% share of his benefits from the first respondent in the event of his death.

Upon the death of the deceased, a death benefit became payable to the deceased’s eligible
dependants and beneficiaries in terms of section 37C of the Pension Funds Act. The board of
the first respondent resolved to allocate 100% of the death benefit to the second respondent.

The two nieces (complainants) were dissatisfied with the board’s decision to allocate
100% of the death benefit to the second respondent. They submitted that the deceased
bequeathed 50% of his estate to each of them and he also bequeathed all his insurance policies and retirement annuities to them as evidence of his intentions for all his funds to devolve upon them.

They submitted that they are not sure why the deceased nominated the second respondent as
his beneficiary of the death benefit. However, the fact that he left everything else to them was evidence that he wanted them to receive the death benefit too.

The complainants submitted that the provisions of the will could be rejected in favour of the nomination of beneficiary form that was signed in 2008. They further submitted that while the death benefit was not an asset of the deceased estate and could be subjected to the provisions of the will, the contents of such a will were clear evidence of the deceased’s state of mind and intentions.

The complainants said the board had a discretion, despite what appeared in the nomination
of beneficiary form, to distribute the death benefit in the manner they deemed appropriate.

They said the second respondent did not visit the deceased when he was in hospital as their
relationship turned sour soon after the divorce. They further submitted that the board relied only on the nomination of beneficiary form in distributing the benefit, which they said was improper.

The first respondent submitted that it had not yet paid the death benefit because where there were no dependants but only nominees, the board had to wait for 12 months before paying the death benefit. The 12-month period would lapse on 22 June 2014.

It submitted that its view was that in the present circumstances, it did not have any discretion to distribute the death benefit.

The first respondent also submitted that the provision of the will relied upon by the
complainants did not entitle them to the death benefit.

The second respondent said she and the deceased enjoyed a cordial relationship even after the divorce. The deceased also amended his nomination of beneficiary form shortly after the
divorce in the second respondent’s favour. This was an indication that it is not impossible that the deceased intended for the second respondent to receive benefits upon his death.

In her determination, Ms Lukhaimane said the payment of death benefits by a pension fund
organisation was regulated by section 37C of the Pension Funds Act.

The main object of the section is to ensure that those persons who were dependent on the
deceased at the time of his death, irrespective of whether or not the deceased was legally
required to maintain them, are not left destitute and without financial support after his death.

Section 37C imposes three primary duties on the board when distributing a death benefit.
It needs to first identify and trace all the dependants and nominated beneficiaries of the
deceased. Secondly, the board must effect an equitable distribution of the death benefit; and finally, the board must determine an appropriate mode to pay the benefit.

Ms Lukhaimane said the first respondent submitted that it could not trace any dependants of the deceased and only became aware of the second respondent who was nominated to receive benefits upon the deceased’s death.

The second respondent’s nomination had not been disputed by the parties. Furthermore, the complainants had not alleged that they were financially dependent on the deceased or that they were aware of people who financially depended on the deceased and qualified to be considered in the distribution of the death benefit.
 
The fact that the deceased bequeathed his estate to them did not on its own, render them his dependants. There was nothing which indicated that the deceased was survived by any dependants.

Therefore, the board must pay the benefit to the relevant nominee in accordance with the nomination form after the 12-month period lapses. However, this is provided that where the deceased estate’s liabilities exceed its assets, the difference between the amount of the estate’s assets and its liabilities shall first be deducted from the benefit before the remaining balance is paid to the nominee.

The complainants submitted that the board should not have blindly followed the nomination of beneficiary form and should have exercised its discretion.

"While it is true that the board has a discretion on the distribution of the death benefit, the provisions of section 37C of the Act are peremptory in instances where the deceased is survived by a nominee and the board does not become aware of dependants of the deceased within 12 months of his death.

"In such an instance, the Act requires the board to first reduce the benefit by the amount of the deficit of the deceased estate, after which the nominee shall be paid his or her share of the benefit.

"However, where the deceased is survived by dependants and nominees or by dependants only, it must exercise its discretion and not blindly follow the nomination form, which is not the case in this matter,” Ms Lukhaimane said.

She also expressed concern about the first respondent’s relatively quick conclusion that the deceased was not survived by any dependants without explaining how it arrived at this conclusion.

"The first respondent has not provided evidence of steps taken to trace and ascertain the existence of such dependants. Therefore, it cannot merely wait for the expiry of the 12- month period before paying the benefit to the second respondent.

"Before deciding to pay the benefit to the second respondent, it must take diligent and reasonable steps to trace and identify any surviving dependants of the deceased.

"If it becomes aware of such dependants, it must investigate their eligibility to receive the death benefit and exercise its discretion in that regard. If it does not become aware of such dependants, it may proceed to deal with the benefit in the manner provided in section 37C(1)(b).”

Ms Lukhaimane said while the complainants contended that the board of the first respondent should have followed the provisions of the will in distributing the benefit, section 37C (1) of the Act specifically excluded death benefits from the deceased estate.

"Because the death benefit that became payable upon the deceased’s death is specifically excluded from forming part of the deceased estate, and it being true that the deceased’s last will was meant to govern the disposition of his estate upon his death, it follows that the will does not apply to any assets that do not form part of the deceased estate, including the death benefit.

"Therefore, the provisions of the deceased’s last will are inapplicable in the distribution of the death benefit and are not binding on the board of the first respondent in this regard.

"The benefit must be distributed in terms of section 37C of the Act and not the provisions of the will,” said Ms Lukhaimane.

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