Trust decision was ill considered
Last week the Pension Funds Adjudicator, Mamodupi Mohlala, ruled that the respondents in a death benefit case were too hasty in placing the full amount of the death benefit in trust. A K Kowa (the complainant) alleged that Corporate Selection Retirement Fund (the first respondent) and Liberty Life (the second respondent) incorrectly denied her full access to the death benefit despite her being named 100% beneficiary.
The Pension Funds Adjudicator (PFA) noted that the issue in this case was to determine “whether the board of trustees exercised its discretion properly and reasonably in deciding to place the minor child’s share in a trust.”
Deceased never updated his nominees
The deceased, worked for Paul’s Muesli CC from 1 November 2000 until he passed away on 25 November 2005. The total lump sum benefit payable upon his death was R62 158.47. This amount became available for distribution to his beneficiaries. It emerged that the deceased had nominated the complainant to receive 100% of his death benefit on 21 November 2000. The deceased subsequently got married and had a child – both events occurring after the complainant was nominated to receive the deceased’s death benefits. When he died the deceased had one legal dependent, Kabelo Kowa (aged four). The deceased’s wife had also passed away.
Presenting for the second respondent Mrs CP Makenete “indicated that legal dependants are considered before nominees in terms of section 37C of the Act. In this matter, she pointed out that the complainant is only a caregiver for the deceased’s minor child and she is not a legal guardian.” On Makenete’s recommendation the board thus made a token payment of R3 000 to the complainant before establishing a trust for the benefit of the deceased’s minor. The trust made for provision for R300.00 per month income to be paid to the caregiver – and a sum to be paid toward school fees.
At first glance it appears the board had acted in line with the requirement that “the best interests of the minor child are paramount, and prevail over all other considerations.” But on closer inspection they erred when determining the relationship between the minor child and the complainant.
What constitutes a guardian?
The trustees made their decision on benefit distribution based on the fact the complainant was a care giver. After due consideration, the PFA found that “the complainant was in the same position as that of a natural guardian.” And this causes some problems with the way in which the board applied their mind to the distribution of the death benefits.
The PFA states: “the only reason advanced by the board for its decision to place the minor’s share in a trust was because the complainant is not a legal guardian of the minor.” If the board had realised the complainant was in fact a natural guardian they would have had to conduct a more detailed investigation to determine the complainants “ability to administer the financial affairs of her grandchild, her qualification and the nature of her relationship with the minor child.” During the determination the PFA also asked questions about the appropriateness of making use of a trust given the cost implications and the amount of money involved. She felt the board had neglected these highly relevant considerations in making their initial decision.
Six weeks to reconsider
In section 37C (2) (3) the Act states that the benefit be paid to the guardian of the minor, “unless there are cogent reasons for depriving the guardian of the duty to take charge of her/his minor child’s financial affairs and the right to decide how the benefit due to the minor should be utilised in the best interests of the minor child.”
Thus the PFA ordered that the decision taken by the board of the first respondent to place the minor child’s share in trust be set aside. She went on to recommend that the Corporate Selection Retirement Scheme should reassess the mode of payment to the deceased’s minor child in light of the factors mentioned in the determination. The most compelling of these was that the complainant could be viewed as a natural guardian of the child. And finally, “the first respondent was further directed to determine whether the complainant should be deprived of the right to administer monies on behalf of the deceased’s minor child having regard to the factors stated in this determination within six weeks of the date of this determination.”
The ruling is interesting in that the PFA has not recommended an appropriate board action. She has merely instructed the respondent to reconsider their initial decision given a slightly different set of circumstances. If the respondent determines that the complainant is not ‘fit’ to administer the funds on the child’s behalf it could surely make the same decision. And that means we may not have seen the last of this case!
Editor’s thoughts:
This case has been described as a landmark ruling. However, on closer inspection it seems the determination deals with assumptions around the relationship between the caretaker and the deceased’s minor child. Do you think the amount of R62 158.47 could be effectively managed in a trust? Add your comments below, or send them to [email protected]
The full determination can be viewed via this link
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