Employee-benefit trusts

Employee-benefit trusts, also known as umbrella trusts, operate in compliance with section 37C of the Pension Funds Act, created in 1989 to allow trustees of pension and provident funds to make lump-sum benefit payments in trust for dependants.

Such trusts have the ability to generate monthly income to suit the beneficiaries and are generally used to pay for dependants’ education.

This series of case studies represent some of the many examples handled by Fairheads Umbrella Trust Company. The Fairheads call centre in Cape Town takes an average of 250 calls every day, in most languages, from beneficiaries around the country, often via cell phone from rural areas.

Please note the names of beneficiaries have been changed for reasons of confidentiality.

Case study 1 - a beneficiary serving a prison sentence.

Mongezi is a single beneficiary. His father, a member of the Textile & Allied Workers Provident Fund, died in July 2003. Although Mongezi, at 23, was entitled to his share of the death-benefit payment of approximately R151 000, the funds were placed into trust as he is serving a prison sentence. The initial instructions from the retirement fund trustees were for the funds to be re-invested and capital to be distributed upon request.
 
Mongezi is currently serving his sentence at a correctional services facility in Johannesburg. Generally, distributions would have been paid to a guardian but in this instance, no guardian was appointed as he was already a major. As his family had ‘written him off’ there were no family members to receive capital on his behalf and funds could therefore not reach him.  Mongezi therefore appealed for monthly payments and capital distributions to be made directly to him.

In a groundbreaking development, Fairheads liaised with the social worker dealing with Mongezi who has arranged for him to have access to an ATM for the purposes of withdrawing cash for toiletries and phone cards to correspond with UNISA, thus allowing him to proceed with his studies. The trustees felt that Mongezi had already been ostracised by his family and society and did not need any further alienation in his life. The social worker reports back on his progress to the trustees every six months. Upon completion of the prison sentence in 2007 Mongezi will be entitled to the funds.

Value of the trust at May 2005: approximately R156 000