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Don’t make life even tougher for your loved ones when you die

13 September 2021 Momentum Corporate

Momentum Corporate experts explain what your will covers and what it doesn’t this National Wills Week

The COVID-19 pandemic has increased awareness around death and the administrative and financial burden that surrounds the passing of a loved one. Recent estimates by the Master of the High Court show as many as 70% of South Africans do not have a legally executable will. This means that the death of a family member or loved one often creates great financial confusion, disarray and conflict for families, at a time they should be mourning.

In addition, many of us confuse how our assets will be distributed through our will, with the distribution of death benefits from our company sponsored retirement fund – often assuming that our death benefits fall within the scope of our will. But the two are treated very differently.

As National Wills Week kicks off on 13 – 17 September 2021, Shameer Chothia, Senior Consultant at Momentum Corporate Advice and Administration and Jeffrey Wiseman, CEO of Momentum Trust, clear up the confusion and explain why it’s crucial – for the sake of your loved ones left behind – to understand the difference.

Section 37C of the Pension Funds Act and your retirement and death benefits

Chothia explains that Section 37C of the Pension Funds Act 24 of 1956 (“the Act”) governs the distribution and payment of lump sum benefits paid if a retirement fund member dies. These benefits are known as “death benefits” and, very importantly, do not form part of the assets in a deceased member’s estate.

Instead, Section 37C of the Pension Funds Act places a duty on the trustees of the retirement fund to allocate and pay the benefit in a manner that it is fair and equitable and the benefit may only be paid to the estate in exceptional circumstances.

Trustees need to identify the dependants and nominees of the deceased member, facilitate an equitable distribution of the benefit among the dependants and nominees, taking into account all relevant factors.

Your dependants are in most cases the people who rely on you financially. Beneficiaries are the people who you nominate to receive your death benefits after you pass away. The trustees of your retirement fund will first ensure that your dependants are taken care of financially, before considering your nominated beneficiary nomination form. Which highlights why it’s very important to complete a beneficiary nomination form, which indicates who you want to receive your benefits.

“But even if you complete a nomination form, the nomination is not binding on the trustees, as the benefit must be distributed strictly in accordance with section 37C and the trustees will first focus on your dependants,” says Chothia.

It’s also important to understand the differences between approved and unapproved death benefits.

Chothia explains that employers provide death benefits for employees through group life cover with their retirement fund or through an insurance policy in their (the employer’s) name. “If the benefit is provided through the retirement fund, it is known as an approved benefit and is paid according to Section 37C of the Pension Funds Act, as already explained.”

He continues, “If the benefit is provided through a policy in the employer’s name, it is known as an unapproved benefit which is paid according to the policy conditions, based on the member’s beneficiary nominations. The trustees have no say in the distribution of unapproved benefits.”
Chothia says that irrespective of whether your death benefits are through your retirement fund (approved) or through your employer (unapproved), it’s very important to make sure your beneficiary nomination form has been updated.

Recent changes to the Insurance Act make it even more essential that members eligible for unapproved death benefits, provided by an employer policy rather than the retirement fund, complete a beneficiary nomination form. Previously, the legislation allowed employers a say in the way unapproved benefits should be paid where no beneficiary nomination was in place.

If you haven’t completed a beneficiary nomination form and the payout is from an unapproved policy, the benefit will now be paid to your estate if you pass away. This will mean your loved ones will not have immediate access to the benefit, which will also incur estate duty. This will reduce its value and beneficiaries will need to wait for the winding up of the estate to access the funds, which is typically a lengthy process.

Fortunately updating the beneficiary nomination form is an easy, streamlined online process for the FundsAtWork members we insure, involving a few clicks, taps or swipes,” says Chothia.

Chothia continues, “It’s really important to get your financial affairs by ensuring beneficiary nomination forms are up-to-date, talking to your loved ones about your benefits and making sure all essential information is in one safe place if you pass away.

This is why we developed a Smart Life file for the members we insure, which includes your personal information, assets, contracts and accounts, the beneficiaries of your will as well as login details and important passwords and pins.”

Don’t forget about the rest of your estate

Once your affairs are in order for the savings from your retirement fund and/or employer-sponsored death benefits, what about your other assets, like a house or personal savings? This is why a will is a non-negotiable.

Jeffrey Wiseman, CEO of Momentum Trust Limited weighs in on the matter: “The money and/or property that an individual leaves behind when they pass away is referred to as a “deceased estate.” These assets are administered and distributed according the deceased’s will or by the Intestate Succession Act, should the deceased not have a will. The executor, who is nominated in the will and legally appointed by the Master of the High Court, is the individual who facilitates the process of carrying out the directives as set out in the will.”

Estate administration can be a lengthy and complicated process which involves facilitating communication between and with beneficiaries, creditors and debtors. For this reason, many individuals opt to appoint a professional executor who can unemotional and impartial assistance.

Wiseman says, “The reality is that the hidden costs associated with death can become an added expense for a family member or loved one, in addition to emotional pain and bereavement. Hidden fees include lawyers’ fees, advertising costs, expenses involved with selling or transferring assets and administrative costs. What many don’t realise is that executorship can be an onerous task, and the winding-up process of an estate can take up to a year (or longer). Appointing an independent entity as executor can help circumvent the administrative burden.”

Chothia and Wiseman conclude, “Give your loved ones the peace of mind of knowing that there will be enough money available in your estate to cover administration costs, your will is safe, and you have nominated beneficiaries to receive your retirement savings and death benefits should you pass away.”

Quick Polls

QUESTION

South Africa’s Financial Sector Conduct Authority (FSCA) has the power to raise revenues by issuing administrative penalties and fines against non-compliant financial services providers, with this money flowing back to the Treasury… Does this, in your view, create a regulatory / government conflict of interest?

ANSWER

Absolutely, as conflicted as it gets
Maybe, I’m on the fence on this
No, the FSCA can do no wrong
The guilty must pay
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