Category Life Insurance

What happens to your minor children when you die?

06 September 2022 Allan Gray

70% of South Africans don’t have a will

National Wills Week, from 12 to 17 September, is aimed at educating South Africans about the risks of not having a valid will in place and highlighting the benefits of proper financial planning. Yet, more than 70% of South Africans pass away without a valid will in place.

What do international popstar Michael Jackson and the reggae icon Bob Marley have in common?

They both passed away without having a will in place, leaving their dependants and children without financial security.

Bob Marley’s estate, worth a reported US$34 million, has had dozens of claimants and is yet to be settled decades after his death.

“Not having a will can have detrimental and far-reaching consequences for dependants, whether minor children, a spouse or family members,” says Felicia Hlophe, legal adviser at Allan Gray. “As parents, we need to make sure our children’s needs are accounted for in the tragic event of our untimely death.”

In the spirit of National Wills Week, Hlophe shares key actions to take to get your affairs in order.

1. Draft a valid will

To nominate a legal guardian for your children and control how the assets in your estate are to be distributed, your will must be valid.

“Assistance from a professional, like your banker, lawyer or financial adviser, will ensure your will is valid. Make sure to update your will every time a life-changing event occurs,” says Hlophe.

While you would have been asked to nominate beneficiaries for some of your investments, your will should discuss how you want your other assets to be distributed.

“If you die without a valid will, your assets will be distributed according to the Intestate Succession Act. This may result in your assets being inherited by people other than those you would like to leave those assets to. The winding up of your estate could also take longer and cost more.”

2. Appoint a legal guardian for your minor children

If you do not appoint a legal guardian for your minor children in your will and both parents pass away, a legal guardian may be appointed by the High Court of South Africa. A court application can be a lengthy process, which could leave your children without a guardian for a significant period.

If you leave assets to minor children who do not have a legal guardian, you run the risk of these assets being transferred to the government’s Guardian’s Fund. The Guardian’s Fund will administer these assets until your children turn 18.

“Claiming from the Guardian’s Fund on behalf of a minor is an administration-heavy process and not ideal when funds are required immediately for your children’s needs. Retirement funds are treated differently.”

3. Keep the beneficiaries of your various policies up to date and allocate your other investments in your will

When it comes to investments, if your living annuity, endowment or tax-free investment account is structured as a life policy, it requires you to appoint beneficiaries. While you can nominate anyone, including a minor child, as a beneficiary, when you pass away, the child’s legal guardian will act on their behalf and receive the benefit.

When it comes to retirement annuity funds, pension funds and provident funds (including preservation funds), there are different rules, and these investments are expressly excluded from your estate. Every retirement fund is managed by a board of trustees, and these trustees are responsible for allocating and distributing the benefits. There are different scenarios for how a minor children’s benefits can be paid.

You cannot appoint a beneficiary for unit trust investments. These investments will be treated as part of your estate and should be allocated in your will. Your executor will then ensure they are distributed according to your instructions.

“When it comes to foreign currency investments or other offshore investments, it can become tricky if you have a foreign and South African will, given administrative complications of estate laws in offshore jurisdictions. In this situation, it is best to seek advice,” says Hlophe.

Make sure you update your beneficiaries with your financial services provider to ensure that your intended beneficiaries receive the benefit.

4. Consider setting up a testamentary trust

If you provide for a testamentary trust, you may name that testamentary trust as a beneficiary of your living annuity, tax-free investment or endowment policy.

“A testamentary trust has ongoing expenses as well as tax and legislative consequences and is not suitable for everybody. It is worthwhile seeking professional advice regarding the types of trusts that are available and their legislative and tax implications.”

Keep your affairs in order

“Lastly, make sure that your loved ones, or those appointed to take care of them, know where your will can be found and what needs to be done in the event of your death to make the process as seamless as possible,” concludes Hlophe.

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