Caring for your children when you are gone

Giselle Gould, business development director of Fairheads Benefit Services.

Not enough South Africans know about beneficiary funds, which are a cost-effective alternative to setting up a testamentary trust to care for your children if you die.

This is the view of Giselle Gould, business development director of Fairheads Benefit Services, who was speaking at the Institute of Retirement Funds conference in Durban yesterday.

Ms Gould said that anyone who is a member of a retirement fund could state on their nomination form that the trustees should consider the use of a beneficiary fund to accept death benefits on behalf of their minor dependants, should the member die while in service. Members should also nominate a guardian for their minor children.

Beneficiary funds are tightly regulated by the Pension Funds Act and were introduced in 2009, yet very few people know about them and retirement funds are not doing enough to communicate their existence to members, according to Ms Gould.

Beneficiary funds are cheaper than setting up a testamentary trust to care for your children if you die. They benefit from economies of scale as one fund can comprise thousands of minors’ sub-accounts. As a result, institutional fees apply. They are tax efficient too, with no tax paid in the beneficiary fund and any payment out of a beneficiary fund, whether capital or income, is also tax free.

In many instances, it is preferable for retirement fund trustees to pay lump-sum death benefits into a beneficiary fund instead of directly to the guardian. By paying into a beneficiary fund, the assets are in the child’s own name and carefuly invested and managed until they turn 18. If they were paid to the guardian and the guardian should die, the assets would form part of his or her estate and not necessarily be used to pay for minors’ expenses such as education.

Ms Gould called on retirement funds to appoint beneficiary fund service providers and ensure that members were aware of their benefits.

Grassroots communication award

At the IRFA conference last night, Fairheads won the gold category for Best Industry Practice for its annual guardian roadshow. The roadshow was first established in 2010 as a means to educate guardians/caregivers and major beneficiaries/members about beneficiary funds and trusts and to facilitate knowledge transfer on a one-to-one basis. In 2013 the initiative touched nearly 5,000 attendees representing over 8,000 beneficiaries/members across South Africa, Lesotho, Swaziland and Mozambique, from eight different beneficiary funds and trusts.