Workers death benefits can be safe-guarded for their children’s long term benefit

The legal guardians of children are often dismayed to learn that they will not receive a lump sum to allocate at their discretion upon assuming guardianship of a child.

While guardians often believe building or buying a house for the child is the best way to provide a secure future, Alexander Forbes Trust and Beneficiary Fund Services has found that nothing equips children to develop, acquire skills, become financially independent and break the cycle of poverty and dependence like an education.

As the managers of R2,7 billion in assets for over 42 000 largely disadvantaged children, Alexander Forbes Trust and Beneficiary Fund Services finds that many guardians fail to make the distinction between the death benefits which are allocated to the children in their care and those which they themselves may be entitled to receive.

So, while spouses may use their partners’ death benefits in any manner they please, “children’s benefits should be used to provide for basic living expenses and education” says Matla Titi, Head of Alexander Forbes Trust and Beneficiary Fund Services, Alexander Forbes Financial Services (Pty) Ltd.

In short, retirement fund trustees are not legally bound by the will of the deceased when allocating funds to the deceased’s dependents. The legislative intent is to ensure that the death benefits of deceased workers are used to support their dependents, rather than to settle the debts of the deceased worker’s estate. As such, retirement fund benefits do not form part of the deceased’s estate and retirement fund trustees are under no legal obligation to settle a deceased’s bond or any other debt.

Most of the beneficiaries in these beneficiary funds are not well off. Titi explains that, “although the average benefit size is around R100,000, figures disbursed to some surviving children can be in the region of three to four hundred thousand rand.” To poor communities this can seem like a large sum, certainly enough for extended families, grandparents or caregivers to buy or build a house for example. Yet “considering how much the care and education of a child costs over an 18 year period this is not a limitless amount” adds Titi.

So, while funds for living expenses and other needs are released according to each child’s particular circumstances and the size of the benefit “our main objective is to ensure that beneficiaries receive education and skills training appropriate to their capabilities and inclinations” says Titi.

This means that funds are invested and distributed in accordance with the financial planning done for each beneficiary ensuring that children develop to their full potential as their parents would have wished. As such, aptitude assessments and career guidance aimed at securing the child gainful employment form a strong element of Alexander Forbes Trust and Beneficiary Fund Services’ offering.

Where larger benefits are received, individualised asset allocation means that the Alexander Forbes Beneficiary Fund is often able to invest a portion of the younger children’s death benefits in equities, increasing and extending the capacity of the benefit to educate the child, often to tertiary level.

Another popular misconception, particularly amongst higher earners, is the belief that group death benefit policy holders don’t need to take out insurance on their home loans as, in the event of their death, the loan will be paid off by their retirement fund’s death benefit scheme.

Depleting a child’s benefit in order to settle a bond or buy a house would not achieve the deceased parent’s original intention of securing his or her child’s future.

Titi often finds that where trustees elect to protect children’s benefits by placing them in the beneficiary fund, upon the death of a breadwinner no provision has been made to cover the bond on the family home. This often “leads to young beneficiaries and the surviving spouse either losing the home or unable to benefit from the sale of their home when they need it most” warns Titi.

As such retirement fund members are urged to insure that they take out mortgage insurance when purchasing their homes as their death benefits will be used to support and educate the children they leave behind rather than to settle an outstanding bond.