A matter of trust

Trusts developed in England at the time of the Crusades, during the 12th and 13th Centuries. At the time, land ownership in England was based on the feudal system. When a landowner left England to fight in the Crusades, he needed someone to run his estate in his absence. He would therefore convey his land to a friend, on the understanding that the land would be conveyed back on his return. However, crusaders would often return to find the new "owners" less than willing to hand over the property.

The disgruntled crusader would take legal action and over time it became known that the court would continually recognise the claim of the returning crusader. The crusader became the "beneficiary" and the friend the "trustee". The term 'use of land' was coined, and in time developed into what we now know as a trust.

Dying wishes are sacrosanct for many people as most of us believe that we will determine who will get our assets following our death. Anomalies do pop up from time to time, such as when the benefit is distributed following the death of a retirement fund member.

Duties of trustees

Legislation in the form of the Pension Funds Act controls the payment of any benefit following the death of a member of a retirement fund. It places the following three duties on the trustees of the fund:

* Identify the dependants and/or the nominees of the deceased member;
* Decide on how the benefit will be distributed amongst them; and
* Determine an appropriate method of payment.

If the benefit is paid to a minor, the trustees may pay the minor directly or they may pay the benefit to the child's guardian. Alternatively, the benefit can be paid to a trust, where a monthly income is paid by the trust to the guardian of the child.

Payment mechanism

A 1989 amendment to the Pension Funds Act allows trustees of retirement funds to include trusts as one of the options available for the payment of death benefits. Umbrella trusts were developed to overcome the high expenses incurred and specialised administration needed to establish a trust for each death benefit. This is the most frequently used payment mechanism, where benefits are paid in respect of minors.

Selecting the right company

Members cannot decide on a trust as this duty rests with the trustees. Trustees have to be vigilant and should take the following into account when choosing a company that administers umbrella trusts:

* Costs incurred for the establishment and ongoing administration.
* Whether the company is independent or not.
* The track record of the company, including years in the business, the composition of its board of directors and senior management and references from other clients.

* Whether investments are made according to the trust deed, the needs of the beneficiaries and sound investment principles.
* Whether there are any conflicts of interest.
* Efficiency of their administration systems.

Moral obligation

After the money has been paid over to the trust, the trustees of the retirement fund no longer have any legal obligations towards the beneficiaries. They may however have a moral obligation. The trustees should periodically scrutinise the company to ensure that they are still the right choice.

Being a trustee and making decisions that affect the lives of people cannot be taken lightly. Mechanisms such as trusts are there to protect the wellbeing of minors. Trustees have to be vigilant every step of the way and not make light of their responsibilities.