You spend thousands of Rands, in your lifetime, paying for life insurance, and let’s face it, you’re never going to benefit from it personally. And for those of you who are concerned about leaving your young children without any means of financial support, you now face having to make a critical decision.
What are your options if your major concern is how your children are going to be looked after, once you pass on?
Two situations could exist:
- You nominate minor children as beneficiaries on your life policy (Minor children are defined as being younger than 18 years of age).
- You nominate your Estate as the beneficiary
So, what happens if you nominate minor children as beneficiaries on your life insurance and investment policies? Monies payable to a minor beneficiary will end up in the Guardian’s Fund. The reasoning behind this is simple – a minor cannot understand the implications of making their own financial decisions.
What exactly is this Guardian’s Fund?
Basically, the Guardian’s Fund was set up by the Master of the Supreme Court in order to hold and administer funds on behalf of:
- Minor children,
- Persons incapable of looking after themselves financially,
- Unborn heirs, and
- Missing persons
What if I nominate my Estate as a beneficiary?
Well, then the life insurance proceeds will form part of your Estate.
The executor of your Estate will use the proceeds for two things:
- To settle the debts of your Estate, and
- To distribute the money in terms of your wishes
Of course, if you had no last wishes then you leave the poor old executor with very few options.
If, however, you did indeed leave behind a valid Last Will and Testament, then the executor would start reading the fineprint…and here’s what you need to look out for.
What you need to do is insert a clause in your Will stating that a “Testamentary Trust” must be established on your death for the benefit of your children, until they reach a desired age (stipulated by you although this is usually either 21 or 25 years of age).
What’s a Testamentary Trust?
A testamentary trust is a legal entity which only comes into existence on the founder’s death and which is created for the sole benefit of the founder’s beneficiaries.
A quick example:
Rachel and Joseph have two small kids (both under the age of 10). In their Will document they have made a provision for a Testamentary Trust to be set up if they both pass away (because their children are too young to inherit). In the event that they do both pass away, a Testamentary Trust is set up, and the assets of their estate are held in the trust. The guardian who is looking after the children will need to approach the trustees of the trust to request monies to look after the children, and when the kids are old enough (normally 18 or 21) the trust will be dissolved and they will stand to inherit their portion of their folks estate.
Final thought…
If you have any minor children – or persons with special needs – who need to be taken care of in the event of your untimely death, then you owe it to them to make sure that you have a valid Last Will and Testament in place, which clearly states that a “testamentary Trust” must be set up in order to take care of them.
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Until next time.
The Wise About Life team
