It is normal for people to leave assets to their children and, in the case of grandparents, to their grandchildren. However, unless your will correctly deals with assets bequeathed to minor children, your wishes may not be carried out as you intended.
David Knott, a fiduciary expert and director of Private Client Trust, a wealth management firm in Cape Town, says that unless your will provides for the creation of a testamentary trust to administer assets inherited by minor beneficiaries, names the trustees and grants them the power to make investment decisions, your wishes in respect of your children or grandchildren will be thwarted.
“The Master of the Court has no power to read into a will something that is not contained within the document,” cautions Knott, who says that if a will does not create a trust with all the conditions spelt out, the executor will be obliged to pay any award owing to a minor beneficiary to the Guardian’s Fund.
“The Guardian’s Fund is essentially a savings account managed by the Master, to which all funds accruing to a minor or unknown beneficiary are paid,” Knott says. “The money in the fund will earn only simple interest, which is credited from time to time. When the minor turns 18, or when the unknown beneficiary has been identified, the capital plus the accrued interest can be claimed back. The interest rate paid at present by the fund is not bad, but historically this has always lagged commercial rates.”
Knott says that, by earning interest only, which will translate into a negative real (after-inflation) return, the spending power of the capital sum eventually claimed by the minor may be greatly reduced. If the funds are invested more prudently via a trust into a balanced unit trust fund, for example, the beneficiary will at least earn above-inflation growth on the capital.
“The guardian of a minor can apply to the Guardian’s Fund for the release of money from time to time for the maintenance of the minor, as the Master does have this discretion. However, I would rather not rely on a stranger having the discretion to allow this, when I could have spelt out those wishes in terms of a trust created by my will.
“It may be tempting to prepare your own will, or amend an existing one yourself, especially in rushed or changed circumstances. But there are many pitfalls ready to trap the unwary should you follow this course. Seek professional advice to avoid such issues,” Knott says.