Supplied
Who will look after your child's financial future if you die prematurely? As a parent, this may not be something you want to think about, yet it is critical to make provision for this possibility.

“A beneficiary fund is a form of retirement fund, where the dependant becomes a member. It prioritises responsible use of funds for the benefit of meeting the minor beneficiary's primary financial needs.

"Benefits can also be paid out to a guardian or caregiver, providing that the funds are used solely for the benefit of the child,” says Christopher Mwalo, the acting operations manager: Sanlam Beneficiary Funds and Umbrella Trusts.

A significant advantage is that it is governed by a board of trustees tasked to act in the best interest of the child. Their decisions are governed by the beneficiary fund’s rules, Pension Funds Act, court orders and any instructions from the retirement fund trustees. They are held to account on matters such as ensuring that children receive an optimal education and to conserve funds so that they have something left when they attain the age of majority.

Mwalo answers common questions about beneficiary funds:

* Who should consider joining one? Any employer, because minor dependants can be nominated as beneficiaries of employee benefit proceeds, or the trustees can elect to pay funds to minor beneficiaries.

* Can you invest in a beneficiary fund in your individual capacity? A beneficiary fund account can be established for an individual only by the trustees of a pension or provident fund and through an employee benefit consultant.

* What is meant by primary financial needs? A big benefit of a beneficiary fund is that funds are invested in a way that ensures capital preservation and fosters financial security. Funds are paid out to cover a child's primary financial needs, such as basic living expenses, food, utilities and education.

* How much control do you have over the funds that can be released to your dependants upon your death? There is limited control regarding how much or to whom the funds can be released. This is because the trustees make the final decision and may adjust your allocations, depending on the needs of your dependents. However, you can guide the trustees by completing your nomination form (in this, you nominate your beneficiaries) and keeping it up to date.

The trustees will determine the age at which funds should be released to minors. However, 18 is the legal age of majority in South Africa; this is when a beneficiary will receive the remaining funds due to them from the fund. Should a beneficiary require the assistance of a financial adviser for financial advice, this is also possible at this stage.

* Who elects the caregiver/guardian? The trustees. They have 12 months to interview the deceased member's family in order to decide who to appoint. The guardian will be appointed if they are in a position to take care of the minor.

The current test applied by law and followed by the Pension Funds Adjudicator assesses if a guardian is competent based on factors such as education status, financial literacy and ability to manage his or her affairs. 

PERSONAL FINANCE