Umbrella trusts and beneficiary funds house the assets left to minor dependents; the source of the assets can be retirement fund death benefits in the case of beneficiary funds or testamentary and other non-retirement fund payouts in the case of trusts.
Sophisticated models are used to set out how much money can be paid out annually as regular income support payments to the child's caregiver, and capital payments paid out for annual educational or other critical expenses. The model is calculated so that the benefit is not depleted before the child reaches the age of majority at 18 and is eligible to receive their remaining benefit.
As far as possible, the trust or beneficiary fund should aim for there to be an amount remaining at this time so that the child, now an adult, can continue with their schooling, get a tertiary education, or start up a small business.
But what happens if tragedy strikes and the child dies before they reach age 18?
Many children are cared for not by their parent, but by a caregiver, who is defined in the Children's Act 38 of 2005 as any person other than a parent or legal guardian who factually cares for a child. It is not uncommon for the caregiver not to approach the courts to obtain legal guardianship of the child as this can be an expensive and onerous process.
If a child dies, any remaining benefit in the trust or beneficiary fund is paid to the child's estate. It is unlikely that they would have prepared a will (although in South Africa, you are able to draft a will once you reach the age of 16 years old, as long as you are of sound mind), and any money paid to the estate will be dealt with in terms of the Intestate Succession Act 81 of 1987.
The process is overseen by the Master of the High Court, where the caregiver or guardian must make representation to the Master that they be appointed as the child's representative. This involves submitting a range of documents, including:
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- The death notice
- An original or certified copy of the death certificate
- All original wills or documents intended as such (if any)
- Next-of-kin affidavits
- Completed inventory forms (essentially a list of all assets)
- A list of creditors of the deceased (essentially a list of all liabilities)
- Nominations by the heirs for the appointment of a Master's representative
- Undertaking and acceptance of Master's directives
- A declaration confirming that the estate has not already been reported to another Master's Office or Magistrates Court
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Once all the forms and documents have been submitted and the fees paid, the Master will then consider the application. Where the estate is below R250 000, the guardian or caregiver is issued with Letters of Authority, and where it exceeds R250 000 the guardian or caregiver is issued with a Letter of Executorship. While the scope of authority granted to the executor and the representative is different, these letters essentially allow them to open a bank account in the name of the late child's estate and for funds to be paid to the account.
While the published service level agreement (SLA) for appointing a representative or executor is 120 days, recent turmoil within the Master's office has resulted in long delays.
Intestate succession
As mentioned, where the child did not prepare a will, the laws of intestate succession will apply. These laws in essence set out who receives the assets/benefits. Put simply, the money is paid out in order as follows:
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- The spouse of the deceased (it is unlikely that the child would have been married), thenThe descendants of the deceased (it is unlikely that the child would have had children of their own), then
- The parents of the deceased, then
- The siblings of the deceased (only if one or both parents are predeceased), then
- Extended family (nieces, nephews, aunts, uncles or cousins).
In circumstances where the child has no spouse, no children, their parents have predeceased them, and there are no siblings and no relatives, the estate will be forfeited to the state.
In summary, when a minor beneficiary of an umbrella trust or minor member of a beneficiary fund dies, the remaining benefits are paid to their estate. While the process described above sounds relatively straightforward, it can prove to be overwhelming for many who have never dealt with these types of matters before. Add to that the inefficiency of the Master's Office and this can be a truly daunting experience.