701 - Safeguarding your legacy for your children

For any parent, the question of how to protect and provide for their children after their passing is a burning concern that arises long before the first child is born. In this article, the question as to how parents can safeguard their legacy for their children is explored.

UNDERSTANDING LEGAL CONSIDERATIONS FOR MINOR BENEFICIARIES

In South Africa, children under the age of 18 are considered minors and do not have the legal capacity to enter into agreements or contracts without the assistance of a legal guardian. This also impacts their ability to inherit directly. If one plans to leave assets to a minor child, their inability to inherit directly may pose challenges, as section 43(2)(a) of the Administration of Estates Act, 1965 (the AE Act), determines that no sum of money to which a minor beneficiary is entitled by virtue of a valid will, or in terms of the rules of intestate succession, shall be paid to any guardian. Upon one’s passing, any money bequeathed to one’s minor child will be managed by the Guardian’s Fund as overseen by the Master of the High Court.

CHALLENGES WITH INHERITING ASSETS: THE IMPACT ON MINOR CHILDREN

This is not ideal as accessing funds from the Guardian’s Fund can be a lengthy process, potentially causing delays in meeting essential expenses of the minor child such as school fees, clothing and other necessities. Additionally, the investment growth in the Guardian’s Fund tends to be below conservative, negatively impacting the growth potential of assets over time.

It is important to note that the above comments about the Guardian’s Fund only apply in instances where minor beneficiaries are entitled to receive monetary funds as an inheritance. In terms of section 43(1) of the AE Act, any movable assets, including furniture, personal effects or motor vehicles, which a minor child is entitled to receive may be handed to such minor child’s natural guardian until the child reaches the age of majority. Immovable property left to a minor child will be registered under their name but will also be managed by their legal guardian until they reach the age of 18.

LEVERAGING TRUSTS: ENSURING TIMELY ACCESS TO INHERITED FUNDS

The most effective strategy to prevent a cash inheritance due to a minor child from being paid to the Guardian’s Fund is by bequeathing such inheritance to an existing inter vivos trust (a trust that is registered during the founder’s life) or to a testamentary trust (a trust that comes into existence after the date of one’s death). This will safeguard the inheritance of a beneficiary in the same way that the Guardian’s Fund is supposed to; however, the beneficiaries and guardians, in consultation with the trustees, will be able to access the inheritance through simpler and more timely means.

It may also make sense to utilise an existing family trust as part of one’s legacy plan and to bequeath one’s assets to such an existing trust of whom one’s children are the beneficiaries. It is important to note that the trust instrument must allow for the trustees of that trust to accept such bequests. The trust will then receive the assets during the administration of one’s deceased estate and the trustees of the trust will be able to administer such assets as part of the trust fund under the provisions of the trust instrument for the benefit of the trust beneficiaries.

The benefit of utilising an existing trust or a testamentary trust to safeguard monetary funds to be paid to minor children, as opposed to bequeathing all funds to a specific individual (including a spouse), is that one can ensure that the funds will be utilised solely for the maintenance, upbringing and welfare of the children, as specified in the relevant trust instrument; ie, the trust deed in respect of an existing trust or one’s will in respect of a testamentary trust. It is crucial to realise that even where funds are bequeathed to an adult with a direct request to him or her to utilise these funds for the benefit of minor children, this cannot be controlled or enforced at a later stage, as heirs are entitled to dispose of their inheritance in any manner they deem fit. By creating a testamentary trust or bequeathing one’s assets to an existing trust, such assets will then be protected and managed by the named trustees and not by the Guardian’s Fund.

THE ROLE OF TRUSTEES IN SAFEGUARDING INHERITED ASSETS

A testator can nominate individuals whom he or she deems trustworthy and reliable to act as trustees; such trustees should ensure that the trust funds are strictly utilised according to the provisions of the trust instrument. It is also advisable to designate an impartial and independent trustee to effectively serve as a safeguard against conflicts of interest and be better equipped to make unbiased judgements. This means that all monetary funds paid to the trust are safeguarded and used solely in the interests of the minor children who are beneficiaries of the trust.

It remains important to consult an estate planner or advisor regarding one’s legacy needs and to ensure that the correct option is chosen for the safeguarding of the interests of one’s children after one’s passing as a lack of planning or poor advice can have dramatic consequences for one’s loved ones.

André van Niekerk

PH Attorneys

Acts and Bills

·            Administration of Estates Act 66 of 1965: Section 43(1) & (2)(a).