Published in FA News, 30 November 2015
By Giselle Gould, Business Development Director, Fairheads Benefit Services
In January 2009 the government introduced beneficiary funds. These funds can receive some of the death benefits paid out by a company’s retirement fund when an employee passes away in service. The death benefit money is invested and kept safe for the deceased member’s dependants and administered by companies such as Fairheads Benefit Services.
Beneficiary funds play an important social role as they are mainly used for the education and wellbeing of minor children. Guardians or caregivers normally receive a monthly payment from the funds and can make requests for capital payments such as school fees and medical expenses. When the child reaches majority he or she is entitled to the remainder of the funds or may choose to leave them in the beneficiary fund for future investment management.
Speaking in support of World AIDS Day on 1 December, Giselle Gould, Business Development Director for Fairheads Benefit Services, said that beneficiary funds can play a positive role in the lives of many families that are impacted by AIDS.
“Tragically a number of accounts we establish in a child’s name are due to the breadwinner having passed away due to AIDS. Let us take the time on 1 December to remember the parents who have died from this terrible disease,” Ms Gould said.
She said that sometimes the spouse or partner left behind to care for the child can also succumb, leaving the child a double orphan. Under such circumstances, if a lump sum benefit had been paid to the partner/spouse of the retirement fund member who had died, those funds would now form part of their deceased estate.
Contrast this with paying the lump sum benefit into a beneficiary fund, where if the guardian should pass away, the child’s benefit will remain intact in their name and they will continue to receive the payments, Ms Gould explained. She added that the decision whether to pay the lump sum to the guardian was a complex one and could only be decided by retirement fund trustees on a case by case basis.
Once the child’s benefit is in a beneficiary fund account in their name, the trustees of the beneficiary fund take over the fiduciary duty from the retirement fund trustees. Here are some examples of how they might need to apply their minds:
• If the child is HIV positive, funds can be allocated to pay for medical costs while keeping the child’s status strictly confidential
• If a child is a double orphan and there is no-one else to take over as caregiver, the trustees will engage social services to see if the child can be moved to a place of care. If not and if the child is 16, Fairheads helps directly with child-led households, with the support of social services and the police who make regular checks on the children. In this case, Fairheads will help the 16-year old open a bank account, compile a budget and then pay a monthly income to the child’s account. The beneficiary fund will pay school fees directly to the school.
• In the tragic event that the child dies, the trustees work with the family to apply to the magistrate’s court for the beneficiary fund proceeds to be paid into the child’s estate late account.
Ms Gould said the fiduciary role played by beneficiary fund trustees was critical and that administration had to be conducted with care and respect at all times.