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Leaving a legacy

20 Sep 2016

What happens to your dependants should you pass on?

For most employees, some thoughts are easier to entertain than others.  Certain scenarios and outcomes are m​ore comfortable to consider when planning for retirement. At the top of this dreaded list is:

  • What happens to my dependants in the event of me passing away?
  • What information will my dependents need?
  • What is the impact on my will and the pay out of funds to the correct dependants? What options are available to paying out of funds to under aged dependents?
  • Is my retirement fund considered as part of my estate and will it be taxed accordingly?

What happens to your money when you pass way?

This is usually a traumatic experience for your loved ones, regardless of the circumstances in which the event happens. Emotions are running high and dealing with the administration of accessing the deceased’s money is probably the last thing that the bereaved want to deal with. However, it is important that preparation is done by you for this unfortunate event.

Plan ahead as far as possible and let your loved ones know the process for accessing the money, the key contacts at your employer’s HR department and your fund solutions provider.  You should also regularly update your beneficiaries list with the correct people and contact details.  Ideally, this process should be as stress-free and smooth as possible. Usually, your employer’s HR department or pension fund will contact your dependants after you pass away. When this does not happen, your dependants can get in touch with your employer and get assistance there. In the unlikely event that this fails, they can go directly to your pension fund. 

The importance of trustees

Fund trustees have a responsibility to look after your money and interests. This includes ensuring that your money is distributed to the correct dependants. Once contacted by your dependants, trustees will establish who your dependants are and how much should be paid out to them.

As many people in South Africa either don’t have a Will or update it regularly, it does not dictate what trustees should do when determining your beneficiaries.   As Liberty Corporate’s Umbrella Fund Solutions* head Arno Loots clarifies “The trustees want to make sure that they look after the member’s dependants, especially their children. This ensures that the correct people are looked after even if they weren’t mentioned in the will, the will hasn’t been updated or if there is no will.” Determining beneficiaries is a complex process that trustees work through. They consider many factors including:

  • The relationship to the person who passed away
  • The age of the beneficiary
  • The beneficiary’s financial situation
  • Was the beneficiary dependant on the person who passed away?

It is important to note that beneficiaries are not only limited to family members. Once the dependants have been determined, the correct amount will be paid out by the fund. This may be as a lump sum payment or in monthly payments, depending on the fund’s rules.

Should the dependant be under age, the fund trustees will check if their guardian has the ability to make sound financial decisions. If there is any doubt, the fund will use service providers called Beneficiary Trusts. They will act as agents that will invest and manage the child’s money until they are old enough to access the funds themselves.  They will ensure that the child’s needs are looked after. According to the fund’s rules, once the child is no longer considered to be a minor, the Beneficiary Trust will contact them to let them know that they can access whatever funds remain.

Does my pension fund form part of my estate?

A common misconception is that the money from pension funds will form part of the deceased’s estate. This is false and according to current legislation, it will not be considered as part of the estate. Therefore, this money will not be taxed with the rest of your estate. As Loots notes “This is another advantage of pension funds.”
Knowing what happens in the event of your death is an important part of understanding your employee benefits. Your employer, and especially your retirement fund, should assist those left behind as best as they can by contacting your dependants and ensuring that they receive the amount due to them. Trustees play a crucial role in finding and paying your dependants and will look after your money and interests to the best of their abilities.  

*Liberty Corporate’s umbrella fund is the biggest umbrella fund in South Africa by member size.

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Liberty Group Limited (Reg. no 1957/002788/06) is a licensed Insurer and an Authorised Financial Services Provider (no 2409).