Not everyone realises that a cash bequest to, or the inheritance of a minor child will not be paid to him or her, or even to their legal guardian. This is because section 43(2)(a) of the Administration of Estates Act 66 of 1965 (hereafter, “the Act”) provides that money to which a minor beneficiary is entitled by virtue of a valid will, or in terms of the rules of intestate succession, may not be paid to the minor’s guardian. These funds must instead, as a general rule, be paid over to the Guardian’s Fund. This fund was established by the Act to manage funds on behalf of certain categories of persons, including minor children, and is administered by the Master of the High Court.
The appointed guardian of a minor child must then apply to the Guardian’s Fund for money to maintain and care for the child on a regular basis. The actual inheritance will only be released to the beneficiary when he or she reaches the age of majority, at the age of 18. Before this time, the guardian must follow burdensome administrative processes to claim funds and will possibly experience delays in obtaining the funds to pay for school fees, clothing and the other necessities of minor children.
Where funds have not been claimed on behalf of a beneficiary for a period of thirty years after becoming claimable from the Guardian’s Fund, they are forfeited to the state.
Clearly, this is not an ideal solution. One of the most effective strategies to prevent a cash inheritance due to a minor child from being paid to the Guardian’s Fund, is by creating a testamentary trust in a will and then bequeathing any cash due to the minor child to this trust.
A trust is described in the Trust Property Control Act, 57 of 1988 as an arrangement by which an individual makes over or bequeaths property to another person, namely the trustee, for the purposes of being administered or disposed of in terms of the provisions stipulated in the trust instrument, for the benefit of designated persons, to fulfil the objectives of the trust. A testamentary trust is created in an individual’s will and only commences on the death of the testator when the provisions of the will are executed by the executor of the deceased’s estate. A testamentary trust is included in an individual’s will to safeguard the interests of minor children who are beneficiaries, or potential beneficiaries, of the deceased’s estate. It ensures that such inheritances will be managed, utilized, and monitored by nominated trustees for the benefit of the minor children. Cash bequeathed to the trust is controlled and protected from being utilized for any other purpose. A testamentary trust created in a will generally includes clauses naming the trust, appointing specific trustees, outlining the rights, duties and powers of the trustees, nominating certain beneficiaries, establishing the purpose of the trust and determining when the trust will be terminated and to whom the proceeds will be distributed on termination.
The benefit of establishing 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 to ensure that the funds will be utilized solely for the maintenance, upbringing and welfare of the children in years to come, as specified in the individual’s will. Even where funds are bequeathed to an adult with a direct request to him or her to utilize these funds for the benefit of minor children, this cannot be controlled or enforced at a later stage, as such an heir is entitled to dispose of their inheritance in any manner they deem fit. The situation may also arise that both biological parents of minor children pass away simultaneously. By creating a testamentary trust, cash bequeathed to the children will then be protected and managed by named trustees and not by the Guardian’s Fund.
The above specifically relates to cash inheritances to be bequeathed to minor children. However, it is recommended that a testator considers bequeathing some portion of any cash inheritance to the surviving spouse, to ensure that the spouse has sufficient funds available to pay regular debts incurred for the maintenance of the joint household following the death of the testator.
A testator should include a provision in his or her will identifying the date of termination of the trust, which is generally the time the last surviving beneficiary reaches a specific age. This provision usually directs that, upon termination, all proceeds held in the trust shall be distributed between the beneficiaries. This is a further benefit of a testamentary trust; a minor child’s inheritance which is held by the Guardian’s Fund is not automatically released, but only on application to the Fund when the child reaches the age of majority. By creating a testamentary trust, the testator also has control over the age at which a child will receive the proceeds. This may not necessarily be at the age of majority, but rather at a more mature age when the child will be in a better position to manage and invest the funds.
It is important to consider including a testamentary trust in an individual’s will irrespective of whether there are specific minor heirs nominated in the will, as there may be potential future heirs that have not attained the age of majority when they become entitled to receive an inheritance. This generally occurs where a testator bequeaths assets to a specific individual, failing which that inheritance is bequeathed to the individual’s issue by representation. Should the beneficiary predecease the testator, the inheritance will devolve upon the heir’s children, if any, who may be minors at the date on which they become entitled to the inheritance.
An inheritance bequeathed to a testamentary trust can only be distributed in terms of the approved liquidation and distribution account, once the trust has been registered at the Master’s Office. This may affect the timeframe for the finalization of the winding up of the deceased estate. However, once the process is finalized and the monetary funds have been distributed to the trust, the trustees will have the authority to utilize the funds for the benefit of the minor children in terms of the provisions of the will. The peace of mind and assurance provided to a testator to nominate specific trustees who will manage the financial affairs of a minor child, as opposed to the funds being held by the Guardian’s Fund, arguably outweighs the additional once-off administration process involved in registering the trust. This is in contrast to the possible future delays of regularly applying to the Guardian’s Fund for the release of funds.
It should be noted that the inclusion of testamentary trusts may not be a viable option for smaller estates where the costs incurred for the registration of trusts will reduce the inheritance to be paid to minor children to such an extent that it is not a justifiable alternative.
A testator can ensure additional oversight of the utilization of funds for the benefit of the minor children by appointing more than one trustee. It is, however, important to ensure that trustees have first been consulted to confirm whether they are willing to accept their appointment, as well as the duties that are created by the trust. It is also important to provide the executor nominated in your will with regularly updated contact details for the trustees to avoid delays when the trust must be registered.
The Master of the High Court acts as a governing body to ensure that trusts are administered in accordance with the law and that trustees are complying with their fiduciary duties. All the above points highlight the benefits of creating a testamentary trust to safeguard the inheritance of minor children.
The above provisions only relate to money which minor beneficiaries are entitled to receive. In terms of Section 43(1) of the 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.
Wills should be updated, amended or modified by a testator on a regular basis. By including a revocation clause, the testator confirms that all previous wills are revoked and replaced by the new will. This makes the substitution, replacement or removal of trustees a simple exercise when updating a will. A regularly updated will ensures that a testator’s wishes are correctly set out to be enforced upon his or her death, but also proactively safeguards the interests of vulnerable beneficiaries, including minor children. By creating a testamentary trust in a will, a testator is able to control not only the purpose for which the funds will be utilized, but also to ensure that these funds are available and easily accessible to the minor children when the testator is no longer present to provide the necessary financial support. This is in contrast to attempting to claim funds from the Guardian’s Fund for the maintenance of minor children on a regular basis, which may result in administrative burdens and possible additional delays.
By appointing trustees, a testator can nominate individuals who he or she deem trustworthy and reliable, to ensure that the monetary funds are strictly utilized according to the provisions of the will. This, along with the fact that trustees’ actions are scrutinized by the Master’s Office, which acts as an independent regulatory body and provides additional oversight, 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.
The Trusts and Deceased Estates department of MacRobert Attorneys specializes in the drafting, execution and safekeeping of wills. Please feel free to contact us should you require professional assistance with regard to the execution or updating of your will in compliance with the requirements set out by the Wills Act, in particular when there are potential minor children who will benefit from your estate.