If you have minor children that you intend to make financial provision for, creating a testamentary trust in terms of your will is very often the most appropriate way to ensure that assets intended for them are protected for their future benefit. If you bequeath funds (such as the proceeds of a life policy) directly to a minor child, you run the risk of these funds being transferred to the Guardian’s Fund where they will be held and administered until your child reaches the age of legal majority. But, what is the Guardian’s Fund? Who runs it? How are the funds invested? How does one claim from the fund? And what alternatives do you have when it comes to leaving a financial legacy for your minor children? Let’s unpack.
The Guardian’s Fund serves, amongst other things, to protect and manage money inherited by minor children. In terms of our law, children under the age of 18 are not legally capable of managing their inheritance and any funds inherited by them, either through testate or intestate succession, may be transferred to the state-run Guardian’s Fund where they will be administered on their behalf until the child reaches age 18. The Guardian’s Fund forms part of the Master of the High Court of which there are currently 15 offices throughout South Africa, with each Master’s Office having its own Guardian’s Fund.
Where a minor child inherits money, the Master may direct that these funds are transferred to the Guardian’s Fund, following which an account will be opened in the name of the beneficiary. If the beneficiary has not yet been identified, the Master will need to open an account in the name of the estate that the money forms part of. All money held in the Guardian’s Fund is invested in the Public Investment Corporation, which is an asset management company wholly owned by the government.
Money held in the Guardian’s Fund earns interest calculated at a rate determined by the finance minister from time to time, with interest compounded monthly from the date of receipt to up to five years after the funds have become claimable. All funds administered in the Guardian’s Fund are done so free of charge, and no administration costs are paid. Practically this means that, where a person dies without a valid will or where no provision has been made for a testamentary trust, the Master will instruct that any funds earmarked for a minor child’s inheritance be transferred to the Guardian’s Fund. From a financial and logistical perspective, having money housed in the Guardian’s Fund is less than ideal, and it can result in both the child and the child’s legal guardian being compromised.
The child’s guardian (or tutor, curator or person looking after the child) is able to claim from the Guardian’s Fund to cover costs such as school and university fees, clothes, medical aid premiums, food, maintenance and any other costs that can be adequately motivated, although claims are limited to R250 000 from the invested capital plus any interest earned on the money and need to be motivated and approved by the Master. In order to give effect to the claim, the guardian will need to complete the relevant application forms, together with supporting documentation, quotations and accounts, and the process can be frustrating, time-consuming and laborious – made worse by delays as a result of the pandemic and extended lockdown. If the claim is approved by the Master, the funds may be paid directly into the guardian’s bank account via EFT although to ensure that funds are not abused or misdirected, it is possible for them to be paid directly to a third party, such as to the child’s school or creche.
Once the child reaches the age of 18, they are able to claim any funds remaining in the account together with all interest that has accrued. To do so, they will need to complete the relevant application forms and legal documentation, including bank account details, ID documentation, and a set of fingerprints. Once approved, the funds will be paid directly to the beneficiary’s nominated bank account.
Remember, as interest only accrues for a period of five years until after the funds have become claimable, it is advisable to start the processing of claiming the funds as soon as possible. Where money held in the Guardian’s fund has remained unclaimed for a period of 30 years, it will be forfeited to the state. Before doing so, the Master is required to advertise all unclaimed funds in the Government Gazette annually during the month of September. Money that remains unclaimed in the Guardian’s Fund for a period of 30 years will be forfeited to the state. Every year during September, the Master advertises all accounts which have been unclaimed in the Government Gazette.
In most instances, money due to be inherited by minor children is transferred into the Guardian’s Fund because the child’s parent did not draft a will or did not make provision for a testamentary trust when setting up a will. If you want to make sure that any money intended for your minor child is protected and safeguarded in the best interests of your child, a testamentary trust is an excellent way to achieve this goal. Here’s what it entails:
- Get advice from a legal or financial expert who can help you draft a valid will in which you make provision for the formation of a testamentary trust. This trust will only come into being in the event of your death.
- Nominate a set of trustees to the trust who you believe have the financial and legal acumen to manage the assets in the trust, and who you know will look after your child’s best interests. Ideally, appoint a maximum of three trustees to ensure that there are sufficient checks and balances in place, and that decision-making doesn’t rest with one person. You may want to consider appointing alternate trustees in case one or more of your nominated trustees are not available when the time comes.
- Most importantly, nominate a guardian for your minor child who you trust will take good care of your child if you are no longer around. Once again, consider the possibility of your nominated guardian not being available in the event of your passing and name an alternate guardian for your child.
- Ensure that any assets intended for your minor child are bequeathed to the testamentary trust. In doing so, those assets will be transferred directly into the trust should you pass on, and your nominated trustees will administer those assets according to the mandate you have provided them.
Remember, if you have set up a testamentary trust in terms of your will, and your will is later found to be invalid, no trust will be formed, and you will be deemed to have died intestate. For these purposes, while it may be tempting to draft your own will, it is almost always advisable to rather seek the help of an expert.