An article that appeared in ‘Pensions World’ magazine of September 2010, deals with payment of a lump sum death benefit by a fund to a testamentary trust. Where member directs payment of death lump sum to his/her testamentary trust, the trust deed must provide for the following:

• It must make provision to receive money from a retirement fund.
• It must provide for fund benefits to be dealt with by the trustees of the trust, in the manner directed by the fund.
• Capital must be ring-fenced, capital and income must vest in the designated beneficiary and may not be redistributed.

Disposition of capital of deceased beneficiary in beneficiary trust

When disposing of the death benefit of a deceased fund member, trustees commonly direct that the capital allocated to minor beneficiaries be paid into a trust for the benefit of the minor beneficiary until the beneficiary reaches majority. Section 37C of the Pension Funds Act defines the trustees’ obligation with regard to the disposition of a death benefit. It is clear from this section that the trustees are obliged to apply their discretion in allocating capital to a beneficiary[ies] who has[ve] to be [a] natural person[s].

However under certain circumstances, a benefit can be paid to a trust. As explained in the preceding article ‘Can you request that your death benefit be paid into your testamentary trust?’ the trust deed must comply with 3 key conditions as set out. One of these conditions is that the capital must be ring-fenced and that capital and income must vest in the beneficiary and may not be redistributed. It follows that in the event of the death of the minor beneficiary prior to the ‘expiry date’ of his/her trust, any remaining capital, including interest must be paid to the deceased beneficiary’s estate.

If a retirement fund’s dependants trust deed does not make it categorically clear that a beneficiary’s benefit from the fund vests in the beneficiary for his or her sole and exclusive benefit, the trustees of the fund are well advised to ascertain that the trust deed is amended accordingly.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.