‘Interrogate a guardian’s circumstances before deciding where to pay a death benefit’

A beneficiary fund should not be the default choice when a retirement fund pays out a death benefit due to minor beneficiaries, but trustees must interrogate a guardian’s circumstances and intentions before making their decision, says David Hurford, the chief executive of Fairheads.

He was responding to an article by Yolande van Tonder, senior assistant adjudicator at the Office of the Pension Funds Adjudicator (PFA), who said a fund may decide to pay a death benefit into a beneficiary fund only where there is reason to believe it would not be in the best interest of the minor child to pay the benefit to his or her guardian.

Hurford said trustees must apply their minds and determine whether it is in the minor’s best interest to pay a lump sum to his or her legal guardian, or whether a better outcome for the child could be achieved by paying the benefit to a beneficiary fund.

“It is precisely this deliberation which we believe needs further consideration. Questions must be asked about how the guardian intends to manage the benefit so that the best possible outcome can be achieved.”

To illustrate his point, Hurford cited a recent case involving the mother of a disabled child who complained to the PFA because the child’s benefit had been paid into a beneficiary fund.

The PFA found that the trustees had not applied their mind to whether it was in the child’s best interest to pay the benefit to the beneficiary fund and had applied a default policy. As a result, the board’s determination was set aside. The trustees agreed to pay the benefit to the guardian but said it would take some weeks to effect the payment.

In the meantime, beneficiary fund’s service provider, Fairheads, contacted the mother to see whether there was any immediate financial need that could be addressed.

It emerged that the mother intended to buy a car to take her son to hospital for his monthly visit. On further questioning, it was determined that the mother did not know how to drive, did not have a driver’s licence, and planned to buy the car through the informal economy, and it was unlikely that she would register vehicle in her name or insure it. Fairheads also determined that the mother’s boyfriend of a few months was a driving force behind the complaint to the adjudicator.

Hurford said that in light of the above, it would seem prudent to work with the mother to find a solution to her need: to get her child to the hospital each month. This could have been done by arranging patient transport, for which the beneficiary fund would have paid.

He said the beneficiary fund could also have paid for driving lessons for the guardian, assisted with the costs of obtaining a driver’s licence, helped and guided her to find and buy a reliable vehicle through a reputable dealer, ensuring registration in the mother’s name, and paid for the insurance of the vehicle.

“So, while we agree that a beneficiary fund may not be an appropriate mode of payment in all instances, boards of funds must interrogate the circumstances and intentions of the guardian before making their determination,” Hurford said.

Guardian should ordinarily be paid the benefit

Van Tonder said a minor child’s benefit should ordinarily be paid his or her legal guardian, unless there were cogent reasons for depriving the parent of the duty to take charge of the minor’s financial affairs, and the right to decide how the funds due to the minor should be utilised in the best interests of the minor child.

She said the following factors need to be considered when determining whether to pay a death benefit to a guardian:

• The amount of the benefit;
• The qualifications (or lack thereof) of the guardian to administer the money;
• The guardian’s ability to administer the money; and
• The benefit should, as far as it may be practical, be used in such a way that it can provide for the minor until he or she attains the age of majority.

The Children’s Act requires that in all matters concerning the care, protection and well-being of a child, the standard that the child’s best interest is of paramount importance and must be applied.

Section 7 of the Act provides for the factors that must be taken into consideration when determining the best interests of the child and include the capacity of the parent/s, or of any other caregiver or person, to provide for the needs of the child.

She said that where a board of trustees decides to depart from the ordinary route of effecting payment of the benefit directly to the minor’s legal guardian, it will have to show the existence of good grounds giving rise to an apprehension that the guardian will fail to fulfil her or his duty.

There have been very few reported cases dealing with the circumstances under which a guardian should be deprived of the right to administer money on behalf of her or his minor children, Van Tonder said.

Trustees have a duty to investigate a guardian’s capacity to administer the money on behalf of the minor child before it decides to pay the benefit into a beneficiary fund.

“It is only in cases where there is reason to believe that it would not be in the best interest of the minor child to pay the benefit to his or her guardian that the fund may decide to pay the benefit into a beneficiary fund,” she said.