If you have minor children and wish to provide for their financial future, establishing a testamentary trust through your Will is often the most effective method for protecting their assets. Bequeathing funds, such as life policy proceeds, directly to a minor child risks those funds being transferred to the Guardian’s Fund. Here, they will be held and managed until your child reaches legal adulthood. However, many questions arise regarding the Guardian’s Fund: What is it? Who administers it? How are the funds invested? What is the process for claiming from the fund? Additionally, what alternatives exist for leaving a financial legacy for your children? Let’s explore these important considerations.
The Guardian’s Fund is designed to protect and manage funds inherited by minor children. Under South African law, children under 18 cannot manage their inheritance, which means any funds they inherit—whether through a Will or intestate succession—are often transferred to the state-run Guardian’s Fund. These funds are administered on behalf of the child until they turn 18. The Guardian’s Fund operates under the Master of the High Court, with each Master’s Office maintaining its own Guardian’s Fund to oversee these assets.
When a minor child inherits money, the Master of the High Court may direct that these funds be transferred to the Guardian’s Fund. In this case, an account will be established in the name of the beneficiary. If the beneficiary has not yet been determined, the Master will open an account in the name of the estate that holds the funds. All money in the Guardian’s Fund is invested with the Public Investment Corporation, a government-owned asset management company. Funds held in the Guardian’s Fund accrue interest at a rate set periodically by the finance minister, with interest compounded monthly from the date of receipt for up to five years after the funds become claimable. Importantly, all funds managed within the Guardian’s Fund incur no administration fees, as these services are provided free of charge. Practically, this means that when a person dies without a valid Will or without establishing a testamentary trust, the Master will mandate that any funds designated for a minor child’s inheritance be transferred to the Guardian’s Fund. From a financial and logistical standpoint, having money housed in the Guardian’s Fund is far from ideal, often compromising both the child and their legal guardian.
The child’s guardian has the ability to claim funds from the Guardian’s Fund to cover essential expenses such as school and university fees, clothing, medical aid premiums, food, and maintenance costs. However, these claims are capped at R250,000 from the invested capital, plus any accrued interest, and must be substantiated and approved by the Master of the High Court. To initiate a claim, the guardian must complete the appropriate application forms and provide supporting documentation, including quotations and invoices. This process can often be frustrating, time-consuming, and laborious, exacerbated by delays stemming from the pandemic and extended lockdowns. Once the claim is approved, the funds can be transferred directly into the guardian’s bank account via electronic funds transfer (EFT). To prevent misuse or misdirection of funds, the Master may opt to have payments made directly to a third party, such as the child’s school or daycare facility, ensuring that the money is used for its intended purpose.
Upon reaching the age of 18, a beneficiary is entitled to claim any remaining funds in the Guardian’s Fund, along with any accrued interest. To initiate this process, the beneficiary must complete the necessary application forms and provide legal documentation, including bank account details, identification documents, and a set of fingerprints. Once the application is approved, the funds will be deposited directly into the beneficiary’s nominated bank account. It is important to note that interest only accrues for up to five years after the funds become claimable, so it is advisable to begin the claim process as soon as possible. If money held in the Guardian’s Fund remains unclaimed for 30 years, it will be forfeited to the state. To ensure transparency, the Master of the High Court is required to advertise all unclaimed funds in the Government Gazette annually, specifically during September. This serves as a reminder to beneficiaries to claim their rightful inheritance before it is lost to the state.
Typically, funds due to minor children are placed in the Guardian’s Fund when a parent fails to create a Will or neglect to establish a testamentary trust. To ensure that any money intended for your minor child is adequately protected and managed in their best interests, establishing a testamentary trust is a highly effective solution. This legal framework ensures that the funds are safeguarded until your child reaches adulthood. 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.
Keep in mind that if you establish a testamentary trust through your Will and it is later deemed invalid, no trust will be created, resulting in your estate being treated as intestate. While drafting your own Will may seem appealing, it is generally wise to consult an expert to ensure its validity and proper execution.
Have an amazing day.
Sue
