By Rita Cool, certified financial planner at Alexforbes
If your loved one was a member of a retirement fund at the time of their death, you could be entitled to receive the value of the investment paid out. During what is a very emotionally-charged time, the paperwork which nominees are required to complete can seem onerous. There are several benefits that might have been left to you with various choices to be made.
- Retirement funds
If your loved one was a member of a retirement fund – a pension, provident or preservation fund, or a retirement annuity – you could be listed as a beneficiary or nominee on their nomination form. The Pensions Funds Act governs these funds, and in terms of Section 37C, the trustees of the funds make the final decision on who receives the benefit. The trustees will always consider a spouse or children as dependants but they do not automatically qualify for an allocation.
What you need to do
If the fund was set up through an employer, you should advise them of the death.
- If you are the main contact, for example the spouse, you will need to get the death certificate so that you can send it to the relevant places to advise of the death.
- The employer requires the people who think they are beneficiaries to complete a questionnaire so that the trustees can use this information to make their distribution decision.
As it is possible that beneficiaries only come forward after a long time, legislation allows trustees up to 12 months to make their decision. Not all decisions take that long, as it will depend on the situation. If you were financially dependent on the deceased for a monthly income and if the distribution is taking time, you can approach the trustees for an advance until the distribution is finalised.
What to do with the money you receive
If you have been allocated a portion of this benefit, you can:
- take the money in cash, after tax, or
- use it to set up a monthly income through a pension
The sum of money used to set up the income is not taxed, but you will pay tax on the income received going forward. The money taken by all the beneficiaries are taxed in the name of the deceased and not according to the beneficiaries’ tax rates. All the beneficiaries share the effective tax rate equally and will receive the cash they wanted, after tax.”
Benefits allocated to children will be taxed and the after-tax amount placed in either a beneficiary fund or a trust, depending on the trustees’ decision. These would provide an amount of money to look after the children’s needs and pay out the rest when they reach 18 or the date chosen for the trust to be dissolved.
- Insurance policies
If you are the beneficiary on a life policy, the sum of money will pay out to you directly – you don’t need to go through the estate’s executor. You can approach the insurance company to complete the forms to claim the benefit. There is no waiting period on this. Even though there is no executor’s fee payable on this amount, the executor may request estate duty from you as insurance benefits are deemed to be assets in the estate and attract estate duty.
Get good advice
When you stand to inherit anything you should approach a financial adviser to see how best to structure the inheritance so that it benefits you the most in the long term. Professional advice will ensure that nobody takes advantage of you during a trying time and that you make good decisions to protect your inheritance into the future.