Business Brief

One of the most important things a parent can do is to inspire their children to follow their dreams and to support them in achieving their goals. However, life is unpredictable, and one may not always be around to provide guidance and support. This is why planning ahead is crucial to ensure that these dreams can become a reality even after your death.

Identifying a child’s dreams

Asking a child about their dreams can reveal what they might be interested in doing as an adult and strengthen the bond between parent and child. It shows the child that their parents are interested in their thoughts and aspirations and value their opinions and ideas. This creates a positive and open communication channel between parent and child, fostering trust and connection.

It can also introduce a child to goal-setting and motivation, instilling a sense of purpose, drive, and motivation. Once the child’s dreams have been identified, their parent can start planning how to make them a reality. This may involve financial planning and finding the right mentors and support systems.

Creating a Will

Creating a Will is one of the most crucial steps in ensuring that a child’s dreams become a reality. In South Africa, a Will must be drafted in writing and signed by the testator and two witnesses who are 16 years or older and not beneficiaries.

When drafting a Will, it is important for members to consider how their child’s assets will be managed after their death. Here are some considerations to discuss with members when drafting or reviewing their Will:

Funding for education expenses: A member can include provisions in their Will to allocate funds specifically for their child’s education and related expenses. This can be done through a Trust or by designating a specific portion of their estate to be used for educational purposes. A member can specify the types of education expenses for which funds can be used, such as tuition, books, fees, and other associated costs.

Education Trusts: Consider setting up an Education Trust as part of the Will. An Education Trust is a type of Trust that is specifically created to provide for a child’s educational needs. It can be structured to provide for a child’s educational expenses at various academic career stages, such as primary and secondary school or any tertiary education. A trustee can be appointed to manage the Trust and ensure the funds are used for educational purposes.

Flexibility: Consider providing flexibility in a Will to accommodate changes in a child’s educational plans. For example, if a member’s child decides to pursue a different career path or attend a different educational institution than what they thought they would at the time the Will was drafted, it may be helpful to include provisions that allow for adjustments to be made to the educational funds accordingly.

Age and conditions for distribution: Consider specifying the age or conditions under which the education funds should be distributed. For example, a member may want to require that their child reach a certain age or complete a certain level of education before the funds are distributed to ensure that they are used for educational purposes.

Contingency plans: Including a contingency plan will help in case a member’s child does not pursue tertiary education. For instance, if the child chooses not to attend university, a member may want to provide for alternative uses of the education funds, such as vocational training or starting a business.

Trustees: It is important for members to appoint a trustee who is knowledgeable and experienced in managing educational funds. The trustee will be responsible for managing the funds and making decisions regarding their distribution per the provisions in the Will.

Legal and tax considerations: Encourage members to seek advice from a qualified attorney and tax professional to ensure that the Will complies with all applicable laws and regulations and to understand the potential tax implications of the education provisions in the Will.

The importance of a Trust

A Trust is a legal arrangement in which a trustee is appointed to manage assets on behalf of a beneficiary. In the case of a minor child, a Trust can be an effective way to ensure that their inheritance is protected and managed properly until they come of age.

By assigning a Trust to manage a minor child’s assets, a member can ensure they are used for the child’s benefit and not wasted or misused.

In terms of South African law, children younger than 18 are not legally capable of managing their inheritance. Any funds inherited by minors – either through testate or intestate succession – must be administered by a Testamentary Trust. However, if no such Trust exists or is appointed to manage a minor’s inheritance, then any money will be transferred to the state-run Guardian’s Fund where they will be administered until the child reaches age 18. The Guardian’s Fund forms part of the Master of the High Court.

All money held in the Guardian’s Fund is invested in the Public Investment Corporation, an asset-management company wholly owned by the government. Over the years, there have been several reports of extensive fraud and corruption at both institutions*.

Pros and cons of a Trust

There are pros and cons to assigning a Trust to manage a minor child’s assets. On the one hand, a Trust provides a structured and managed approach to managing the assets, which can be reassuring for parents who want to ensure their children’s financial well-being. On the other hand, a Trust can be expensive to set up and maintain, and there may be ongoing fees associated with managing it.

For this reason, PPS created the PPS Beneficiaries Trust for members who do not have a Trust, nor do they want the assets they have bequeathed to a minor(s) to be paid into the Guardian’s Fund.

The PPS Beneficiaries Trust (a not-for-profit Trust) offers a cost-effective solution, eliminating fees for drawing up documentation, capital acceptance and dissolution. Trustees appointed by PPS manage the Trust and take accountability for the investment of funds and administration thereof. It also eliminates the need for individuals to go through the costly and rigorous administration of setting up and maintaining a Trust.

The Trust further caters to beneficiaries’ different investment needs by offering a range of investment portfolios managed by highly experienced fund managers. They ensure that the inheritance a PPS member left for their minor beneficiary(ies) will be well-managed until they are an adult(s) and ready to make it a part of their legacy.

Final thoughts

For parents, making their child’s dreams a reality even after death is a noble goal. When a member has identified their child’s dreams, creating a Will and establishing a Trust for them can ensure that the child has the support they need to achieve their goals.

By: Roy McMurchie - Head of Fiduciary Services at PPS Insurance

PPS Fiduciary Services is a division of PPS, a licensed life insurer, controlling company and FSP.

* This article was first published in the July 2023 edition of PPS’s member magazine, The Professional. Read the magazine online for insightful articles covering wealth, health and leisure.