Pension and Provident FundsTrusts / Wills & Estates

Death benefits and section 37C

By 24/02/2011 July 21st, 2013 No Comments

The distribution of benefits

Where an individual is a member of a provident fund, pension fund or retirement annuity fund, and dies prior to retirement there is normally a benefit that is payable. As has been discussed before (see the article published in August 2009), there are very strict rules in paying those benefits. Payment is made firstly to dependants (spouses, children and others who were dependant on the deceased for their maintenance and support), thereafter to nominated beneficiaries and finally if there were no dependants or nominated beneficiaries then to the deceased member’s estate.

The benefits on death fall to be distributed by the trustees after a full investigation and as the benefit falls outside of the estate of a deceased fund member, the trustees who are entrusted to make the distribution of death benefits have a wide discretion.

Once the trustees have established who the dependants are, the question then arises – how much is to be paid to each dependant? This involves an investigation into the financial affairs of the dependants themselves and encompasses inter alia an enquiry into the need of each dependant, their relationship with the deceased and any future or other prospects of each dependant. Thus, for example, even if a deceased left behind dependants who might qualify as dependants this does not necessarily mean that they will take any benefit. There may be other dependants, for example, minor children who would stand to be granted greater benefits than spouses, or other major children as they could have greater needs.

It is important to bear in mind that a distribution under section 37C could in fact be nil which would have the effect that biological children, for example, might not receive anything. A practical example may serve to illustrate this.

A deceased member of a provident fund (any retirement fund, that is registered and approved is governed by section 37C) leaves behind a partner, to whom she was not married but had lived together with that person for the previous eight years – both contributing equally to their joint home; they had no children together; she left a daughter by her previous husband who is in her own very successful business and very wealthy; she also left a young adopted child of ten who was still at school, and a child in his thirties who had suffered a severe stroke and was resident in a special state institution.

The dependants are quite clearly the partner, and her three children. The Trustees could, it is suggested distribute the death benefit as follows:

  1. The Partner on the basis that the partner could be seen as a “spouse” as defined in the Pension Funds Act. (See the article posted on this point –3 February 2011);
  2. The daughter;
  3. The ten year old child; and,
  4. The son.

The Trustees could, all things being equal, and having regard to the respective needs of the respective dependants, give the partner, say 20{bb7c59228909ee3c635bb54164678f79c6c2320af74994b444cd69be7e87e9c7} of the benefit, the daughter nil, the young child 60{bb7c59228909ee3c635bb54164678f79c6c2320af74994b444cd69be7e87e9c7} and the remaining son 20{bb7c59228909ee3c635bb54164678f79c6c2320af74994b444cd69be7e87e9c7}. The trustees could distribute the benefit as above because of the different needs of the dependants. The very young child would have greater needs than the daughter – who was self-sufficient, and the son would possibly not require as much in the light of his being cared for in an institution. The partner might have some rights as a dependant but his needs might be less especially if the deceased left him her estate.

Trustees therefore would have to be very careful in distributing death benefits. They must conduct a full investigation into who the dependants were, their particular needs, income and requirements, relationship with the deceased and make the distribution accordingly – each dependant according to his or her particular needs.

Ian Mc Laren

Ian Mc Laren

Ian McLaren BA LLB (WITS) General Educated St Johns College, Houghton. BA LLB University of the Witwatersrand 1984 Founded McLarens Attorneys September 1986. Right of Appearance High Court, October 1996.ExpertiseLitigation, Labour Law, Commercial Law, Family Law, Pension and Provident Funds, Customs and Excise, Wills, Deceased Estates, Trusts, Commercial Agreements, Reviewing and Drafting Government Legislation, Information Technology.Committees/ TrustsLaw Society of South Africa Information Technology Committee. Trustee Verney College Educational TrustOtherTransvaal Provincial colours for Practical Shooting. Third degree Black Belt JKS Karate. Photographer and motor cyclist Lectured for Continuing Legal Education on Information Technology issues.