TRUST OR NOT TO TRUST: WHAT IS RELEVANT TO A BOARD OF TRUSTEES – MICHELLE DAVID

Thursday, March 13, 2008
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The ability of the board of trustees of a pension fund to effect payment to a trust on behalf of a minor dependant has once again come to the fore, in the recent case of AK Kowa v Corporate Selection Retirement Fund & Liberty Life the Pension Fund Adjudicator has once again moved the goalposts for trustees.
 
Although members of a fund complete beneficiary nomination forms, the Pension Funds Act places a duty on trustees to identify the beneficiaries of a deceased member and also vests the board with discretionary powers regarding the proportions and manner of distributing a death benefit. Effectively this means that a beneficiary nominated by a member to receive 100% of the death benefit, may not receive this amount, as the nomination is only one of the factors which is taken into account when awarding a death benefit.
 
The board, according to the Adjudicator, in effecting an equitable distribution is required to give proper consideration to all relevant factors and to exclude irrelevant factors and can not fetter its discretion by following a rigid policy that does not take into account the personal circumstances of each beneficiary. In the current case it was submitted by the fund that the amount payable to the minor child could not be paid to the complainant (the grandmother) as she was only the caregiver and not the legal guardian of the minor child. The Adjudicator found that the complainant was the minor child’s guardian in terms of the Children’s Act and by virtue of her relationship with the minor child.  The board, it seems, can no longer rely on an archaic definition of who qualifies as a guardian and needs to assess each situation carefully before deciding that a caregiver does not amount to a guardian and can therefore not be paid the minor child’s share.
 
The Adjudicator in arriving at her decision found that the board had fettered its discretion by not investigating the ability of the complainant to administer the affairs of the minor child and automatically placing the minor child’s share in to a trust.
 
The decision in Kowa places a greater duty on trustees to investigate the situation of beneficiaries and guardians or care givers before placing a minor’s share of the death benefit into a trust. According to this case trustees would need to consider a number of facts, including but not limited to the amount of the benefit, the ability of the guardian to administer the money and the qualification of the guardian to administer the money.  The boards of funds should, in making a decision regarding a minor child’s share of the benefit, consider the factors set out in section 7(1) of the Children’s Act and give due consideration to the amount of money involved and the cost implications of placing the money in trust.
 
The factor which holds the greatest weight will always be the best interests of the minor child and if the board is of the view that a child’s interests will only be served if his/her share of the death benefit is placed in trust, then a fund is duty bound to ensure that this is done. Given the above decision a fund can not make any decision regarding the payment of a minor child’s share of a death benefit with out first considering all the relevant factors.
 
Although the decision by the Adjudicator is not precedent, the board is duty bound in terms of the Act to ensure that they make an equitable distribution of death benefits and it would seem that the best way to ensure that this done in cases involving minor children is to ensure that the fund has considered everything of relevance. A fund that does not place sufficient weight on all the factors will at some stage find itself defending its actions, at great legal cost, to an Adjudicator who has already pointed out what is relevant and may, like in the case of Kowa, have to go back to the boardroom to ensure that an equitable distribution is made a.
 
Michelle David is an associate at Bowman Gilfillan.