Issue: September/October 2006

Entrusting Guardians

When a retirement-fund member dies, leaving minor children as beneficiaries, fund trustees are often unsure whether lump-sum benefits should be paid into trust or directly to the guardian.

As part of thir inquiry, trustees need to carefully determine whether a guardian is competent to manage a lump sum for the minor.

Trustees can be held liable for the consequences of inappropriate decisions, as is clear from recent determinations by the Pension Funds Adjudicator. Trustees must therefore carefully weigh all options in each individual case to avoid the risk of guardians or beneficiaries contending that the decision was not in their best interest.

Special assistance tool

As a trust administrator, Fairheads Trust Company has developed a guardian-assessment tool to assist trustees. It is in the form of a checklist and scorecard that assesses financial skills and gives an indication of income needs, while respecting issues of confidentiality and privacy. This is combined withg a councelling session that helps inform guardians on the use of trusts specifically and investments generally.

Fairheads has been conducting such assessment and councelling sessions since last November. Responses from guardians indicate it enables them to understand trusts far better and are more cooperative in the management of monies paid out of trust. As a result, trustees feel assured in making the correct decisions.

Key assessment areas

The questionnaire comprises 17 simple questions carefully designer for trustees to assess key areas such as levels of literacy, educate and work experience, as well as knowledge of banking, budgetinj and financial products. These include questions such as whethe the guardian owns property, has a bank account, uses an ATM and submits a tax return.

The assessment is conducted in person with the guardian, eithc face-to-face ortelephonically, This is sometimes done before th trustees finalise a decision, otherwise more frequently once th trustees have decided a trust is required. Fatheads reports bac to trustees on the results of the assessment, sending them th questionnaire and a scorecard rating.

How to benefit

The questionare result are scored on a scale of 1 to 39, and then converted to a percentage result. Fairheads advises:

  • If a guardians score is higher that 70%. trustees shoudl carefully consider whether the guardian can manage the capital or not, depending on the number of minors and the amount of capital;
  • If a guardian's score is between 30% abd 69%, the additional information (for which there is no rating) should be carefully considered as well as the interview or investigation data gathered before a decision is taken. In this instance, the matter should be discussed with the guardian to obtain his/her view;
  • If a guardian's score is lower than 30%, the trustees should strongly consider placing the benefits in trust for the minors to ensure they benefit maximally from their assets.
For more information, yoo're invited to contact Fairheads Trust Consultancy managing director Giselle Gould on (011) 883 9755 or She'll be happy to attend to your queries.