In the financial world, a beneficiary typically refers to someone who is eligible to receive distributions from a trust, will or life insurance policy. Beneficiaries are either named specifically in these documents or they have met the stipulations that make them eligible for whatever distribution is specified. – Investopedia.
(Including Unapproved Group Life cover provided by an employer)
Where beneficiaries are nominated, benefits will pay directly to beneficiaries and do not pass through the estate. As a result, no cash is provided to pay for estate expenses, and no executors fees levied.
Beneficiaries are not nominated, benefits will pass through estate of the deceased and provide cash in the estate so that executor can cover estate expenses such as debt and taxes while executors fees of 3.55% (+Vat) becomes payable.
(Including Provident, Retirement annuity and Approved Group Life cover provided by an employer)
Unlike beneficiary nominations with life policies, the pension funds act dictate how pension benefits should be distributed after death of a member. Beneficiary nominations will guide trustees of the fund as to how the deceased wished to distribute the funds, but the Act give preference to dependants of the deceased. If, for example, the deceased was married with minor children but nominated another person, the trustees will be compelled to distribute the funds to the dependant wife and children even though it is in contrast to the wishes of the member.
Technically members of pension funds do not own the funds, they are merely members with an interest to the fund which means that it does not form part of the deceased’s estate. Some of the benefits of this limited rights include protection against creditors, no executor’s fees and no estate duty.
Where beneficiaries elect cash amounts above R500 000, tax becomes payable according to the retirement lump sum benefit sliding scale.
Where members specifically nominate their estate and no dependants are found, the retirement lump sum tax will apply and since the funds are now channelled through the estate, executors fees will become payable.
The essence of a trust is to manage assets on behalf of beneficiaries. Therefor a trust without beneficiary cannot exist.
Why then, should or shouldn’t a beneficiary be nominated?
Minor children or persons with special needs (e.g. disabled) may not be allegeable to receive proceeds from financial products.