Why You Do Not Have Full Control Over Who Inherits Your Retirement Fund Benefits

When it comes to estate planning, most people believe that a signed will is the final word on who will inherit their money and assets one day. It is a reasonable assumption, after all, a will is meant to record your wishes and give legal instructions about how your estate should be divided after your death. However, many are surprised to discover that retirement fund benefits follow a very different set of rules, and that you do not have complete freedom to decide who inherits this money when you pass away.

Retirement funds are governed by a specific piece of legislation that deals with how death benefits must be distributed. This law was put in place to ensure that the financial needs of those who were dependent on the member during their lifetime are properly considered before any money is paid out. The idea is to protect dependents and prevent situations where a person’s spouse, children, or other financial dependents are left vulnerable simply because they were not named as beneficiaries.

When you join a retirement fund, you are usually asked to complete a nomination form where you list the people you would like to receive your death benefits. While it is important to keep this nomination updated as your life circumstances change, many people do not realise that the trustees of the retirement fund are not legally bound to follow these instructions exactly. This is because the law gives the trustees the responsibility to identify all financial dependents and consider their needs before deciding how to allocate the benefit.

In practice, this means that when a member of a retirement fund passes away, the trustees must investigate and identify anyone who was financially dependent on the member at the time of death. This might include a spouse, minor children, adult children who relied on the member for financial support, elderly parents, or even a partner in a long-term relationship. The trustees are legally required to consider the needs and circumstances of these dependants, as well as the wishes expressed in the nomination form, before making a final decision on how to divide the money.

An important point to understand is that the trustees are also expected to act with fairness and compassion, taking into account factors such as the age of each dependant, their financial situation, their ability to support themselves, and the size of the total benefit available for distribution. The law allows them to allocate different amounts to different people based on their needs, rather than following a simple formula or strictly dividing the benefit according to percentages listed on the nomination form.

If the deceased person had no financial dependents, only then will the trustees consider the nominated beneficiaries as the primary recipients. Even in this case, if no valid nomination exists, the benefit may be paid into the deceased’s estate and distributed according to the person’s will, or in the absence of a will, according to the rules of intestate succession. This process can take time and may come with additional costs and administrative hurdles, which is why it remains so important to update nomination forms regularly and seek professional advice when circumstances change.

It is also worth noting that retirement fund benefits do not form part of the deceased’s estate for the purpose of winding up the estate. This means that creditors of the estate cannot claim against these funds before they are distributed to the identified beneficiaries. This rule was specifically designed to protect those left behind from losing access to essential financial support during what is already a difficult time.

Understanding how this system works is vital for anyone who is serious about their estate planning. While you cannot exercise full control over your retirement benefits in the same way you can with other personal assets, you can take steps to ensure that your wishes are clearly recorded and that the people you intend to support are known to the trustees. Regularly reviewing your nomination form and seeking advice when your personal or financial situation changes can go a long way toward avoiding disputes and delays later.

This unique approach to handling retirement fund benefits is a reminder that estate planning involves more than simply drafting a will. It requires a thorough understanding of how different types of assets are treated after death,and making sure that the necessary paperwork is in place and up to date. It is also a useful example of how the law sometimes prioritises the well-being of those left behind, even over the stated preferences of the person who has passed away.