Section 37C: Nomination forms and trustees are encouraged to conduct full investigations.

Updated: Jan 19

The High Court had to decide whether a Fund was correct in awarding 100% of the death benefit to the deceased’s wife or whether the benefit should have been split 50/50, between the wife and the deceased’s two adult children (from a previous marriage) as stated in the nomination form.


HIGH COURT CASE: Case Number – 54517/2019. Date of Judgment – 12 February 2021. SUMMARY The deceased left a wife and two adult children from a previous marriage. The children were trustees of a family trust previously set up by the deceased. The Fund awarded 100% of the benefit to the deceased’s wife.

The deceased had signed a nomination form which said that 50% of his death benefit was to be awarded to his wife and 50% to the Trust, from which his adult children would benefit. The Trust held much of the deceased’s assets.

This case is of interest because it highlights that, although the nomination form is not binding on a Fund, it must not be totally disregarded. The importance a fund places on the nomination form depends on the facts of the case. The court re-iterated the Trustees’ duty to conduct thorough investigations. INITIAL DECISION BY THE FUND After consideration of the relevant factors, such as income, extent of dependency and relationship to the deceased, the Fund decided that the maintenance requirements of the spouse took precedence over those of the children. It awarded 100% of the benefit to the spouse.

At this stage, the Fund had not realised that the deceased had signed a nomination form and so had not taken it into account.

COMPLAINT TO THE PENSION FUNDS ADJUDICATOR (‘PFA’) Dissatisfied with the Fund’s decision, the children approached the PFA for relief. The PFA found that the Fund had not been aware that the deceased had signed a nomination form and therefore did not consider it. The Fund had also not considered the liquidation and distribution account. The PFA found further that the spouse had filed a maintenance claim for R 10 000 000.00 against the deceased’s estate. It found that the spouse was 39 years old and had prospects of re-marrying. The PFA therefore referred the matter back to the Fund for reconsideration.

THE FUND’S RECONSIDERED DECISION The Fund, in reconsideration, took into account that the deceased had nominated the Trust (i.e. the adult children) as a beneficiary to receive 50% along with the spouse. However, it seemed that the adult children were to receive a further R 2 967 590.00 each, from the proceeds of the Trust.

After reconsideration, the fund was of the opinion that the Trust was able to take care of the children’s maintenance requirements. The Fund again decided to award 100% to the spouse. THE HIGH COURT REVIEW APPLICATION The adult children approached the High Court to challenge the decision of the Fund.

The court stated that it could not interfere with the discretion of an administrative body which had been properly applied. The court found that, only if the decision taken is so unreasonable that no reasonable person could have exercised its power in that way, can the court interfere.

The court stated that the Fund had a duty to investigate the solvency of the Trust. It found that the Fund had not investigated the spouse’s affairs sufficiently, as it had been discovered that the spouse was actually employed and had re-married. To simply ignore the spouse’s changed circumstances was found to have been unreasonable and irrational.

The Fund was not in possession of any financial statements, bank statements, proof of income, proof of expenses in respect of either the adult children or the spouse. It had failed to investigate the actual financial positions of the respective parties.

The Fund erred in finding that the spouse’s maintenance claim lodged against the estate of a deceased is proof of dependency. THE NOMINATION FORM The court held that, the although the Fund was not bound by the wishes of the deceased in the nomination form, it was still a substantial factor to be taken into account. It held further that, before the Fund ignored the nomination form, it should have had compelling reasons (relating to fairness and equitability) to do so.

It was argued that payment cannot be made to a trust, however, the court found that there was no merit in this argument, as it was not the Trust which was nominated as a dependant, but the individuals who would receive the benefit by way of payment to the Trust. The court held that payment to the Trust was to be regarded as payment to the dependants.

The court found that the fund had not done nearly enough to enable itself to come to the same conclusion based on the hard facts of the case.

THE OUTCOME OF THE REVIEW APPLICATION The court held that the decision to award the spouse 100% of the benefit was set aside, as there were too many issues that still had to be investigated but the court was not in possession of such facts. The matter was therefore referred to the Fund for a thorough re-investigation.


COMMENT:

One can see from the views of the High Court that it is expected that a thorough investigation is expected of trustees and careful thought must be given in not following a nomination form. Trustees must ensure that, taking into account the facts of each decision, they consider all relevant factors.

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