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In the financial industry, we often encounter clients who ask what happens to their investments when they die? Below we have explained what happens to each investment you may have.
Pension funds (pension annuities and savings funds)
As long as you are alive, you will be the sole beneficiary of its benefits. However, if you die before accessing the retirement annuity, the fund value is payable as a death benefit. The death benefit is the market value of the investment less fees and charges. This amount is not determined by the date of death or the date of notification of death, but is determined after all funds have been transferred to the Interest Fund and all applicable fees and charges have been calculated.
Pension products are regulated by the Pension Funds Act. Each pension fund has a board of trustees, which is responsible for ensuring that the fund is well managed and that members’ interests are protected. One of the roles of trustees is to ensure that your benefit is distributed fairly.
In the distribution of benefits, preference is given to dependents. The law defines dependents as your spouse (including permanent life partners), children, anyone who was financially dependent on you at the time of your death, and anyone who may become financially dependent on you in the future.
Beneficiaries have the right to choose whether to receive the benefit in the form of a lump sum payment, use it to purchase a mandatory annuity, or a combination of both. It’s a good idea to warn your beneficiaries about the tax consequences if they decide to take a cash lump sum.
When you withdraw from a pension fund, you have the option of moving your investments into a product that can provide you with an income in retirement, such as a residence or guaranteed life annuity. One of the key features of a living annuity is that your investment can be left to your designated beneficiaries.
Once the service provider is notified that you have moved on, they will automatically lock the investment and transfer the fund value to the interest fund once all applicable fees and charges have been calculated.
Beneficiaries will also have the right to choose whether to receive the aid as a lump sum, use it to buy a compulsory annuity or a combination of the two.
In terms of rules, a mutual fund is different from a pension fund and a living annuity. There are no beneficiaries in the unit trust. The funds in the unit trust will go to your estate when you die, which means they are subject to estate tax. Funds will be transferred to your beneficiaries only in accordance with your wishes when the estate is settled. If the funds are paid to your spouse, there will be no tax consequences, but if they are paid to your children or 3rd parties will have tax consequences.
Once the service provider is notified of the death, the mutual fund will be locked in, so no further transactions will take place, but your mutual fund will continue to operate depending on market conditions. The final value of the unit trust will be determined only after the estate is settled.
Your beneficiaries will receive the proceeds as soon as the service provider is notified of your death. We just need to remember that tax-free investments are part of the estate duty calculation, but the executor’s fee is not.
Gifting is an investment policy that serves investors with a marginal income tax rate above 30% and is also a useful estate planning tool.
When you invest in a fund, you will be known as the policyholder or owner of the investment. It is up to you as the policyholder to decide who should be insured. The insured is a person for whose life an endowment has been issued. You can highlight yourself and other people. The endowment ends when the last assured dies.
A beneficiary may be nominated. The beneficiary will receive the funds only when the last insured person dies. The funds will be paid directly to the beneficiaries and they do not have to wait for the estate to be liquidated. The endowment will be part of the estate for estate tax purposes, but there is no executor fee.
Although death is the last thing on our minds, we need to plan for it, because it is something that will happen to each of us, and when it happens, we want to be sure that our loved ones will be taken care of. It’s important to understand what happens to your assets when you pass them on so you can invest in investments that will ensure your beneficiaries get the most benefit.
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