Beneficiary nomination updates and crypto assets in a will

One of the biggest challenges for financial advisers is persuading clients to pay attention to the things they would rather not discuss. This includes ensuring that beneficiary nominations are still in line with their needs and wishes, and that their wills address the transfer of recently introduced assets, such as crypto currency.

Beneficiary nominations

Although the importance of nominating a beneficiary is often emphasised during the application stage, many clients tend to tardy about updating their nominations, despite major changes occurring in their lives.

A substantial number of complaints to the Pension Funds Adjudicator highlight the importance of not only nominating beneficiaries for the client’s pension fund or retirement annuity proceeds, but specifically the legal ramifications when a fund determines how the proceeds should be allocated.

An article by Devon Card of Crue Invest (Pty) Ltd, published on Moneyweb, emphasises the importance of taking a holistic view of your estate plan so that you are clear on what you hope to achieve through the nomination process.

Concerning retirement provision, Card distinguishes between the following:

“As the owner of a living annuity, you are free to nominate beneficiaries to such a policy and, in doing so, will ensure that your loved ones receive swift access to the capital.

“Nominating beneficiaries to your living annuity means that the assets will not form part of your dutiable estate – provided that all contributions to the retirement fund qualified as a tax deduction.

“As beneficiaries of your living annuity, your loved ones can choose to make a full lump-sum withdrawal, transfer the capital to another living annuity, or implement a combination of a withdrawal and living annuity. That said, keep in mind that in terms of section 10c of the Income Tax Act, if a contribution to a retirement annuity did not qualify for a tax deduction and now forms part of a living annuity, where the beneficiary retains the living annuity, it does not form part of the estate – but if and when it is cashed in, it does form part of the estate.

“If you contribute to an approved retirement fund, either in your personal capacity or through your employment, it is important to be aware that the distribution of these benefits is governed by section 37C of the Pension Funds Act. In terms of this legislation, your beneficiary nomination will be used as a guide by the fund trustees, whose function is to distribute the death benefits equitably amongst your financial dependants.

“Financial dependency is key to the trustees’ determination and, in reaching their decision, they are required to perform an in-depth investigation to establish exactly who is financially dependent on you, either wholly or in part, and to share the proceeds amongst your financial dependants accordingly, keeping in mind that the determination process can take up to a year to complete. As such, be cautious of relying on your retirement funds to provide cash flow for your loved ones in the event of your passing.

“If you have unapproved group life benefits in place through your employer, make sure that you have nominated beneficiaries to your policy if that is your intention.

“While, previously, in the absence of a beneficiary nomination, your employer could determine to whom the proceeds should be distributed, this is no longer the case. In the absence of a beneficiary nomination, the proceeds will automatically be paid into your estate, which could adversely affect your loved ones.

“If you’re unsure whether you have nominated beneficiaries to your group life policy, check with your HR department and make adjustments where necessary.”

Card concludes: “Regular and ongoing review of your beneficiary nominations is critical to the success of your estate plan, so be sure to review your beneficiaries at least annually or as and when there is a major change in your personal circumstances such as marriage, divorce, death or birth.”

Crypto asset requirements in your will

An article by SchoemanLaw Inc Attorneys provides guidance on an aspect on which most clients (and financial advisers) are still relatively uninformed.

“With the introduction of cryptocurrency, NFTs [non-fungible tokens], tokenisation and blockchain technology, many South Africans have taken a shine to these new ways of transacting and investing. As a result, many South Africans who own crypto assets and NFTs are left wondering how they will be able to ensure that these assets end up with their beneficiaries, considering the nature of the assets themselves and how blockchain technology operates.

“The Intergovernmental Fintech Working Group published a position paper in which it defined a crypto asset as ‘…a digital representation of value that is not issued by a central bank, but is traded, transferred and stored electronically by natural and legal persons for the purpose of payment, investment and other forms of utility, and applies cryptographic techniques and uses distributed ledger technology’.

“Although the definition does not state that crypto assets are money, it is acknowledged that these types of assets have value and can perform similar functions to that of money.

“Many may think that simply listing the crypto assets in their will may be sufficient for their executor to trace these assets and have them transferred to their heirs. However, it is a lot more complex than that. Due to the anonymous nature of crypto assets, how they are held and their existence solely in a digital space, it can be difficult for executors to trace these assets, as they are primarily stored on highly secure and encrypted platforms that are known as wallets. The executor will be required to access these wallets after your death in order to affect the transfer of your crypto assets.

“For security reasons and to protect these assets, the details of how to access these assets should not be included in your will. However, there should be clauses that note the existence of the assets and how you want them to be dealt with. These details should be placed in a separate document which is referred to in the will, which is kept in a safe location only known by your executor or another individual you trust. This will ensure that your executor is aware of the crypto assets, can note them and have them transferred in terms of your wishes set out in your will.

“Including crypto assets in your will is the only way to ensure that your beneficiaries receive them after you have passed on. It is therefore crucial to ensure that you have a well-drafted will.”