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September 2023
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How to Protect Your Children’s Inheritances from Ending Up in the Guardian’s Fund
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“Live each day as if it were your last… because one day, you’ll be right.” (Benny Hill)
It’s always tempting to procrastinate about decisions that force us to address the inevitability of our own mortality. But we have no choice when it comes to protecting our loved ones after we are gone, because to protect them a will (“Last Will and Testament”) is not a nice-to-have, it’s a necessity. And it’s urgent. No one – young or old, healthy or ill, wealthy or of limited means – can guarantee that they’ll be alive tomorrow.
How to structure your will? One potential risk area when it comes to your children’s inheritances is the Guardian’s Fund. The Fund serves a vital purpose, but it has featured regularly in the media over the past few years for all the wrong reasons – ongoing losses to cybercriminals and fraudsters (the last reported loss was R17m), SIU (Special Investigating Unit) probes into allegations of misconduct and corruption, and the like.
How is that relevant to you? Well, if you have minor children, it confirms once again that your will should be professionally drawn to avoid any chance of your children’s money ending up in the Guardian’s Fund.
Dying “intestate” means trusting a State-run entity with your children’s money
Without a will, you die “intestate”, which means that the law makes your decisions for you. You have lost the right to choose a trusted executor, you have lost the right to specify how your estate is distributed to your loved ones, you have lost the right to nominate a guardian for your children. Perhaps most importantly of all, you have lost the right to protect your minor children’s inheritances as you see fit.
That’s a problem because, unless you leave a will structured to provide a mechanism for looking after your children’s inheritances until they reach majority (i.e. turn 18), those moneys might well end up in the Guardian’s Fund.
What is the Guardian’s Fund?
- The thought behind the Guardian’s Fund is a laudable one – it was created to hold and protect money (including inheritances) for minors and other people who are legally incapable of managing their own affairs. For those vulnerable people whose money it safeguards, it performs a most valuable service.
- All money is invested with the PIC (Public Investment Commission) and earns interest at a rate set from time to time by the Minister of Finance.
- The Fund is audited annually and is managed by the Master of the High Court (actually by one of several Masters around the country, each of whom runs a separate Fund), without charge.
- A child’s guardian can approach the local Master to pay over accrued interest (and in need up to R250,000 of the capital) for maintenance needs.
So, what’s the problem?
Knowing that your children’s money is to be held in an audited, managed-for-free fund administered by independent and senior government officials is certainly a lot less alarming than many of the possible alternatives, but it is by no means ideal -
- The media reports of hacking, theft, fraud, police probes into allegations of misconduct and corruption etc that we mentioned above hardly inspire confidence in the Fund’s ability to manage and protect your children’s inheritances, even if only one or two “bad egg” employees are involved.
- Your children’s guardian must jump through all sorts of administrative hoops to draw money for maintenance, education, clothing, medical costs and so on. The delays and dysfunction which reportedly still plague many Master’s Offices won’t help.
- As mentioned above, Fund monies are paid a government-fixed rate of interest, currently 4.25% p.a. That’s both below inflation and an unattractive alternative to the earnings potentially available to discretionary funds.
- When your children turn eighteen, they are again faced with red tape and bureaucracy before they can access whatever is left of their money.
The best protection?
The good news is that you can easily protect your vulnerable minor children from all those risks and negatives. These are the two essentials –
- Leave a valid will, professionally drawn to protect all your loved ones and in particular those most vulnerable such as your minor children, and
- Make sure that your will nominates a guardian for your children and includes a mechanism to protect their inheritances so as to avoid any risk of their money having to be paid into the Guardian’s Fund.
The most commonly advised protection mechanism to avoid that unhappy scenario is a trust – either an existing trust (if fit for purpose), or a new “testamentary trust” which will come into existence when you die. The alternative is to provide for the children’s guardians to administer their inheritances for them, but a trust is almost always the better, safer, and more practical option. Either way, make sure that your will’s provisions correctly and clearly set out your wishes in that regard.
Bear in mind that anything to do with trusts of any kind calls for specific professional advice – there are complex legal, financial and tax considerations involved.
Bottom line – have your attorney draw your will (or update your existing will) to ensure that your children’s inheritances are properly protected and don’t end up in the Guardian’s Fund!
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Landlords: You Cannot Cut a Defaulting Tenant’s Water and Electricity
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“A fundamental principle in issue here is that nobody may take the law into their own hands. In order to preserve order and peace in society the court will summarily grant an order for restoration of the status quo where such deprivation has occurred, and it will do so without going into the merits of the dispute.” (Excerpt from judgment below)
Many a landlord is tempted to go the “self-help” route when non-paying tenants refuse to pay up and also refuse to leave. Holding costs mount with not a cent in rental income to show for it, the landlord gets desperate and locks are changed, access codes blocked, electricity and water cut off.
But what if, instead of meekly packing up and vacating, the tenant rushes off to court? As we shall see from our discussion of a recent High Court decision below, now the landlord has a real problem, regardless of whether or not the tenant has lost its legal right of occupation.
You cannot take the law into your own hands
- A tenant under a verbal lease dating back some 27 years, and in terms of which the rental included payment for water and electricity, stopped paying rental in January 2021.
- The landlord, citing both failure to pay rental and allegations of unlawful sub-letting and overcrowding, gave the tenant notice of eviction. The tenant refused to vacate, and had her attorney warn the landlord against evicting or cutting services without a court order.
- When the landlord nevertheless went ahead and cut the electricity and water supplies, claiming this to be a lawful attempt to reduce its losses since the (unpaid) rental included the supply of electricity and water, the tenant asked the High Court to (among other things) grant it a “spoliation order” (an order giving possession back to someone deprived of it without due legal process) restoring services immediately to the premises.
- The case didn’t go well for the landlord, and it is now back to square one after eighteen months of no rental income, with the added costs of two sets of legal bills to pay. Landlords, said the Court, must pursue the remedies at their disposal to enforce payment of rental in accordance with the law. “Landlords are not entitled to take the law into their own hands.”
- A vitally important factor to bear in mind here is that at this stage of proceedings a court will not enquire into whether or not the tenant has a legal right to be in possession: “Irrespective of the lawfulness or otherwise of the occupation, a landlord may not disconnect water and electricity without the intervention of a court.” (Emphasis supplied).
- Relevant to the Court’s decision was the fact that on the facts of this case, supply of services was not a “personal right” between the parties but part of the tenant’s possession of the property: “To my mind, the supply of electricity and water is not merely contractual, but an incident of the possession of the property.” That can be a fine distinction, so specific legal advice is essential if you are a landlord (or a tenant) embroiled in a dispute of this nature.
- The end result – the landlord was ordered to restore electricity and water immediately to the tenant and must pay the tenant’s legal costs.
Lessons for landlords
- You are playing with fire if you take matters into your own hands when dealing with problematic tenants. No matter how intransigent they may be and no matter how unlawful their occupation, the only safe route is to follow the appropriate legal channels with specific legal advice and assistance -
- All a tenant needs to prove to get a spoliation order against you (with costs) is that they were in “peaceful and undisturbed” possession, and that you unlawfully deprived them of that possession. Nothing more.
- And that’s by no means your only risk - you could also be charged criminally in terms of the Rental Housing Act, which provides that anyone who “unlawfully locks out a tenant or shuts off the utilities to the rental housing property” faces a fine and/or two years’ imprisonment.
- Secondly, it is clear that one of the landlord’s practical problems in this matter was the fact that (amazingly after 27 years) it had no written lease in place. That made it difficult to prove the terms of the lease, the parties’ rights and duties, duration, grounds for termination, and notice periods. Although a verbal lease is valid in law (for now anyway; change is in the wind on that one), a properly drawn written lease is vital to protect your rights!
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A Dishonest “I’m Too Sick to Come to Work” Excuse is a Firing Offence
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“…an employment relationship is predicated on trust” (Extract from judgment below)
Our courts have once again confirmed that dismissal is justified when employees lie about their state of health in order to get sick leave.
A recent Labour Court case provides a perfect example.
Too sick to work, but caught on TV at a protest march
- An employee called in sick for a few days, and to support his claim of illness produced a medical certificate of sorts (albeit a meaningless one, certifying the nature of illness as being “Absence due to medical condition”).
- Unluckily for the employee, his supervisor happened to be watching the evening news on TV and what did he see on the screen but his “too ill to work” subordinate participating in a protest march, singing and clapping his hands.
- Long story short, the Labour Court upheld his dismissal for “gross dishonesty” in breach of the trust relationship that underlies all employer/employee interactions.
- In doing so the Court found on the facts that the employee had clearly been malingering in order to attend the protest, noting that an employee claiming to be too ill to work must prove it. In that regard the supposed medical certificate just didn’t cut it without being confirmed on affidavit.
Important takeaways for employees (and their employers)
- Falsely claiming sick leave fundamentally breaches the employer/employee trust relationship and in appropriate cases our courts will not hesitate to uphold dismissal even for a first offence.
- If queried, it is for the employee to prove that an illness genuinely prevented attendance at work.
- A sick note or medical certificate should be meaningful as to the nature of that illness and the issuing medical practitioner may have to confirm its contents in an affidavit or under oath.
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Debt Collection – Two Recovery Options
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“Creditors have better memories than debtors” (Benjamin Franklin)
How well you manage your debtors’ book, and how successful you are in actually collecting monies due to you, should always be a management priority. It can spell the difference between a successful, profitable business and a failed one.
If you are new to the game (the owner of a new start up perhaps), the debt collection process might seem confusing and a bit intimidating, but it needn’t be.
If you need to understand the basic principles and terminology, have a look at our simple overview below of a pretty “standard” debt collection process. We follow that with an alternative suggestion, which even established businesses with a long track record of debt collection will find useful.
Of course, some debts are easily collected – a gentle reminder and a few courtesy calls often do the trick. But when a debtor turns recalcitrant – dodging calls, ducking and diving, delaying, hiding assets – it’s time to bring out the big guns and go the legal route.
Let’s discuss two possible avenues of recovery -
- Recovery Avenue One: The “standard” debt collection process
Let’s start off with a brief (and simplified) overview of a fairly typical sequence of debt collection events -
- A courtesy call: This is most effective coming from your attorney - there’s nothing like an official legal communication to convey that you mean business. In most cases it will be a polite but firm communication (think “iron fist in velvet glove”) – perhaps via a voice call, perhaps in writing, perhaps both – telling the debtor that the matter has now been handed over for collection. Warnings of the legal process about to be unleashed, and mention of the extra costs and the credit rating implications for the debtor, might be all that’s needed to extract payment, or at least an offer of payment and an Acknowledgment of Debt. If not, on we move…
- Letter of demand: This is a formal notification (you’ll hear it called a “Section 129 Notice” where the National Credit Act applies) officially demanding payment within a specified deadline period. It’s the last step before the actual legal process starts…
- Summons: A summons is now issued at the appropriate court, and served on the debtor, who now has an opportunity to defend the action. Expect an experienced debtor to enter an “appearance to defend” as a delaying tactic, but if the debtor just ignores the summons or takes no further steps to defend the matter, the next step is…
- Judgment: Your attorney now asks the court to issue a “default judgment”, which entitles you to proceed to the enforcement/collection stage…
- Execution: Depending on what assets or income the debtor has, this could be a warrant of execution against movable property, a financial enquiry or an emoluments attachment or garnishee order. A debtor who knows the ropes will be experienced in dodging and/or frustrating these attempts, and if the debt still remains unsatisfied you can move on to another form of execution...
- Application to sell immovable property: You can now apply to the court for leave to execute against any immovable property (a house, land or the like) owned by the debtor. This may or may not be easy to obtain, given everyone’s constitutional rights to housing.
The above is just an overview of general principles, and it is essential to have legal assistance at every stage to make sure that your process complies with all the rules and regulations involved.
- Recovery Avenue Two: Apply for liquidation or sequestration
This may not be the best option for every debt collection scenario, but in the right circumstances it can be dynamite!
Before we get going, a quick note on terminology - if your debtor is a company, you apply for “liquidation” (“winding-up”) of the company, and the appointment of a liquidator. If your debtor is an individual, you apply for “sequestration” of the debtor’s estate, and appointment of a trustee.
Either way, the pressure you bring to bear on the debtor is the threat of imminent loss of control of all assets. Company directors must suddenly focus on the looming risk of losing all control over their businesses, an individual on losing all their personal assets, house etc – whatever they have.
As a side note, if your debtor is a company, a particularly useful section of the Companies Act allows you to serve on the company’s registered office a “section 345 letter of demand”. The company is then “deemed” to be unable to pay its debts if the debt isn’t paid or secured within three weeks. That makes your liquidation application a lot easier to support and increases pressure on the debtor to pay up.
Just be aware of two factors in particular –
- You may be in for substantial cost. A recalcitrant director or debtor can still delay the process by defending your application, and whilst our courts do not look kindly on delaying actions and other “abuses of process” calculated to postpone the inevitable, getting to that stage in opposed matters can be expensive. And if you do eventually succeed in getting an order, not only could you end up recovering nothing (or perhaps only a part of the debt) but you might even have to pay into the estate, so ask your attorney beforehand about the “danger of contribution” aspect.
- You cannot use a liquidation/sequestration application as a way to short-circuit any genuine dispute over liability, and with individuals you will also have to show that sequestration will benefit creditors generally. Unless you have good grounds for the application you risk having to pay a large adverse costs order for “abuse of process.” Legal advice specific to your case is essential!
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Legal Speak Made Easy
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“Fictional fulfilment”
You may come across this term in contractual disputes, where one of the parties deliberately prevents fulfilment of a suspensive condition in order to escape the sale. With property sales, it usually relates to the “bond clause”, where the whole sale is “suspended” until the buyer is granted a bond. The buyer gets cold feet and intentionally frustrates the granting of a bond. In appropriate circumstances, a court can then “deem” the condition to have been fulfilled through the old legal doctrine of “fictional fulfilment of a suspensive condition”.
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