Safety with settlement funds after road crashes

Road crash data reveals that thousands of people are killed or injured on South African roads from car accidents ever year. Approximately 14,000 people die entirely avoidable deaths on South Africa’s roads totalling to more than 40 deaths per day. The International Transport Forum found that South Africa ranked worst out of 36 countries for road fatalities.

It is however not only the fatalities that are concerning to for road safety and transport authorities. For every life lost in a road crash there are several injured, maimed and permanently disabled.

The Road Accident Fund (RAF) provides a social security safety net to the country and economy by making available compulsory social insurance cover to all users of South African roads against injuries sustained or death arising from accidents involving motor vehicles within the borders of South Africa.

During 2013, The Road Accident Fund paid out individual claims to the value of over R220 million. Despite some individuals having received a lump sum pay out of cash, within a few months or even years they find themselves experiencing financial difficulties.

We decided it is worth sharing advice from experts such as Mthokozisi Bhengu: Institutional Channel Manager Standard Trust Limited on settlement funds such as the Road Accident Fund and other general policy payouts and the process people can follow to get financial advice from their bank or financial planner to make good decisions with cash and build wealth from lump sum pay outs.

Important aspects in this discussion include the following:

Why it’s important to get financial advice from experts with settlements (especially when you get a huge lump sum payment)
What would happen if the money lands up in a trust?
What are the processes thereafter?
Processes people can follow to ensure their RAF claims get paid and criteria to follow?

Q&A with Mthokozisi Bhengu: Institutional Channel Manager Standard Trust Limited

1) Why it’s important to get financial advice from experts with settlements (especially when you get a huge lump sum payment)

Settlements funds are monies/proceeds paid out in settlement of an action which can either be a car accident, divorce settlement, medical negligence, policy payouts, etc.). The settlement may either be by agreement between the parties (claimant and defendant) or by Court Judgment /court order.

Settlement amounts are future focused – therefore it is money for tomorrow as a result of loss of support, maintenance, loss of income, general, etc. Plan wisely so that the funds last longer for the intended purposes.

When settlement is about to be reached or payment to be made soon; it is advisable to consult an expert such as your financial planners, attorneys, etc.

2) What would happen if the money is transferred into a trust?

Meet with trustees who will ascertain your short and long term needs (monthly needs), invest the balance in line with your needs – ensure sufficient income to cater for day to day needs whilst preserving or growing capital.

Having a trust is an important and valuable structure if used wisely, it can assist individuals and business owners to manage and distribute assets while they are alive and after they have passed away. You can buy new assets in the name of the trust, or transfer your existing assets into it. It also gives you flexibility in terms of how your assets should be looked after and stipulate who gets the income from them.

The trustees ensure that your wishes are carried out with regards to beneficiaries. In the trust instruction, you define the criteria according to which the trustees must act within the provisions of the law. A trust is only as good as the specialist who sets it up. A professional will be upfront and honest with you about your needs. They should assess your financial situation and make appropriate recommendations. Using the correct experts to set it up will ensure your needs are met for your entire life.

Trusts can be complex and time-consuming to administer. It costs money to set them up and there are generally ongoing legal and accounting fees. Different organisations charge different amounts both for the establishment and ongoing management of a trust, so gather all information necessary before setting up a trust.

All trusts must be registered with the Master of the High Court. A legal document called a trust deed must be registered in terms of the Trust Property Control Act and if accepted Master will issue trustees with letters of authority confirming the trust registration and their power to act as trustees. The trust deed will specify in detail what the trustees can and can’t do with the assets under their control. Trusts must be set up within the ambit of the law and have legal protection.

There are three key persons in a trust: Founder being the person initiates the trust set up, beneficiary being the person intended to benefit from the trust and trustee(s) who manage and/or administer the trust. You can be a beneficiary of your own trust. It is best for the trust to have two or preferably three trustees. As long as the trust was set up correctly and the trustees run it for the good of all the beneficiaries, trust property is separate from your personal assets and it protects trust property from your personal creditors and offers the opportunity to pay less in estate duties when you die.

Setting up a trust will protect your valuable assets and wealth which may have built up over time or through a settlement. It will also help look after your specified loved ones after your death and assure peace of mind.

The beneficiaries benefit from the due diligence of the Advisory Investment Committee, consisting of a diverse group of investors and business leaders who have committed their time, experience, to develop a thoughtful approach to investing for the diverse investment goals of each trust.

Due to the fiduciary nature of the trust service, the objective of our investment strategy is to manage a careful balance between liquidity needs, capital preservation and growth. Thus ensuring the needs of both the income and capital beneficiaries are taken care of. Up-to-date financial statements may be requested at any stage. Every beneficiary's benefit is held in a separate trust account.

3) What are the processes thereafter?

On settlement where the court order directs for a trust to be formed – a trust deed must be drafted (it will reflect what will consist of the trust property and the source where the property originates) and lodged with the Master of the High. On registration of the trust the Master will issue the trustees with letters of authority. Once the trustees have received the letters of authority they will open a trust bank account in the name of the trust wherein the trust cash will be deposited. A thorough financial analysis will take place to ensure that the trust begins taking care of the intended beneficiaries.

4) What are the processes people can follow to ensure their RAF claims get paid?

A person injured in a car accident may consult an attorney who will lodge the claim on his/her behalf or lodge the claim directly with the Road Accident Fund. The claim process may take up a few years before finalised depending on the merits, complexity of the incident and damages suffered in each case.

Mthokozisi Bhengu: Institutional Channel Manager Standard Trust Limited