Life insurance paid to trustee of insolvent estate and not to intended beneficiary

Mr Wentzel took out a life insurance policy with Discovery Life Limited (Discovery) insuring the life of his wife, whom he was married to in community of property in 2007, in terms of which he appointed himself as the beneficiary of the policy. The same policy also insured his life and appointed his wife as beneficiary in the event of his death.

Their joint estate was sequestrated in 2012.

Mrs Wentzel died in 2017 and Mr Wentzel claimed the proceeds from Discovery as the beneficiary of the policy.

Discovery informed Mr Wentzel that the payment of the proceeds would be made to the trustees of the insolvent estate. He approached the Pretoria High Court in Wentzel v Discovery Life Limited and Others to object and claimed that the administration of the insolvent estate had long since been finalised.

The court had to decide whether the payment of a life insurance policy by an insurance provider to a nominated beneficiary, being an unrehabilitated insolvent, would vest in the beneficiary or the trustees of the insolvent estate.

The court found that the estate of the insolvent remained vested in the trustees until such time that the insolvent was either re-vested with the estate, pursuant to a composition or his rehabilitation, neither of which had occurred. Accordingly, it directed that the insurance proceeds had to be paid directly to the trustees of the insolvent estate.

The moral of this tale is that the Wentzels should have made the beneficiary of the Discovery policy a trust and not themselves. Living Trust-centred estate plans provide superior asset protection.

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