Advising vulnerable clients: minors and young beneficiaries

Vulnerability is often associated with advanced age or cognitive decline. But advisory risk frequently arises when wealth is transferred to children or young adults who, despite having legal rights, may lack the maturity, financial capability or support structures to manage that wealth safely.

Why are minors and young people vulnerable?

A child may be nominated as a beneficiary on a life policy. A teenager may inherit under a will. A young adult may already hold investments funded by parents or grandparents. In each case, legal rights exist, but the practical ability to exercise those rights is limited because minors cannot act independently and young adults may still be susceptible to limited financial literacy, emotional immaturity or external influence.

Legal capacity and minors

South African law distinguishes between having rights and being able to exercise them. Children have legal rights, but their ability to act on those rights is restricted. Children under 18 are minors in terms of the Children’s Act 38 of 2005. As a rule, minors cannot enter binding contracts without the assistance or consent of a parent or legal guardian. Assets inherited by minors, awarded to minors or invested in their names must be administered on their behalf through guardianship, trusts, beneficiary funds or other fiduciary arrangements. This creates vulnerability for the minor and potential risk for the advisor structuring or advising on those arrangements.

Vulnerability in beneficiary nominations and inheritances

Common scenarios include:

• A minor nominated as beneficiary on a life policy or retirement fund.
• A will leaving assets outright to a child (no protective structure).
• A guardian requesting access to funds intended for a minor.
• A lump sum paid at 18 with no transition planning.

Each scenario carries risk. Where no protective structure exists, benefits may be paid into the guardian’s fund, or administered informally by a parent, neither of which will necessarily align with the testator’s intentions or the child’s long-term interests. Vulnerability arises not from the inheritance itself, but from how and when control is transferred.

Existing investments

It is increasingly common for minors to hold investments (unit trusts, tax-free savings accounts or platform investments) funded by family members. It is therefore important that where permissible, advisors should clarify:

• Who has the authority to give instructions?
• How are withdrawals controlled?
• What happens when the minor reaches majority?
• Is there an unplanned transfer of control at age 18?

Without planning, control can shift abruptly at 18 from protection to full autonomy.

Professional duty

The advisor’s role is not to replace parents or guardians, but to recognise vulnerability and plan accordingly. Under the FAIS General Code of Conduct and Treating Customers Fairly (TCF) principles, advisors must ensure that advice is appropriate to the client’s circumstances and level of understanding. When the “client” is a minor or young beneficiary, this duty typically includes:

• Recommending appropriate protective structures (such as testamentary trusts or beneficiary funds).
• Planning phased access rather than lump-sum control.
• Educating parents and testators about the risks of direct nominations.
• Documenting instructions carefully to avoid later disputes.

In practice, advisors are often the only professionals in a position to foresee these risks before harm occurs.

Conclusion

Minors and young beneficiaries sit at the intersection of legal rights and practical vulnerability. The law provides mechanisms to protect assets on their behalf, but it does not guarantee that those mechanisms will be used well. Advising in this space requires more than technical compliance. It calls for foresight, appropriate structures and the confidence to challenge well-intentioned but risky decisions so that wealth transfer protects, rather than undermines, a young person’s future financial stability.  

---