TRUST TO TRUST: Family trusts need help

Phia van der Spuy. File Photo: IOL

Phia van der Spuy. File Photo: IOL

Published Apr 27, 2023


The manner in which South African trusts are to be managed has changed overnight. As we have a unique situation in South Africa where many trusts only have family (lay-person) trustees appointed, many trusts are currently non-compliant as these trustees are not even aware of the recent amendments to trust legislation.

The Trust Property Control Act, which is the single most important piece of legislation dealing with the governance of trusts, is an old piece of legislation, which does not deal with clear instructions how trustees are to manage trusts.

Historically it also did not contain penalties for non-compliance. Similarly taxation legislation for trusts developed over time and was not particularly well policed in the past. That led to trusts generally being badly administered. However, numerous changes were introduced during the past year, which trustees need to be aware of (and get professional help).

Since April 1, 2023, all trustees have to comply with the amended legislation. The amendments apply equally to all trustees and each and every trustee has to co-operate to remain compliant. Non-compliance may lead to a fine not exceeding R 10 million or imprisonment not exceeding five years, or both.

No more “dormant trusts”

A number of estate planners and trustees still believe that they can “hide” their trusts and many of these trusts do not even have bank accounts or asset registers (as required by law) and are not registered as taxpayers. Every trust in South Africa has to register as a taxpayer in terms of the Income Tax Act.

In terms of the recent amendments, the SA Revenue Service (Sars) is one of the entities given access to the Master’s portal. Although Sars historically (unsuccessfully) attempted to get access to the Master’s records to identify non-compliant trusts, Sars will soon have access to fresh, accurate data, which the trustees are busy populating for the Master on its portal, as required in terms of the recent amendments. Trustees are, therefore, urged to become compliant and register all trusts as taxpayers before Sars knocks on their doors.

Trustees now have to be knowledgeable and act

The final regulations issued on March 31, 2023, requires detailed updated information to be kept by trustees on all “beneficial owners” of a trust. Firstly, all trustees are expected to maintain up-to-date information of “beneficial owners” of the trust and to submit updated Beneficial Ownership registers on the Master’s portal (which is an extract of the information kept), on an ongoing basis.

Trustees are now also required to become knowledgeable in money-laundering legislation, as they need to know who exactly are “accountable institutions” which no longer are just the banks, but quite an extensive list of goods and service providers. Trustees are required to disclose their positions as trustees to any “accountable institution” with which the trustees engages in that capacity and to make it known to that “accountable institution”. Trustees should also keep a register of “accountable institutions”, which they use as agents to perform trustee functions and who provide any services to trustees.

Soon trustees will become third-party data providers to Sars when they have to inform Sars of distributions made to beneficiaries by September each year.

Each and every trustee will be held accountable and it has become important for all trustees to demand transparency and co-operation and to have access to all trust information (as it was always intended in our law). It is advised to maintain a central repository of information to which all trustees can contribute and on which they can rely. Trustees should stop blindly relying on trust service providers, as that will be no excuse for non-compliance. Active participation of all trustees is required.

Get professional help

Although estate planners historically (sometimes) appointed so-called independent trustees, often they were family members, friends, attorneys or accountants, who were not knowledgeable and it led to the abuse of trusts and “the blind leading the blind”. The courts and the Master tried to rectify this by requiring the appointment of a truly independent trustee for all new “family business trusts”.

In March 2017, the Chief Master issued a directive that sets the requirement for the appointment of an independent trustee for all new trusts that are defined as “family business trusts”. This is typically a trust set up for the protection of family assets, where the trustees are all beneficiaries, and they are all related.

These trustees are also empowered in terms of the trust instrument to enter into transactions that create debt in the trust. Most family trusts in South Africa provide the trustees with a standard set of wide powers, classifying them as “family business trusts”.

The directive requires an independent trustee to be an independent outsider who accepts office in order to ensure that the trust functions properly and that the provisions of the trust instrument are observed. The independent trustee is not required to be a professional person, but it should be a person who fully realises the responsibilities they are accepting when agreeing to act as a trustee. The directive states that the independent trustee may be a professional accountant, admitted attorney, an advocate who is affiliated to the relevant professional body or association, trust companies, boards of executors or fiduciary practitioners who are members of FISA and may even be chosen from the ranks of business associates.

Unfortunately all the older family trusts (registered before March 2017) may still not have anyone who can educate and guide the family trustees, which may now expose those layperson trustees.

The risk has become too big for family trustees to try to manage the trusts themselves, unless they are knowledgeable and stay up to date.

The extra cost to employ the services of a knowledgeable independent trustee can be justified as an “insurance premium” to protect the trust assets and the family trustees against fines and/or imprisonment. Estate planners and family trustees also have to acknowledge that these new measures added an extra layer of required compliance, which will attract an additional cost.

Phia van der Spuy is a chartered accountant with a Master’s degree in tax and a registered fiduciary practitioner of SA, a chartered tax adviser, a trust and estate practitioner (TEP) and the founder of Trusteeze, the provider of a digital trust solution.