Trust-to-Trust: Termination of a trust does not automatically terminate trusteeship
By Phia van der Spuy
JOHANNESBURG - The Trust Property Control Act does not make provision for the termination of a trust and merely refers to the concept in Section 13, which makes provision for the fact that a court can terminate a trust, and in Section 17 setting the requirement to retain trust documents for five years after the termination of a trust. T
he Master of the High Court did, however, issue a directive in March 2017 setting out the Master’s requirements to deregister a trust. Even though the Trust Property Control Act does not make provision for the termination of a trust, in terms of our common law, a trust can terminate by operation of law in certain circumstances.
Even though some people believe that their obligations as trustees terminate upon the happening of a termination event, the office of trusteeship comes to an end only when the trustee has duly disposed of all trust property and the Master has confirmed this. Only then will the trustees really have discharged their obligations.
Involvement of beneficiaries
The decision to terminate a trust at a time and on a date determined at the trustees’ discretion should follow a similar process to the one used when amending a trust instrument.
In practice, the Master of the High Court favours the participation of beneficiaries in a decision to terminate a trust. The trust instrument should preferably (and pertinently) state whether beneficiaries should be part of a decision to terminate the trust or not.
If the trust instrument is silent on the participation of the beneficiaries, the consent of beneficiaries who have accepted benefits will be required. Even though the Master’s Directive only requires proof that the beneficiaries have received their benefits, the trustees will have to prove the involvement of beneficiaries in the decision to terminate the trust, where relevant.
The beneficiaries (either all beneficiaries or at least beneficiaries who have accepted benefits under the trust) should acknowledge in writing that they are aware that the trust has been terminated. Such beneficiaries must confirm the rights and/or assets they have received as a result of the termination. Relevant beneficiaries should also either confirm that they (a) accept and are satisfied with what they have received, or (b) that they feel aggrieved or dissatisfied with the termination process and/or with that which they received as a result.
If a beneficiary feels aggrieved – either about the fact that the trust is to be terminated or over what they received – and intends taking the termination of the trust on review, or if a beneficiary intends taking some form of legal action, that fact must be disclosed in writing.
It is the responsibility of the trustees to enquire as to the intentions, if any, of each beneficiary and take this information into consideration in their decision to terminate the trust. If any beneficiary required to participate in the decision to terminate the trust does not approve its termination, the trustees will be unable to move forward with the termination. Their only option would be to approach the Court and request that it terminates the trust in terms of Section 13 of the Trust Property Control Act.
What should be done
It is appropriate for trustees to draw up a schedule of all trust assets immediately before the trust’s termination, together with their values and how these values were determined. Before the final distribution of the trust fund, the trustees must discharge all claims against the trust in respect of any liabilities, including amounts owing to SARS, where applicable. If the trust’s liabilities exceed its assets, the sequestration of the trust (in terms of the Insolvency Act) will need to be considered.
The rights of beneficiaries must be identified and recorded before the trust is terminated. All assets (both tangible and intangible) transferred and or given to the beneficiaries in pursuance of the provisions of the trust instrument must be accurately recorded. Upon termination of the trust, the trustees are required to prepare a final statement of administration and distribute the accumulated income, capital and other benefits accruing, to the appropriate beneficiaries. The balance of the income that has accrued but has not been paid out is added to the capital for distribution to the capital beneficiaries.
Although there are no statutory formalities, it is advisable to deregister the trust as a taxpayer and go on record with the relevant Master of the High Court that the trust has been terminated. Neglecting to formally terminate a trust with the relevant Master of the High Court may expose the trust to abuse. SARS will also expect you to continue annually submitting tax returns for the trust unless you deregister the trust as a taxpayer.
Phia van der Spuy is a registered Fiduciary Practitioner of South Africa®, a Master Tax Practitioner (SA)™, a Trust and Estate Practitioner (TEP) and the founder of Trusteeze®, a professional trust practitioner.