Picture source: Getty/iStock
By Sandile Khumalo
Commencing from 1 April 2023, s 11A(1) of the Trust Property Control Act 57 of 1988 (TPCA) requires trustees to establish, maintain and lodge a beneficial ownership register (BoR) of each trust on the ICMS Web Portal maintained by the Master of the High Court (the Master).
Section 1 of the TPCA defines a ‘beneficial owner’ of a trust as the founder, trustees, a natural person who directly or indirectly ultimately owns the relevant trust property or who exercises effective control of the trust, and each beneficiary referred to by name in the trust instrument.
Non-compliance could attract a fine of up to R10 million or imprisonment for a period not exceeding five years or both(s 19(2)).
Other than in the context of a bewind trust or the vesting or distribution of an asset in a beneficiary, the very concept of any individual being described as a ‘beneficial owner’ of a trust or acquiring a proprietary interest in trust property is alien to our common law on trusts.
In this piece, I argue that the beneficial ownership regime described above is inconsistent with our common law of trusts, is irrational and violates the constitutional rights of dignity and privacy of founders and beneficiaries and consequently ought to be reviewed and set aside.
As already indicated above, ss 1 (definition of ‘beneficial owner’) and 11A of the TPCA compulsorily requires trustees to collect and keep current so-called prescribed information of a trust’s ‘beneficial owners’.
Regulation 3C(1) of the Regulations of the TPCA (the Regulations) describes the type of information that is to be included in the BoR in respect of each beneficial owner.
Regulation 3E requires the Master to make the contents of a BoR available to a range of law enforcement agencies.
The leading case on the interpretation of any document, including statutes, is Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] 2 All SA 262 (SCA). The case holds that the starting point in any interpretive exercise is the words or text in question, which must be interpreted in context, bearing in mind the purpose of the provision and the relevant circumstances attendant on its coming into existence.
The recent Constitutional Court case of Thistle Trust v CSARS 2024 (12) BCLR 1563 (CC), approved the above formulation and added that we must adopt a purposive approach when interpreting legislation. Further, there must be a rational connection between the legislative scheme and the pursuit of a legitimate government purpose.
Before testing the beneficial ownership regime in the TPCA against the above interpretive criteria it would be useful to make a few comments about the object of the aforementioned amendments to the TPCA, the nature of a trust in South African law, and the common law regarding trust property, the roles and entitlements of the actors in a trust, viz the founder, trustees and beneficiaries.
The Explanatory Memorandum of the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill, 2022 states that the (then proposed) amendments to the TPCA sought to implement recommendations of the Mutual Evaluation Report by the Financial Action Task Force (FATF), to strengthen the implementation of measures to combat money laundering, terrorism financing and proliferation financing (AML/CTF).
The task team in assessing South Africa’s (SA) compliance with FATF’s Recommendation 25 insofar as it pertains to trusts, concluded that SA was partially compliant as there was no obligation on trustees to identify a trust’s ‘beneficial ownership’. It accordingly recommended that SA amends the TPCA to address this ‘deficiency’.
Accordingly, the beneficial ownership regime contemplated in s 1, s 11A of the TPCA and reg 3 of the TPCA Regulations (the legislative scheme) is meant to bolster South Africa’s AML/CFT efforts (the governmental purpose). I turn now to a broad discussion on the nature of trusts in SA.
With a few exceptions, South African trusts are creatures of contract, which takes the form of a trust deed in which a founder/settlor/donor enters into a written agreement with a set of initial trustees to make over/donate or undertake to hand over to the trustees certain identified property, which the latter are required to administer for the benefit of identified or identifiable beneficiaries.
A South African trust is not a legal person in the sense of a company; rather, it is a legal entity, which is a collection of assets and liabilities akin to a deceased estate. It has no existence separate from its trustees and can only hold property through its trustees (Land and Agricultural Development Bank of SA v Parker and Others [2004] 4 All SA 261 (SCA)).
The foundational donation to the initial trustees comprises of the initial trust property, which the trustees must formally accept. A validly drafted trust deed will place an obligation on trustees to administer the trust property for the benefit of the trust beneficiaries or the cause for which the trust was created.
This ‘entrustment’/relinquishment by the founder of the initial donation is an essential requirement for the formation of a valid trust (Goodricke & Son (Pty) Ltd v Registrar of Deeds, Natal 1974 (1) SA 404 (N)).
The trustees are co-owners of the trust property in their fiduciary capacity (Goolam Ally Family Trust t/a Textile, Curtaining and Trimming v Textile, Curtaining and Trimming (Pty) Ltd 1989 (4) SA 985 (C)).
Although trust property is registered in the name of a trust’s trustee, it does not form part of their personal estate, save to the extent that he is also a beneficiary to whom a specific distribution has been made by the trust (s 12 of the TPCA).
Any cash that belongs to the trust must be deposited into a bank account in the name of the trust held at a registered bank in SA (s 10 of TPCA). Further, trustees must register all trust property in the trust’s name and clearly delineate such from property that forms part of the personal estate of a trustee (s 11(1)(b) read together with s 12of the TPCA).
I now consider the various parties in a trust and their respective roles.
Subject to the trust deed providing to the contrary, a trust founder has no further role to play in a trust beyond setting it up and handing over the initial donation or undertaking to do so – to the trustees once these are authorised to so act by the Master of the High Court (Nafcoc Northern Cape and Another v Modise NO and Others (NCK) (unreported case no 6/2013, 27-3-2013) (Williams J)).
Where a founder reserves to himself in a Trust Deed the right to revoke the initial donation, this could result in a failure of the trust at inception for want of relinquishment of the trust property into the hands of trustees.
A South African trust can only act through its duly authorised trustees (s 6 of the TPCA), duly guided by the trust deed, the TPCA, other relevant statutes and the common law.
As co-owners of trust property but subject to provisions to the contrary in a trust deed, trustees must observe the joint action rule and act in concert on all matters affecting the trust (Le Grange and Another v Le Grange Family Trust and Others (KZP) (unreported case no 7021/2016, 7-2-2017) (Pillay J)).
Trustees have a fiduciary obligation to act independently in the best interests of the beneficiaries and the trust. Further, trustees are not agents of either the founder or beneficiaries (PPWAWU National Provident Fund v Chemical, Energy, Paper, Printing, Wood and Allied Workers’ Union (CEPPWAWU) 2008 (2) SA 351 (W)).
Accordingly, trustees may not be controlled or dictated to by a founder in the management of the trust’s property.
Other than in the case of a bewind trust or where the trustees make a specific vesting or distribution, a beneficiary of a fully discretionary trust does not own the trust property, nor does he have any claim thereto. He merely possesses a hope/spes that he could at some indeterminate time in the future receive a benefit from the trustees. It is not unheard of for beneficiaries to not receive any benefit from a trust.
Subject to the terms of the trust deed, receipt of a benefit makes a beneficiary a party to the deed, entitling him to participate in any proposed amendment of the deed (Potgieter and Another v Potgieter NO and Others 2012 (1) SA 637 (SCA)). Such a beneficiary has no say or power to manage the trust property – which continues to vest in the trustees. The same applies to a beneficiary that is named in the trust deed.
As already indicated above, trustees do not take instructions from beneficiaries, including beneficiaries of bewind trusts.
To recap, ss 1 and 11A of the TPCA and reg 3 of the TPCA Regulations (the legislative scheme), require trustees to identify the natural persons that are a trust’s beneficial owners by establishing and maintaining a BoR to bolster SA’s AML/CTF efforts (the government purpose).
As adverted to above, regardless of the type of trust involved (whether fully discretionary or bewind), trust property can only be managed by duly authorised trustees (s 6 of the TPCA). A trust’s founder and beneficiaries play no role in the administration of trust property. It follows that the only persons that could abuse the trust for money laundering/financing of terrorism are its trustees.
Accordingly, disclosure of a trust’s founder and beneficiaries in a BoR would not positively contribute to SA’s AML/CTF endeavours. This applies regardless of whether beneficiaries are identified by class or whether the trust concerned is a bewind or a fully discretionary trust.
The natural persons contemplated in paras (a) and (b) of the definition of the term ‘beneficial owner’ in s 1 of the TPCA cannot pose a money laundering and terrorism financing (ML/TF) risk warranting disclosure of their details in a BoR because, as argued above, only trustees can lawfully administer trust property, a task that they undertake independently of any third party, including beneficiaries.
While our courts accept that South African trust law is evolving, (Braun v Blann and Botha NNO and Another 1984 (2) SA 850 (A)), such development must be orderly and cohere with our common law and constitution. The incorporation into our law of foreign concepts simply because of pressure to tick FATF compliance boxes so the country can be removed from the FATF ‘grey list’ is not only short-sighted, but it will also create confusion and uncertainty about the development of our law of trusts, which is inimical to the rule of law.
Accordingly, it is my view that the disclosure of details of founders and beneficiaries in a so-called BoR is not rationally connected to government’s AML/CTF objective. It is also an unwarranted incursion into the right to dignity and privacy of founders and beneficiaries.
While a detailed limitation/justification analysis in terms of s 36 of the Constitution falls outside the scope of this piece, it is difficult to envisage how the beneficial ownership regime can pass muster in the absence of a rational connection between the legislative scheme and the stated AML/CTF governmental purpose.
Further, there are less constitutionally restrictive means to achieve the said AML/CTF objective, namely, populating the BoR with the prescribed information of the trustees because only trustees are in a position to abuse trust property for ML/TF.
The beneficial ownership provisions in ss 1, 11A of the TPCA and reg 3 of the TPCA Regulations, to the extent that they apply to founders, beneficiaries and the other ‘natural persons’ in paras (a) and (b) of the definition of ‘beneficial owner’, are irrational and ought to be set aside.
Sandile Khumalo LLM (Unisa) FPSA® Advanced Dip in Trust and Estate Admin (UFS) is a fiduciary practitioner at Lex24 in Johannesburg.
This article was first published in De Rebus in 2025 (April) DR 16.
