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A trust is a legal arrangement in which assets or property are held by one party (the trustee) for the benefit of another party or parties (the beneficiaries). Recent legislative changes have dire consequences for non-compliance. This article explores the new changes and distinguishes trust administration and the role of an independent trustee.
The history of trusts in South Africa (SA) dates back to the early 19th century when the Cape Colony became a British colony in 1806. With the establishment of British rules, the English trust concept was introduced to SA. This occurred as part of the peace treaty, which brought about the British influence in the Cape. The Roman-Dutch legal tradition, which already existed in SA, also played a role in shaping the development of trusts in the country. Over time, trusts in SA have evolved, and today there are different types of trusts, including inter vivos trusts (created during the founder’s lifetime) and testamentary trusts (established through a will). The historical development of trusts in SA has been influenced by both English trust principles and the local legal framework.
The purpose of these legislative changes is to, in part, address shortcomings in SA’s regulatory framework in addressing beneficial ownership transparency.
‘A person who carries on the business of creating a trust arrangement for a client’, in terms of the FICA (item 2(c) of schedule 1) is required to register as an accountable institution and have the required policy (a Risk Management and Compliance Programme (RMCP)) and procedures for reporting such suspicious transactions in place to combat money laundering and terrorist financing. The same applies to persons who are involved in the management and administration of trusts, including independent trustees.
The TPCA was recently amended to provide for, among others, the establishment and maintenance of registers of beneficial owners of trusts by trustees and the Master of the High Court and the recording of the details of accountable institutions by trustees. These changes came into effect on 1 April 2023.
Section 11A of the TPCA requires trustees to establish, record and keep an up-to-date record of information relating to beneficial owners of trusts. New subsection 11(1)(e) of the TPCA requires trustees to keep a record of accountable institutions the trustees engage with, as trustees.
According to recent amendments to the TPCA, the ultimate beneficial owner of a trust is always a natural person. In cases where the founder, beneficiary, or trustee of a trust is a legal entity, or a person acting on behalf of a partnership or in accordance with trust provisions, the ultimate beneficial owner of that trust is the natural person who ultimately owns or exercises effective control over the legal entity, partnership, or relevant trust property or arrangements. The details of all the beneficial owners must be recorded in the beneficial ownership register of the respective trusts. Additionally, individuals who directly or indirectly own the relevant trust property or exercise effective control over the trust’s administration, but do not fall under the definitions of founder, trustee, or beneficiary, are also considered beneficial owners and must have their details recorded in the beneficial ownership register.
A trustee commits an offence if they fail to adhere to the new requirements. These obligations include –
If a trustee (not just an independent trustee) is found guilty of any of the aforementioned offences, they will face severe penalties. These penalties may include a fine of up to R 10 million, imprisonment for a maximum period of five years, or both the fine and imprisonment.
All trusts are required to be registered with SARS (even those ‘dormant’ trusts if there is such a thing) and submit returns annually.
Even though beneficial ownership information also has to be provided to SARS on the trust income tax return, SARS is now one of the parties with access to the Master’s beneficial ownership registers. Effective from 23 June 2023, Income Tax Returns for Trusts (ITR12T) now require many more details than in the past, including beneficial owner information which will likely be matched with the Master’s information. ‘Additional questions were added to the Income Tax Return Wizard to determine if any local or foreign amount(s) were vested in the trust as a beneficiary of another trust’ (Phia van der Spuy ‘Sars announces significant changes to the treatment of trusts’ (www.iol.co.za, accessed 3-11-2023)). ‘Additional questions were added to the Income Tax Return Wizard to determine if amounts were deemed to have accrued to a donor/funder in terms of section 7 during the relevant year of assessment’ (Van der Spuy (op cit)). SARS also introduced a new requirement to upload mandatory supporting documents with the tax return, ‘including the trust instrument, annual financial statements and resolutions/minutes of trustee meetings’ (Van der Spuy (op cit)).
Trustees will also, similar to banks and others, become third-party data providers to SARS, as they will be required to inform SARS of all distributions made to beneficiaries, annually from May 2024, on an IT3(t).
Trust administration refers to the management and handling of the assets within a trust. When an individual, known as a founder, establishes a trust, they transfer their assets into the trust to be managed for the benefit of one or more beneficiaries. Trust administration involves various responsibilities, such as record-keeping, asset management, tax filings, distributions to beneficiaries, and compliance with legal requirements.
It is important to note that trust administration can vary depending on the trust’s specific terms and the applicable legislation. Professional assistance from attorneys, accountants, an independent trustee or financial advisors may be necessary to ensure proper trust administration.
There seems to be a general misconception in SA that a trust’s attorney, accountant, or independent trustee automatically takes care of trust administration and compliance.
A trustee is an individual or entity appointed with a duty to guard, manage and administer a trust in the best interests of the beneficiaries. In terms of s 9(1) of the TPCA, trustees must ‘act with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another’.
In Land and Agricultural Development Bank of SA v Parker and Others [2004] 4 All SA 261 (SCA), the Supreme Court of Appeal suggested that each family trust should appoint an independent trustee. Thereafter, in March 2017, the Chief Master of the High Court issued a Directive that makes the appointment of an independent trustee a requirement for all new family business trusts being registered.
An independent trustee plays a crucial role in the administration of a trust. No new trusts can be registered without a truly independent trustee (not a beneficiary and also with no family relation or connection, blood or other to any of the other trustees, beneficiaries or founder of the trust). The primary responsibility of an independent trustee is to act in the best interests of the beneficiaries and ensure that the trust’s assets are managed and distributed according to the terms of the trust deed.
Several duties are to be fulfilled by an independent trustee. These duties include managing the trust’s assets diligently and prudently following the objectives and instructions specified in the trust deed. They are also bound by a fiduciary duty to act in good faith, with utmost honesty, and avoid conflicts of interest that could compromise the interests of the beneficiaries. Furthermore, (independent) trustees must maintain accurate records of the trust’s financial transactions, investments, and distributions. They are responsible for communicating with beneficiaries, providing them with relevant information about the trust’s activities, and addressing any concerns they may have. In addition, (independent) trustees must ensure compliance with all applicable laws, regulations, and tax obligations related to trust administration.
Furthermore, an independent trustee affirms under oath to be qualified to act as such and to be competent to scrutinise and check the conduct of the other trustees. Surely, when appointing the required independent trustee and accountant regard is placed on them to take care of the legislative trust requirements as knowledgeable and qualified persons. ‘This is hardly the reality in practice, we have found’, says Phia van der Spuy CA(SA), a registered Fiduciary Practitioner, a Chartered Tax Adviser, and a Trust and Estate Practitioner.
Certainly. Not only has SA stepped up to enter the international arena of trusts, after our legislation has been brought in line with the rest of the world, but now more than ever before the professional role to be fulfilled as an independent trustee, associated with the risks and increased compliance and trust administration obligations creates opportunities which have not been utilised by trust service providers in the past. The changes in legislation, the increased costs of compliance and the associated risks justify the charges for professional services which have often been done for free in the past. We see these services for which trust service providers can charge as fourfold. One is statutory proceedings such as the registration of new trusts or amendment of existing trusts. Two, independent trustee services. Three, trust administration. Four, accounting and taxation.
Luckily there are Client Relationship Management platforms, which simplify trust administration and save time. The required and onerous beneficial owner register is kept up to date as per the Master’s requirements and can be populated by the push of a button and uploaded to the Master’s portal, without breaking into a sweat. The required register of accountable institutions the trustees deal with, is also maintained in the system, together with proof of their interactions with them as required by law. Such platforms also pre-populate all the Master’s forms, legislatively required asset register of a trust, required resolutions and real-time accounting records, and SARS submission capabilities to name but a few features.
Trusts in SA have a long history dating back to the early 19th century. They have been shaped by both English trust principles and the local legal framework. Recent legislative changes have introduced new compliance obligations for trusts in SA. These changes aim to address shortcomings in the country’s regulatory framework regarding beneficial ownership transparency.
FICA requires individuals or companies who create trust arrangements for clients and who are involved in the management and administration thereof (including independent trustees), to register as accountable institutions and implement policies and procedures to combat money laundering and terrorist financing.
The TPCA has been amended to include establishing and maintaining registers of beneficial owners of trusts. Trustees are required to record and keep up-to-date information about beneficial owners and accountable institutions they engage with. Failure to adhere to these requirements can result in severe penalties.
SARS requires all trusts, including dormant trusts, to be registered and submit annual returns. Trustees must provide detailed information, including beneficial owner information, which will be cross-referenced with the Master’s information.
Trust administration involves managing and handling the assets within a trust, including record-keeping, asset management, tax filings, distributions to beneficiaries, and compliance with legal requirements. Professional assistance from attorneys, accountants, independent trustee service providers, or financial advisors may be necessary for proper trust administration. One is not to assume that your trusted adviser fulfils this function.
An independent trustee, who is not a beneficiary or related to other trustees or beneficiaries, plays a crucial role in trust administration. They act in the best interests of the beneficiaries, manage and distribute trust assets according to the trust deed, fulfil fiduciary duties, maintain accurate records, communicate with beneficiaries, and ensure compliance with laws and regulations. Once again, make sure that your independent trustee fulfils the new compliance obligations.
Despite the increased compliance obligations and risks associated with trusts, there are opportunities for trust service providers in SA. These opportunities include statutory proceedings, independent trustee services, trust administration, and accounting and taxation services.
Mathys Briers-Louw BCom (Law) LLB (Stellenbosch) LLM (Transnational Business Practice) (University of Pacific, McGeorge School of Law, USA) is a legal practitioner at SL Law Inc and the founder of Twenty2 Services and Situs Fiduciary.
This article was first published in De Rebus in 2023 (Dec) DR 30.
