South African Trusts are undergoing significant changes

By BVK Group | 31 May 2023

The manner in which South African trusts are managed has undergone significant changes recently, impacting many trusts that have family trustees who may be unaware of the amended legislation. The Trust Property Control Act, the main legislation governing trusts, is outdated and lacks clear instructions for trustees, while taxation regulations for trusts were poorly enforced in the past. However, several changes have been introduced, and since April 1, 2023, all trustees must comply with the amended legislation or face penalties of fines up to R 10 million or imprisonment up to 5 years.

One key change is the end of "dormant trusts." All trusts in South Africa must now register as taxpayers, maintain bank accounts, and keep asset registers as required by law. The South African Revenue Service (SARS) has been granted access to the Master's portal to identify non-compliant trusts. Trustees are strongly urged to ensure compliance by registering all trusts as taxpayers before SARS takes action.

Trustees are now obligated to keep updated information on the "beneficial owners" of the trust and regularly submit Beneficial Ownership registers to the Master's portal. They must also familiarize themselves with money laundering legislation and identify the wide range of "accountable institutions" beyond just banks. Trustees need to disclose their trustee positions to these institutions and maintain a register of accountable institutions used for trustee functions.

Furthermore, trustees will soon be required to inform SARS of distributions made to beneficiaries each year. Accountability falls on every trustee, emphasizing the importance of transparency, cooperation, and access to trust information. Establishing a central repository of information where all trustees can contribute and rely on is recommended. Trustees should not blindly depend on trust service providers as an excuse for non-compliance. Active participation is crucial.

Seeking professional help is essential. In the past, estate planners appointed independent trustees who often lacked knowledge. The independent trustee should understand their responsibilities, even though professional qualifications are not mandatory.

It has become critical for family trustees to seek knowledge and stay updated. Employing a knowledgeable independent trustee may be a justifiable cost to safeguard trust assets and protect family trustees from fines or imprisonment. Estate planners and family trustees should also consider the additional compliance requirements and associated costs brought about by these changes.