Recent legislation affecting Trustees
Trusts are versatile and popular tools often incorporated into estate planning. The concept of the legal trust has a long history in South African law. However, for most of this time Trusts, and more specifically the actions of trustees, were not really governed by a specific piece of legislation. This changed with the introduction of the Trust Property Control Act in 1988, which codified the most important aspects of Trust law that had been developed by case law throughout the years.
More recently, there have been two significant amendments to the law which tightened the grip on what Trusts are allowed to do and how they must be managed. The driving force behind this was to curb the prevalent misuse of the Trust’s legal personality. For example, it was a popular practice for a founder to create a Trust and subsequently be the only trustee and beneficiary. Alternatively, a Trust was used to disguise certain assets and the flow of their profits. These alter-ego Trusts were used to reap the benefits of a Trust, without actually giving up effective control of the assets to be managed by the Trustees for the benefit of the beneficiaries, as is the true spirit and intention behind Trusts.
Family Business Trusts
In 2017 the Office of the Chief Master of the High Court released a Directive which expanded on areas of Trust law not covered extensively by the Trust Property Control Act, as well as changes to the practical implementations of the law brought about by case law. One of the most significant changes was defining so called family business Trust, which consists of the following characteristics:
The trustees have the power to contract with independent third parties, thereby creating trust creditors;
The trustees are all beneficiaries; and
The beneficiaries are all related to one another.
In the Directive, the Chief Master stipulated that the Master must consider appointing an independent trustee when registering family business trusts in order to curb the rampant misuse of Trusts. An independent trustee does not have to be a legal or accounting professional, but an outsider who understands the responsibilities and who agrees to assist in ensuring the Trust is administered properly and the intentions of the Trust Deed carried out.
Trust Beneficial Ownership Register
South Africa is a member of the Financial Action Task Force, an intergovernmental organisation with the aim of preventing money laundering. Due to an increase in corruption and a struggling economy, South Africa was obliged to update its regulatory framework to curb corruption and money laundering which extended to Trusts. Amendments were made to the Trust Property Control Act to introduce that Trustees need to keep a detailed record of the beneficial owners ultimately in control of Trust assets.
Trustees are required to submit information to the Master of the High Court regarding the founders, trustees and beneficiaries of Trusts, and additional information is required when there is a company or close corporation involved, since a beneficial owner must ultimately be the natural persons behind the juristic personalities. The information is submitted by a designated person with the necessary authority through the online Trust Beneficial Ownership Register website operated by the Master.
A further obligation also rests on Trustees to keep these records on hand and update them periodically. The purpose of submitting it to the Master is to ensure that a prescribed list of authorities, such as SARS and the National Prosecuting Authority, can request access to this information to facilitate transparency and accountability. Should Trustees not comply with these requirements, legislation provides that they may be liable for a fine of up to R10 million, or imprisonment for a period of up to five years, or both.
From the above it is clear that trustees cannot rest on their laurels when it comes to compliance with the latest requirements in Trust administration. Contact Jeanne Stander at jeanne@curranattorneys.co.za to ensure the administration of your Trust is up to date and compliant with the latest legal developments.
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