‘Real-time’ reporting to SARS on trusts? Yes, maybe

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Trusts are still largely unregulated, which frequently leads to their abuse. The Courts and SARS are, however, becoming impatient with trustees and trust service providers.

The wife as a trustee of the family trust

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In South Africa, family members are typically acting as trustees of their family trusts, often without them knowing what they are signing up for. Trustees are the guardians of the trust assets and have a duty to manage these assets in the best interests of the beneficiaries, as outlined in the trust deed. The Trust Property Control Act is quite specific as to what is expected of trustees, and clearly stipulates the duties of trustees. Under Section 9(1) of the Trust Property Control Act, trustees must “act with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another.” If you do not, you may find yourself in trouble.

The first trustee meeting

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People often agree to serve as trustees on a trust, without understanding the purpose of the trust and the objectives of the founder. They underestimate the importance of communication and record keeping. It should all start with the first trustee meeting. If these discussions did not take place between trustees (and the founder) yet, it is never too late to have them, especially when the founder is still alive. That may save a lot of heartache, especially for later generations.

Can one distinguish between beneficiaries in a trust deed?

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Only beneficiaries can benefit from a trust. Few people are aware that the founder can decide who is to benefit from the trust and to what extent. Limitations and milestones can also be built into the trust deed to ensure the desired beneficiaries benefit from the trust at a point in time.

Be mindful how beneficiaries are defined in the trust deed

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The description of beneficiaries in the trust deed should be complementary to the objective of the trust. This decision should fit into your estate plan and your family’s circumstances. It is important to understand that you can only benefit from a trust if you are a beneficiary and no one else. However, be mindful of nominating beneficiaries ‘willy nilly’ in the trust instrument, as this may give them rights, regardless of whether it is a discretionary trust or not.

Does a trustee have the right to resign?

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Historically, in terms of our common law, in the absence of a provision in the trust instrument, a trustee was not entitled to resign office except if they gave good reason and obtained the consent of a court (as confirmed in the Meijer v Firstrand Bank Limited case of 2013). However, with the promulgation of the Trust Property Control Act in June 1988, effective from 31 March 1989, Section 21 was introduced to allow a trustee to resign at any time by providing written notice to the Master of the High Court and the ascertainable beneficiaries, regardless of whether the trust instrument allows for it. Section 21 of the Act allows trustees to “resign by notice in writing to the Master and the ascertained beneficiaries who have legal capacity”. This generally refers to beneficiaries with vested rights who are over the age of eighteen years and free of mental illness and who are known to the trustee. A beneficiary obtains a vested right in an asset and/or income and/or capital gains in a trust, either in terms of the provisions of the trust instrument (called a vesting trust), or through the trustees exercising their discretion, but always subject to the rights attached to such vested right. It is also good practice to provide written notice to their guardians in the case of minor beneficiaries or to the tutors or curators of the beneficiaries of the trust.

The trust founder’s, trustee's and beneficiary’s will

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In South Africa, freedom of testation exists where an individual has the right to determine the heir(s) to their property upon their death as they wish. This is done through a will. If one dies without a will (including an invalid will), one dies ‘intestate’. Although, generally speaking, one can decide who inherits and who does not, dying intestate will result in the deceased’s assets automatically being split between blood relatives in a particular order. The assets will, therefore, be divided in terms of the Intestate Succession Act, and this may not be how you wanted your assets to be split. Most people delay addressing their wills because it is an emotional document to prepare. However, proper estate planning includes the drafting of a will, which complements your estate plan. Your will should always be up to date and reflect your current wishes in terms of how you would like your assets to be distributed upon your death.

The youth play important roles in trusts

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Every family’s circumstances are different. And so is their estate planning; or should it be. Some parents create trusts only to provide for minor children in the event of their death; others create trusts to protect the families’ wealth against spendthrift children; others attempt to leave nest eggs for their children; others may accumulate substantial wealth in trusts for generations to come; and so on. A trust can also be created in terms of a court order (court order trust) – such as a divorce order where a trust is registered for the maintenance of children. The youth play important roles in trusts, which are often overlooked during the (supposedly ongoing) estate planning process. Few people know that the estate planner can (and should) craft the trust deed in such a way to make specific provision for the purpose of the trust, including specific instructions and guidance to the trustees relating to who is to benefit, when beneficiaries could benefit, how they could benefit, what say they may have in the trust, whether they should become trustees at some point, etc.