The Financial Intelligence Centre Act and trust service providers - 11 April 2023

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Trustees and trust service providers have recently been exposed to numerous new far-reaching measures in an attempt by the government to demonstrate its effectiveness in managing money laundering and terrorist financing in South Africa (initially to avoid greylisting by the Financial Action Task Force (FATF). As an example, the General Laws (Anti-Money Laundering and Combatting Terrorism Financing) Amendment Act 22 of 2022 was promulgated on 29 December 2022, amending the Financial Intelligence Centre Act, the Non-profit Organisations Act, the Trust Property Control Act, the Companies Act, and the Financial Sector Regulations Act. Although a lot of focus is currently placed on trustees’ obligations to maintain and report “beneficial owners” information to the Master of the High Court, equally onerous new obligations are placed on trust service providers in terms of the Financial Intelligence Centre Act, which was also amended on 29 December 2022.

A problematic case for trustee decision-making which needs fixing - 24 June 2023

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On 26 May 2023, the Supreme Court of Appeal delivered judgment in a matter between Shepstone & Wylie attorneys and the trustees of the Penvaan Property Trust.  It becomes clear upon reading of this case that strong reliance was placed by the Court on its interpretation (in many peoples’ views incorrectly so) of the trust deed, which unfortunately was not well crafted. The Court (unfortunately) interpreted the trust deed in a peculiar way, given the fact that it is fraught with problematic clauses and unwise structuring. These issues have seemingly resulted in a new strange requirement of how trustees ought to make decisions. The problematic trust deed may, therefore, to a degree be blamed for this adverse outcome for Shepstone Wylie.

Should I resign as trustee given the new onerous measures? - 19 July 2023

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Given the recent introduction of rather onerous measures applicable to trustees, many are desirous to immediately resign in an attempt to avoid any liability, especially given fines introduced for the first time in the Trust Property Control Act (the Act) of up to R 10 million and/or 5 years imprisonment. Two important aspects have to be addressed when you consider resigning as a trustee – one, what does one have to do to resign and two, at what date will the resignation be effective?

Is the trust still serving a purpose? - 17 August 2023

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For some time, but especially after the recent introduction of tighter measures on South African trusts (similar to measures already introduced in many other countries), estate planners and trustees are (and should be) evaluating whether ‘their’ trusts still serve a purpose. It is a well-known fact that many trusts registered in South Africa were never activated as originally envisaged. Given the fact that many trustees face a penalty of up to R 10 million and/or five years imprisonment, it may be a good time to review the trust. Many trustees have gotten away with labeling trusts as ‘dormant’ trusts, in an attempt to excuse themselves from having to comply with trust laws.

Are you pulling your weight as a trustee? - 9 August 2023

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Traditionally, people in a willy-nilly fashion accepted trusteeship, whether it was as a friend or as their client’s accountant, attorney, or financial advisor. However, generally speaking, and specifically after the recent legislation changes, one must carefully consider their appointment as trustee of a trust. If you are not in a position or prepared to be actively involved in the management and administration of the trust, you should rather decline acting as trustee, or resign if you are already appointed as one. If you do not, you may be held personally liable and may even be liable for a fine of up to R 10 million and/or five years of imprisonment. And taking on such a risk with (sometimes) no compensation is not wise.

Trustees, trust administrators, and accountants brace yourselves - 7 June 2023

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After the government promulgated onerous amendments to the Trust Property Control Act (TPCA) on 22 December 2022 (which were gazetted on 29 December 2022) and issued Regulations for its implementation on 31 March 2023, effective from 1 April 2023, the Department of Justice and Constitutional Development issued a media statement on 4 May 2023 reminding (informing) the public that these new measures have come into effect from 1 April 2023 with the heading “Increased measures for Trusts to combat money-laundering and terrorism financing crimes”. Although many believe that this is a government initiative, the media statement reminded all South Africans that South Africa is obliged, as a member of the Financial Action Task Force (FATF), to ensure that its regulatory environment is geared towards international standards in anti-money laundering and combating the financing of terrorism. The media statement reminds the public that a trustee convicted of any offence as a result of not acting in terms of the amended laws referred to below will be liable to a fine of up to R 10 million, or imprisonment for up to five years, or to both such fine and imprisonment. Before introducing these amendments, the TPCA had no prescribed penalties for non-compliance. At the same time, amendments to the Financial Intelligence Centre Act (the FIC Act) were promulgated, which impact all trust service providers providing these services as a “business”, whether you are an independent trustee, trust administrator, or accountant. Non-compliance with this Act can lead to hefty penalties, including a financial penalty of up to R 10 million for a natural person or up to R 50 million for a legal person, or imprisonment for a period not exceeding 15 years or a fine not exceeding R 100 million for more serious offences.

Hot off the press: SARS trust tax changes

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SARS issued communication (“Trust Filing Season: Form and System Changes to be Introduced from 23 June 2023”) which trustees and trust service providers have to take note of.

Don’t allow your ‘so-called’ adviser to deregister the trust

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Everybody is “up in arms” about the new anti-money laundering and combatting of terrorist financing measures introduced which affect trusts. It is interesting to watch how many ‘so-called’ advisers see an opportunity to ‘make a quick buck’ by advising their clients to undo their trust structures, or out of complete ignorance themselves. The accounting and fiduciary industry has a responsibility to give (or obtain) the best advice for their clients and not, in a knee-jerk reaction to the new measures, blindly deregister trusts. Although, in some instances, estate planners were ill-advised to register trusts in the ‘old days’, trusts were generally registered as part of estate plans. It takes a lot of effort to properly structure a trust and to effectively move assets into a trust as part of an estate plan. It will certainly trigger a number of costs and taxes (let alone the undoing of an estate plan) to give ill-considered advice. Estate planners should not lose sight of the purpose for which a trust was set up. The benefit of having a trust as part of your estate plan will in most instances outweigh the extra layer of compliance costs as a result of the new measures. The following may serve as reminders of the reasons why estate planners may have been advised to register a trust. Do not undo your estate plan if it still makes sense to have a trust, but physically deregister the trust if it never served a purpose, as all trusts, whether dormant or not, fall under the same onerous measures, for which trustees may be fined and/or imprisoned.