The trust as a taxpayer

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Some estate planners and trustees are not aware that a trust is regarded as a separate taxpayer, who has to register as such, and who has to submit relevant tax returns.

Is your adviser not taking your trust seriously?

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To my horror I was part of a discussion where a colleague in the fiduciary industry who works at a prominent wealth manager spoke to me about their clients and their service offering. When I asked who takes care of their clients’ trust needs, the reply was: “We have cracked the code, as long as you have the client’s balance sheet, that is where you make money. We realised trust services do not make us money, so we stay clear from that as it is just too risky”. I was horrified and replied: “So are you telling me you do not care about your clients’ needs? Who then takes care of that, as you know as well as I do, clients, especially now, need help and they may rely on you as their primary financial relationship? Do you not even refer them to a reputable trust service provider? The person was speechless.” I then realised the false sense of security that a number of clients experience with their financial service providers – such as their financial advisors, accountants, attorneys and banks - as this seems to be a general issue. SARS and the Master are introducing all sorts of changes. I believe it is the ethical duty and responsibility of professionals to assist their clients, whether they provide trust services themselves or whether they form part of a network of professionals to take care of their clients’ financial needs. It should not only be about their profits. Or they should tell their clients that.

‘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.