Discover the critical steps South African trustees must take to ensure compliance with updated trust regulations and avoid penalties in 2025. File photo.
It is that time of the year again when South Africans dust off their wills and insurance policies before they take the long road to their holiday destinations. This is also a perfect time to dust off the trust deed and your estate plan. Some people do introspection whilst on the beach, and personal affairs, including estate plans and trusts, are often high on the agenda for the start of 2025. The following points may guide your thoughts and planning in the coming weeks.
I registered a trust but never activated it
If this is the case, you have to take action immediately. In the ‘old days’, nobody bothered to deregister a trust with the Master’s Office if it was never used, as there was no apparent consequence for not doing so. Although it has been a requirement for years to register all trusts as taxpayers and submit trust tax returns annually (even if literally nothing happened in the trust), Sars had no means to identify those non-compliant trusts.
Sars was only recently made one of the entities with access to the Master’s Portal after the introduction of the Financial Action Task Force (FATF) measures in an attempt to combat money laundering and terrorist financing. There are now also potential fines and penalties applicable if these trusts do not submit beneficial ownership registers on the Master’s portal. Many people vaguely remember being part of a trust set up many years ago. It would be best to physically deregister those trusts with the Master to avoid penalties from both Sars and the Master.
The Master has made provision for trustees to report these trusts to them to be exempted from having to submit beneficial ownership registers (which were due by 30 November 2024). Trustees can email the Master at DormantTrust@justice.gov.za to report these trusts not to be penalised with fines of up to R 10 million and/or 5 years imprisonment. Make sure any trust that you are linked to that was never used is deregistered with the Master.
I never registered the trust as a taxpayer with Sars, or am behind with annual returns
Again, many people, in the ‘old days’, felt that this was not necessary or that they could get away with it. Sars started warning in a webinar in 2021 that they are modernising their systems and would rely on third parties to automatically identify unregistered trusts to register them as taxpayers. Trustees should, therefore, ensure the trust is registered as a taxpayer with Sars if it is not going to be deregistered with the Master by the trustees.
Over the years, Sars introduced administrative penalties for late submission of individual and company tax returns, but not for trusts. Only during this year, Sars alerted to the fact that they would start implementing (possibly retrospective, punitive) administrative penalties for late submission of trust tax returns. In a webinar in February 2024, they mentioned that they would implement these penalties from September 2024. Later in the year, this date was moved to December 2024. Sars recently indicated that this date is now fixed as mid-April 2025 when their systems can manage it. That means all trusts must be registered with Sars, and all historical returns must be submitted by March 2025 to avoid these potentially punitive, retrospective administrative penalties.
I have not yet submitted a beneficial ownership register with the Master
Government (including the Financial Intelligence Centre, Treasury, and the Master) has recently been on a massive drive to improve the submission rate of beneficial ownership registers by trustees to the Master, especially after the FATF highlighted in October 2024 that one of six outstanding items to be addressed for South Africa to be removed from the greylist early 2025 relates to timely access to beneficial ownership information concerning companies and trusts. The Master hosted an informative webinar on October 29, 2024 and provided practical guidance for trustees to comply with their obligations. A link to this webinar, as well as a guide and frequently asked questions, are provided at this link - https://www.justice.gov.za/Master/trust.html#TBOR. Even though the deadline has passed, you should still make an effort to submit the beneficial ownership register for the trust if you have not yet done so.
I have not yet opened a bank account for the trust
Many people use their personal bank accounts to receive trust income and make trust payments. This is against the law as Section 10 of the Trust Property Control Act requires trustees to open a bank account and deposit all money received in their capacities as trustees in such separate trust bank accounts to protect trust assets.
Sars started issuing verification letters specifically requesting copies of the trust’s bank accounts. If you cannot produce that, your only option is to submit your personal bank statements, which is not wise, as Sars will have access to all your personal transactions. Even though arguments are made that bank accounts are expensive and, due to inactivity, the banks close the trusts’ bank accounts, this is not a good enough excuse not to comply with the law, and you may very well not want to offer Sars your personal bank statements.
I have not read the trust deed in years, or even never
Although this sounds unthinkable, as a trust deed serves as the constitutive charter of the trust, giving specific instructions to trustees, most trustees have never read the trust deed. This may cause the trustees to enter into transactions without being empowered to enter into or they may even follow incorrect decision-making processes.
That may render such transactions invalid. Trustees can only act in terms of the specific requirements of the trust deed and can never do as they wish, even though some believe that trustees’ discretion stipulated in trust deeds gives them free rein to do as they wish. Trustees must ensure they know and understand the terms of the trust deed and implement these requirements when performing their responsibilities. Ignorance is no excuse in the courts.
The trust deed was drafted many years ago
Many people believe a trust deed is a static document they can and should never update. That is untrue. An inter vivos trust deed is a contract you can (and should) amend as personal circumstances change. You do not necessarily want your ex-spouse to remain a trust beneficiary. The trust deed should also be amended in line with legislation changes. A lot has changed in the trust landscape, and you should employ the services of a trust specialist to update the trust deed. Not only are the terms to be amended vital considerations, but also the parties are required to sign the amended trust deed. Many attempted trust deed amendments are invalid due to bad advice.
I do not have paperwork for trust transactions
Again, this was not a big deal in the ‘old days’ as no one really insisted on documentation unless the trust ended up in court and the trustees could not substantiate their transactions. This often leads to the trust form being ignored in instances such as a divorce or attack by a creditor, resulting in dire consequences. However, since the 2023 tax year, Sars introduced an (uncomfortable) requirement for trustees to submit all trust resolutions and minutes of meetings with the annual trust tax return.
Even though some trustees argue that they could selectively provide trust resolutions, Sars clarified that they require all resolutions relating to trust transactions. This requirement is supported by the principle established by the courts that a trust is run by resolution, which means no transaction could be entered into unless approved by the trustees in terms of minutes of meetings or a resolution. Although historically, standard practice was for accountants to prepare a pack of resolutions with the trust financial statements to support trust transactions, such backdating will now be flagged by Sars through the use of ‘AI’. Trustees will, therefore, have to become disciplined to manage the trust as a separate entity on an ongoing basis and demonstrate that through their paperwork.
Many trustees are also not aware of the fact that they have to keep an up-to-date “Accountable Institution” register as prescribed in the Regulations, detailing each “accountable institution” they deal with and keep proof that they have informed such “accountable institutions” that they were acting in their capacities as trustees. Failing to do this may also result in a fine of up to R 10 million and/or 5 years imprisonment.
Conclusion
The 2025 trust ‘to-do list’ may be long for many trustees. Many trustees are of the view that they always got away with everything and need not change their behaviour now. However, there has been a total trust ‘re-set’ since the beginning of 2023 after introducing the FATF measures and Sars’s heightened focus on trusts. Trustees would be ill-advised to turn a blind eye.
* Phia van der Spuy is a Chartered Accountant with a Master’s degree in tax and a registered Fiduciary Practitioner of South Africa®, a Chartered Tax Adviser, a Trust and Estate Practitioner (TEP) and the founder of Trusteeze®, the provider of a digital trust solution.
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