The Vital Role of Independent Trustees and Compliance
Over the years, the regulatory environment governing trusts in South Africa has become increasingly complex, resulting in a growing administrative burden for both trustees and beneficiaries. Below we discuss some of the key developments that have amplified the complexities. These requirements have been implemented to enhance transparency, accuracy, tax compliance, combat financial crimes, and ensure the lawful use of trusts. These objectives have brought about an increased level of scrutiny and documentation that trustees must now navigate.
Being a Trustee
The principal characteristics of the office of trustee are that:
-It is fiduciary in nature and that a trustee holds trust assets in a fiduciary capacity.
-All trustees – whether independent or not – are responsible for ensuring that the trust functions properly to the greatest benefit of the trust’s beneficiaries.
-All trustees are expected to participate in trust matters actively, and one is allowed to leave the trust business in the hands of others.
To effectively manage these new obligations, it is becoming increasingly important for trusts to appoint an independent trustee. Although not required in terms of the Trust Property Control Act, it has become practice because of various case law and rulings, to appoint a truly independent trustee. An independent trustee brings expertise, objectivity, and peace of mind to the trust administration process with numerous benefits to the trust and its beneficiaries:
- Impartiality: Independent trustees do not have a personal interest in the trust, ensuring that decisions are made solely in the best interests of the beneficiaries.
- Conflict Avoidance: An independent trustee can help mitigate conflicts of interest that may arise among family members who are also beneficiaries of the trust ensuring that decisions are made in the best interest of all beneficiaries.
- Compliance: Independent trustees can help ensure the trust complies with all legal and regulatory requirements, including the new beneficial ownership obligations, as well as minimise the risk of legal issues or penalties.
- Consistency: The trust can benefit from the consistency and stability that an independent trustee can provide, particularly when changes occur within the family or beneficiaries.
All trusts are required to be registered for Income Tax purposes.
The IT12 Tax Return has been extended to include various further details such as beneficial owner information as well as further detailed questions to be answered as part of the submission process.
The following mandatory documents should be uploaded with the tax return:
- Annual Financial Statements
- Minutes and Resolutions of the Trustees
- Copy of trust instrument (Deed or Will)
- Beneficial Ownership document
- Letters of authority
There will also be a new return required to be filed from the 2024 financial year end onwards (the first deadline for submission would be 31 May 2024, based on Feb 2024 financial year). This new return is referred to as an IT3(t) and will contain various details on donors, beneficiaries, distributions, relevant amounts etc. This document will serve as a third-party confirmation of distributions, the nature thereof and amounts amongst other details, to enable SARS to review the information submitted by the individuals themselves versus trust declarations received.
Documents Required by the Master’s of the High Court (“Master’s Office”)
Requirements in terms of what should be lodged with the Master’s Office include the Trust Deed, any changes thereto, and any appointments/resignations of Trustees.
A large focus should be placed on recordkeeping of all events, all decisions should be managed with resolutions and/or contracts as support. Adopt the practice of “running the trust by resolutions”.
The Master of the High Court requires each trust to have its own bank account. Having a bank account for the trust is not an essential requirement for the formation of a valid trust, however, the absence of a trust bank account could serve as evidence of a lack of the requisite intention to create a trust in the first place. The bank account should be set up as soon as the trust has been registered.
The trustees are not allowed to hold cash/deposits in their hands on behalf of the trust and are also not allowed to deposit it into any other bank account, which is not a bank account in the name of the trust. Trust deeds (in most cases) also require that the trustees open bank accounts.
An “accountable institution” is defined by reference to the Financial Intelligence Centre Act (FICA). In terms of recent legislative changes, a trustee must disclose their position as trustee to any Accountable Institution with which the trustee engages in that capacity and must make it known to the accountable institution that the relevant transaction or business relationship relates to trust property. In other words, it must be clear that this person is acting in a representative capacity and not in a personal capacity.
A trustee must record the precise details relating to Accountable Institutions which are used as agents to perform any of the trustee’s functions relating to the trust property and from which the trustee obtains services.
The administration of trusts in South Africa is a comprehensive process that demands careful attention to detail and compliance with the law. To ease this administrative burden and to ensure that the trust operates smoothly and effectively, it is highly advisable to appoint an independent trustee and also attend to each of the key aspects as discussed.
Please reach out to our expert team should you require any assistance.