By now, it is trite that the value of an appropriately administered Trust, cannot be understated.
What might be less widely publicised is the fact that throughout the years, Trust administration has undergone innumerable changes, constantly and fiercely testing the ability of role players to keep abreast.
Sharpen your pencils people, for yet another test has been scheduled.
In the loom of our country’s grey list denotation, Trusts came under fire in a thinly veiled attempt to demonstrate that our government is hard at work on coming up with a solution to this threat. Government rushed to amend the Trust Property Control Act, 57 of 1988 (“TPA”) here and SARS published significantly more strenuous reporting standards here.
Despite input and reservations by FISA here, the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act was nonetheless assented to on 29 December 2022 here.
Many feel that the new changes and obligations rightly attempt to fight grey listing, but in doing so, conflate the real issue with the imposition of unrealistic compliance- and reporting requirements. The CEO of FISA has publicly criticised some changes as: “Bringing a Hammer to Kill an Ant” here. Elsewhere, others contend that some alterations fly directly in the face of the Trust as it is known in South Africa, and will undoubtedly result in an impediment of legal certainty here.
Be all this as it may, these new changes and obligations drastically alter Trust administration, and are for the time being, here to stay. It is therefore imperative to bring a few of the most significant changes to light, so all role players (but especially Trustees) bear cognisance of their newly evolved, “state of the art” duties.
The changes and obligations as they have until now been referred to, allude to the amendment of the TPA and the publishing of the new reporting standards by SARS, to which this brief discussion now turns.
Credit is given to Phia Van der Spuy who in the Saturday Insider on 28 February 2023 here summarised the TPA amendments in such a concise manner, that any further attempt would be futile. The essence of her findings is included herein for ease of reference:
- New Section 1 definitions of “accountable institution” and “beneficial owner”
Effective from 1 April 2023.
- New Section 6(1A). Section 6 deals with the authorisation of a Trustee and security. This section specifies matters that would disqualify a person from acting as a Trustee. This was brought in line with the existing Section 20 (removal criteria) and more measures were added.
Effective from 1 April 2023, except 1(H) which requires the Master to keep a public record.
- Amended Section 8. Foreign Trustee to act only if authorised by the Master in writing.
Effective from 1 April 2023.
- New Section 10(2). Section deals with the Trust account. The change requires a Trustee to disclose their position as Trustee to any accountable institution with which the Trustee engages in that capacity and to make it known to that accountable institution.
Effective from 1 April 2023.
- New Section 11(1) *. Section deals with the registration and identification of Trust property. Trustees are to provide details of accountable institutions which they use as agents to perform Trustee functions and which provide any services to Trustees. More information and clarification is required to understand what is meant by this requirement.
Effective from 1 April 2023.
- New Section 11A *. Information must be kept by Trustees in relation to beneficial ownership. Even though Founders, Trustees, Beneficiaries and any persons who control the votes of, or appoint, Trustees or Beneficiaries are all (incorrectly) defined as beneficial owners, Trustees have to:
- Lodge and keep up-to-date records of the beneficial ownership of the Trust.
Effective from 1 April 2023
- Lodge a register of the prescribed information on the beneficial owners (as defined) with the Master.
No Effective date yet
- The Master must keep a register in the prescribed form containing the prescribed information about the beneficial ownership of the Trust.
No Effective date yet
- Trustees and the Master must make the information contained in the register available to any person as prescribed after consultation with the Minister of Finance and the Financial intelligence Centre.
No Effective date yet
- Amended Section 19. Section 19 deals with the failure of a Trustee to account or perform duties. Treasury just clarified this section: the Master or any person having an interest in the Trust property may apply to the Court to direct the Trustee to comply with the Master’s request or to perform duty imposed upon the Trustee by the TPA, trust instrument or any other law. Take note: the Master can only remove a Trustee under Section 20 if they do not comply with the Act.
- New Section 19(2). If the Trustee fails to comply with the indicated sections (*) above, they will commit an offence and on conviction will be liable to a fine not exceeding R10 million or imprisonment not exceeding five years or both.
- Amended Section 20. Section 20 deals with the removal of Trustees. It was added that the Master may remove a Trustee if they become disqualified to act as Trustee in terms of the new Section 6(1A); it was also expanded that the Trustee may be removed If they do not comply the requirements of the TPA (over and above the requirement to comply with any duty imposed upon them in terms of the Act).
Moving on to the reporting standards published by SARS.
These standards effectively require Trustees to supply information to SARS by September of each year including but not limited to, all distributions made from a Trust to beneficiaries or other persons during the preceding tax year of assessment, which ended at the end of February of the same year. In addition, SARS also requires the information on page 15 (highlighted in blue) of this document to be submitted.
Valid concerns over who or what exactly constitutes a Trust Beneficiary, the format of reporting to SARS, the obligation to report on discretionary Beneficiaries who have never received benefits and standards for community Trusts with many Beneficiaries have already been raised by FISA here. Pending clarification however, Trustees are advised to keep their ears pricked for further development.
This piece hopefully, and at the very least, achieved two things. Firstly, to bring to the attention of all role players (but especially Trustees), that they will have to rise to the challenge to continue enjoying the full benefits of the wonderfully useful but often misunderstood beast, which is the Trust. Secondly, to create awareness that, should Trustees fail to so rise, they may face dire consequences.
Even though the author agrees that Trusts are frequently abused, and that this needs to be addressed, he might also agree with many of the criticism and concerns raised in the wake of these changes. One thing is certain though, Trust administration has once again, changed tremendously, and we all need to adapt or embrace irrelevance.