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Trustees beware of your legal obligations!

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It is an unfortunate reality that trustees are often not aware of their responsibilities, and even fewer are aware of the serious penalties for non-compliance. Legislation was passed by Parliament late last year that has serious implications for trustees and requires careful consideration.

Legislative Changes

The following 2 major changes have been made in respect of obligations of trustees.

A. Trust Property Control Act, Act 57 of 1988 (“TPCA”)

Section 11 of the Trust Property Control Act, Act 57 of 1988 (“TPCA”) a register of trust property. Trustees are also obliged to record the precise details relating to requires that trustees must keep the accountable institutions that are used as agents to perform any of the trustee’s functions relating to trust property and who perform services for the trust. The required information includes:

  • The name and identity number/registration number of the accountable institution;
  • What functions or services the accountable institution performs for the trustee;
  • If there is a single transaction with an accountable institution, the date thereof; and
  • If the trustee entered into a business relationship as defined in FICA with an accountable institution, the date thereof.

In terms of Section 11A(1) of the TPCA, the trustees must:

  • Establish and record the beneficial ownership of the trust
  • Lodge a register of such information with the Office of the Master of the High Court
  • Ensure that such information is kept up to date.

Section 10(2) of the TPCA stipulates that trustees:

  • Must disclose their position as trustee to any accountable institution with which the trust engages
  • Make it known to the accountable institution that the relevant transaction or business relationship relates to trust property.

As the representative taxpayers of a trust, trustees also have to report to the South African Revenue Service at the end of September of each year on the following:

  • The demographic information of the trust
  • The demographic information of the beneficial owners
  • Taxable amounts distributed or vested in beneficiaries
  • Details of non-taxable income distributed
  • Trust financial flows
  • All donations and loans.

B. The Financial Intelligence Centre Act, of 2001 (“FICA”)

FICA has been amended and states that a person who carries on the business of preparing for or carrying out financial transactions (including as a trustee) related to investments, their safekeeping, control or administering of trust property within the meaning of the, Trust Property Control Act, is now an accountable institution in terms of Schedule 1, and accordingly, has to comply with various obligations imposed by the FICA on accountable institutions.

From the 1st of April 2023, trustees are obliged to disclose information about any institutions that they use as agents to carry out their duties and who offer any services to them. Trustees are also required to inform any accountable institution with which they interact that they do so in their capacity as trustees.

Effect on current status

It is clear that the new legislation will place a much bigger onus on trustees to keep proper records which will result in more accurate/ up to date administration and record. We predict that this will regrettably have a detrimental effect on the cost of trust administration.

Failure by a trustee to account or perform duties

A fine of up to R 10 million or imprisonment for up to 5 years, or both. The majority of the adjustments were implemented on April 1 2023 so time is of the essence.

In conclusion, a spouse, child, family member, or family friend will often accept trusteeship without realising the burden that comes with it. Many people accept trusteeship but claim ignorance when things go wrong. All trustees are expected to actively participate in trust matters, and one is not allowed to leave the business of the trust in the hands of others. Be mindful, therefore, of using the services of a trust administrator, thinking that it excuses you from being actively involved in the management of the trust—because it doesn’t. Trustees will have to ensure that proper digital systems are implemented to take care of their (new) obligations.

In order to assist our clients, we have engaged with service providers who will provide administrative support to trustees and deal with the onerous requirements of the legislative changes. Kindly feel free to engage with our Trust Department in this regard (zane@faurefaure.co.za/carmen@faurefaure.co.za)

Article written by Zane Meyer, Director at Faure & Faure Inc. with assistance of article clerk, Jayde De Wet.

For more information, contact 021 871 1200 or email contact@faurefaure.co.za.

Faure & Faure Inc. – Your partner in Law in the Paarl and Boland Area.

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