Trusts and the sharpened focus on the administration thereof

Treasury and Finance Minister, Pravin Gordhan, have identified trusts as an area of risk from a legal and taxation perspective due to the improper manner in which many trusts are being administered (or not administered).

1. Although it is not fatal to have the founder of a trust acting as a trustee, it is vital that the founder transfers control and decision making powers in respect of the trust assets to the trust and not retain same. Ensure that the Trust Deed reflects this transfer of control clearly, otherwise SARS or creditors of the donor or trustees might question the validity of the trust. It is also essential that the trust has its own bank account, as this will aid in proving that the founder and trustees have been divested of control over the trust assets.

2. It is also important to appoint an independent trustee(s) to act together with the other trustees and to afford such a trustee with at least equal decision making powers as the rest of the trustees. This serves as an indication that the trust is not merely a smoke screen used by an individual who actually manages assets for and in his personal interests for e.g. tax avoidance purposes.

3. Ensure that the Letters of Authority or Master’s Certificate is updated, i.e. that all the trustees indicated thereon are current and alive. Should it not be up to date, it is very important to amend these records at the Master’s Office as this may affect the signing of documents on behalf of the trust, especially where the signatures of all trustees are required. If the trust deed requires that a specific number of trustees must be in office one must ensure that the correct number of trustees are “in office” to act as such.

4. Resolutions are a crucial element of trust administration as it keeps record of all the decisions made by the trustees on behalf of the trust. Without a signed resolution authorising a specific action, such action’s validity may be questioned (and in many cases invalid) depending on the trust deed’s content. It is also very important to ensure that resolutions are considered and passed (signed) timeously. E.g. should the trustees want a resolution to have an effect on financial year end, they must ensure that the resolution is passed prior to the specific year end, regardless of whether or not the financial statements and/or audit is ready by that time. This is especially important for tax purposes and in particular when moveable property is sold or purchased.

5. Treasury and Finance Minister, Pravin Gordhan, have identified trusts as an area of risk from a legal and taxation perspective due to the improper manner in which many trusts are being administered (or not administered). Far-reaching changes to the tax treatment of trusts have been proposed, but the implementation thereof has been delayed. They mentioned that a Discussion Paper might first be released prior to implementing the proposed changes. It is therefore the ideal time now to get your trust affairs in order so as to be ready and “cleaned up” for when the legislative changes are effected and SARS starts probing.

For more information or to schedule a consultation to discuss the above, please contact Meyer de Waal at 021 461 0065 or meyer@oostco.co.za