Trust-worthy: What exactly is trust administration?

Published Mar 4, 2024


Given the recent heightened focus of government on trusts (such as the Master of the High Court, the Financial Intelligence Centre (FIC), and the South African Revenue Service (Sars), all of a sudden paperwork for trusts is more important than ever before.

Resolutions, minutes of meetings, up-to-date information on all the role-players in the trust, financial statements, asset register, trustees’ interactions with accountable institutions, etc. And the biggest challenge is to ensure it all ties up. The paperwork trustees are required to produce on a timely basis drowns the average - often layperson trustee.

Traditionally, many professionals did not provide trust administration services, even though their clients were under the impression that they did. In other instances, some professionals formally or informally provided trust services, but never charged for it. The industry was of such a nature that the professionals were just too scared to charge, as the clients’ price sensitivity would apparently let them move all their business elsewhere where they would receive the services for free. Similar to any other free services, the state of trust compliance in South Africa is not surprising – only 30% of trusts are registered as taxpayers with Sars, even though it is a legal requirement for a trust to register as a taxpayer. Of those, a fraction submit their tax returns on time. Trust tax returns are 7 years behind on an average basis.

Trust administration services can be described as the active handholding of often layperson trustees. It includes the following:

Trust deed execution. In most instances, the trustees ignore the trust deed. This is the constitutive charter of the trust and the trust administrator can assist the trustees to implement the provisions of the trust deed and meet any specific requirements stipulated in the trust deed.

– Preparation of resolutions before transactions take place. The days of retrospective preparation of resolutions are counted. Sars indicated that they would employ AI to determine the actual date it was created. Accountants and other trust service providers should therefore avoid the temptation to assist their clients to back-date any trust documents.

– Setting up of meetings and the finalisation of minutes of meetings. Service providers should also avoid preparing these documents as if a meeting took place in the past when it in fact did not take place.

– Ongoing preparation and submission of the required “beneficial owner” registers in a real-time fashion to the Master of the High Court. Trustees are required to submit these reports as and when any required information changes for any “beneficial owner”. Even though many so-called professionals provide the standalone service to submit a once-off “beneficial owner” register and create the impression that it ticks the compliance box, it is the biggest disfavor they can do to the client. Not only is there a requirement to submit real-time “beneficial owner” information to the Master (10 of the 14 required items), but the regulations require the trustees to maintain a real-time record of all 14 required items per “beneficial owner”. It is interesting to note that the Master’s current “beneficial owner” register does not require the trustees to report information on “ultimate beneficial owners” of legal entities, even though the law and regulations require trustees to maintain up-to-date information of ultimate owners or controllers of such legal entities.

– Preparation and ongoing updating of the Accountable Institution, as defined in the FIC Act, register that trustees have to keep up to date in a real-time fashion. All of a sudden it is expected of trustees to become FIC ‘experts’ as they need to understand FIC concepts such as “agent”, “services”, “single transaction”, and “business relationship” and apply that to keep an accurate up-to-date register.

– Preparation and maintenance of confirmations to Accountable Institutions of the trustees’ dealing with them in their capacities as trustees. The discipline to meet this requirement is key. Many are still of the view that only banks are Accountable Institutions. The list of Accountable Institutions has been expanded substantially and includes the estate agent that the ‘controlling’ trustee often approaches alone without the knowledge of the other trustees, attorneys, anybody dealing in high-value goods (a business that sold/has stock items of R 100 000 or more - this includes motor vehicle dealers, jewellers, etc.). Two of the three new measures that attract fines of up to R 10 million or 5 years’ imprisonment deal with trustees’ interactions with Accountable Institutions; a “Beneficial Owner” register is but one of the three.

– Preparation and maintenance of trust transaction documents, including invoices, contracts, etc.

– Dealing with ongoing Master requirements.

– Creation and updating of an asset register for the trust as required by the Trust Property Control Act.

– The trust administrator assists the board of trustees in demonstrating the active participation of all trustees in the trust, in conformity with the trust deed and the law. The professional must communicate to their client which services they provide. The professional and their client will regret any misunderstanding, as the client may end up with a fine and/or imprisonment and penalties imposed by Sars and the professional may suffer reputational damage and may even be pursued by their client for damages.

* Phia van der Spuy is a Chartered Accountant with a Masters 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.