When to consider termination of a trust
If you have a family trust that is inactive or not being utilised it may be prudent to have it terminated in order to save costs and avoid potential issues in the future.
Some factors when deciding whether to consider termination of a trust are the following:
- Trust assets and liabilities;
- Ongoing administrative costs including any remuneration payable to trustees;
- Tax Considerations;
- Risks of retaining a dormant entity alive in an increasingly fraudulent society;
- How the costs associated with the deregistration of the trust will be paid.
In terms of the common law, a trust can be terminated in the following circumstances:
- Statute prescribed termination;
- Fulfillment of the object of the trust;
- The Trust not having beneficiaries that can be determined;
- Renunciation or repudiation by the beneficiary/ies;
- Destruction of the trust property; or
- The trust deed may set out the circumstances in which a particular trust is or can be terminated.
The Trust Property Control Act, 1988
This Act does not set out the procedure for the termination/deregistration of trusts. In order to fill this gap, the Chief Master provided guidance on the procedure to be followed in 2017.
In order to deregister the trust, the Master must be satisfied that the trust has no remaining assets, the beneficiaries have received what is due to them and that the trust’s bank account has been closed. The Master will then confirm that the trust file is closed and instruct the trustees to abide by Section 17 of the Trust Property Control Act, which states the following:
Section 17: Custody of Documents
“A trustee shall not without the written consent of the Master destroy any document which serves as proof of the investment, safe custody, control, administration, alienation or distribution of trust property before the expiry of a period of five years from the termination of a trust.”
Once the Master has confirmed that the trust has been terminated, the Master’s letter must be provided to SARS together with further supporting documents in order to have the trust deregistered as a taxpayer with SARS.