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Introduction
Trusts hold a key role in estate planning, the protection of assets and preserving wealth for future generations. When trusts are structured in a manner that is well administered, it can be flexible, continuous and allow for the correct protection of your beneficiaries. However, you must note that there are situations where a trust has outlived its usefulness and does not serve it’s intended purpose anymore. In these scenarios, terminating your trust is the necessary route to take.
In South Africa, the termination of a trust is governed by the Trust Property Control Act 57 of 1988, common law and the Trust Deed itself. Termination of a trust is a legal process that ends the trust relationship. This should not be conflated with the deregistration that is administrative where the Master of the High Court deals with the termination or the South African Revenue Services (SARS).
What does Termination Mean?
Termination is a legal procedure where a trust no longer exists. Once a trust is terminated, the trustees no longer deal with trustee duties and administration of the trust property for the benefit of the beneficiaries and the trust assets have to be distributed according with the trust deed ensuring that all beneficiaries have received their benefits. Deregistering the trust with the Master of the High Court or SARS is terminating the trust in terms of closing the trust administrative records only.
Why would a Trust be Terminated?
There are many reasons as to why the termination of a trust is necessary. In many circumstances, the trust’s main purpose has been fulfilled, like providing for the beneficiaries of the trust this is completed once they reach a certain age. In other circumstances, the trust may be dormant or no longer economically viable, the changing of the circumstances may render the ongoing trust unnecessary. Termination may also occur as planned in accordance with the termination clause in a Trust Deed.
Grounds for Terminating a Trust
There are many grounds in which it would be appropriate to have a trust terminated.
The Trust Deed itself is always the point of departure. A clause within the Trust Deed may stipulate a fixed termination date or link termination of the trust to a specific event occurring, or further, grant the trustees of the trust discretion to terminate the trust under specific conditions.
A trust may also be terminated once its purpose has been fulfilled. If the objective of the trusts for which it was established has been achieved, there is no reason as to why the trust should continue.
Termination can further occur when it becomes practically or legally impossible to achieve the trust objective or purpose. This may arise due to changes within the law or even scenarios and circumstances that come about that the founder of the trust did not foresee.
Another recognised ground is when beneficiaries cease to exist or cannot be identified. The trust may not be capable of functioning in this regard.
In particular circumstances, beneficiaries are entitled to repudiate or renounce their rights. While this is a complex area and dependant on the wording of the trust deed, such renunciation may result in a termination where the trusts main objective and core functions is undermined.
A trust may also terminate if all the trust property is destroyed and there are no reasonable prospects of obtaining replacement assets.
Most Trust Deeds contain clauses that are known as resolutive conditions, these clauses provide that the trust shall terminate automatically upon a specific event occurring.
Finally, the High Court has the power to terminate the trust through an order of court. In accordance with section 13 of the Trust Property Control Act, the court may intervene where trust provisions are contrary to public policy, where beneficiaries are prejudiced, and unforeseen circumstances can frustrate the trust objectives.
The Termination and Deregistration Process
Before a trust can be deregistered, termination of the trust needs to have occurred. Even though the Trust Property Control Act does not expressly regulate deregistration, the Master of the High Court will undertake the administrative process once the termination has been finalised.
Trustees need to ensure that all the trust obligations have been settled, this involves the payments of debts, liabilities and outstanding taxes. Capital gains tax needs to be addressed and dealt with before finalisation.
Once all assets have been distributed pursuant with the trust deed, the trustees shall prepare a final statement of administration that reflects all income, expenses and distributions.
An application for deregistration shall then be submitted to the Master, supported by the necessary documentation and/or affidavits should it be necessary. If the trust was registered with SARS for income tax or VAT, it must formally be deregistered with SARS.
Documentation that is Required by the Master for Deregistration
The Master of the High Court requires the following:
- A signed trustee resolution confirming the termination of the trust and request deregistration
- Original Letter of Authority
- Bank Statements reflecting a Nil Balance
- Proof that beneficiaries have received their benefit
- An affidavit by the trustees confirming that all trust assets are divested.
Trustees Duties and Obligations going forward
The trustees are legally required to administer the trust in compliance with legislation, therefore the Trust Property Control Act. Should the trustees fail to act in accordance with this act, it may result in personal or criminal liability.
Trustees should always act in good faith thus exercising care and diligence and avoiding conflict of interest. The trustees have a duty to act in the best interests of the beneficiaries. They may not make secret profits or misuse the trust property.
According to section 17 of the Trust Property Control Act, the trustees are required to retain all trust records and records in relation to the trust for a period of five years after termination.
Conclusion
Terminating or deregistering a trust is a complex legal process that requires adherence with the Act and complying with the Master of the High Court’s requirements. We shall assist you in ensuring that all the necessary documentation is submitted correctly and prevent unnecessary delays or legal complications.
At Van Deventer & Van Deventer Incorporated, our experienced trust lawyers in Johannesburg provide comprehensive legal assistance with:
- Assessing whether a trust qualifies for termination.
- Ensuring all required documents and financial statements are correctly prepared.
- Liaising with the Master’s Office for smooth processing.
- Advising on alternative legal solutions where necessary.
If you require professional guidance on deregistering or terminating a trust, contact Van Deventer & Van Deventer Inc. for expert legal support tailored to your specific situation.