On 23 November 2018 I was privileged to present a webinar on Trusts. During the webinar the most frequent questions related to the termination of Trusts.
The termination of Trusts should be carefully considered before proceeding, as various tax and estate implications will be triggered. Distributing assets out of the trust is a deemed disposal and the transaction could trigger capital gains tax. Should immovable property form part of the assets distributed, transfer duties may also be applicable. All assets distributed to beneficiaries will also now form part of their personal estates and as such is open to creditor risk and will form part of the deceased estate for tax purposes.
The Trust Property Control Act 57 of 1988 makes no specific provision for the termination or deregistration of a Trust. The deregistration of a Trust is an internal administrative action to facilitate the management of Trust files in the offices of the Master of the High Court.
Common law however makes provision for the termination of a trust by operation of law in the following circumstances:
- by statute,
- fulfillment of the object of the trust,
- failure of the beneficiary,
- renunciation or repudiation by the beneficiary,
- destruction of the trust property,
- or the operation of a resolutive condition.
If a trust can be terminated on one of the above grounds or if you can satisfy the Master of the High Court that the trust is no longer needed, that it has served its purpose and that the trust is no longer active; the Master generally will terminate / deregister a trust.
For the termination of a trust with the Master, the following documents need to be lodged at the Master where the Trust is registered:
- A resolution by Trustees confirming the desire to terminate the Trust
- The original letter of authority;
- The closing bank statement reflecting a nil balance;
- Proof that the beneficiaries have received their benefits
Once acknowledgement of submission is received from the Master you will need to visit your nearest SARS office for the deregistration of the Trust Tax number.
SARS will require the following documentation:
- A resolution by Trustees confirming the desire to terminate the Trust
- A copy of letter of authority;
- The closing bank statement reflecting a nil balance;
- Proof that the beneficiaries have received their benefits
- Copy of the last Annual Financial Statements, reflecting zero assets and zero loan accounts, with the IT34A assessment.
In practice we found that SARS would only entertain the deregistration of tax number when the last year of financials submitted reflected zero assets and zero loan accounts.
In my view a Trust should only be terminated if it served its intended purpose or was never activated in the first place. A Trust should not be terminated as a knee-jerk reaction to changes in legislation or tax. Before entertaining the termination of a Trust, first assess the tax, estate and risk consequences.
