TRUST TERMINATION: WHY IT’S TIME TO ACT

The legal and financial environment in South Africa is evolving, and so too is the role of trusts. Once considered a clever tool for estate planning and tax efficiency, trusts that are no longer active have become costly liabilities. For trustees and financial advisors, the message is clear: if a trust is no longer serving a purpose, it’s time to close it.

 Speaking on a recent Business Sense webinar, Alan Hockey of Legal Entity Management Systems (LEMS), a firm specialising in trust terminations, explains the growing urgency. “A trust that’s unused is a liability. And it’s becoming more of a liability, especially in light of looming legislative changes and increased scrutiny from the state.”

 The Myth of the Dormant Trust

Many trustees believe that if a trust isn’t trading or being actively used, it can simply be left dormant. Not true, says Hockey. “There’s no such thing. A trust that hasn’t been formally terminated is still a live trust. Even if it’s not active, it requires full administration.”

T hat means regular accounting, compliance with South African Revenue Services (SARS), and oversight from the Master’s Office. And because trusts are often viewed as opaque legal vehicles, they are now firmly in the government’s crosshairs, especially given the country’s response to grey listing and financial transparency demands.

 “You don’t want to be the target of the government,” says Hockey. “Especially for something as innocuous as a trust just lingering, not being used. It seems harmless, but it attracts attention."

 Cost vs. Benefit

Apart from compliance risks, maintaining an inactive trust is expensive. The professional fees, accounting costs, and time involved can quickly outweigh any original benefits. In many cases, the reasons for setting up the trust are no longer relevant, and the structure simply persists out of inertia. “Many people can’t even remember why the trust was created,” says Hockey. “They just keep putting it off because they assume it’ll be a nightmare to close.”

A Simpler Process

Thanks to LEMS, trust termination is now far more streamlined than it used to be. For single trusts, clients can log onto the company’s website, answer a few questions, and receive a ready-to-sign closure pack the next day. For financial advisors or trustees managing multiple trusts, the process is handled in bulk via spreadsheet submission. “There’s nothing more onerous than filling out forms,” says Hockey. “So we’ve developed a process that eliminates as much of the admin as possible. Once we have the information, we take care of the rest.”

Timelines vary depending on how quickly trustees respond and how efficient the Master’s Office and SARS are, but a trust can typically be terminated within 8 to 12 weeks.

Handling the Paper Trail

One of the most common concerns is missing documentation. Many trustees fear they won’t be able to close a trust because original documents are lost or co-trustees have died or emigrated. But these challenges are not deal-breakers.

“The Master’s Office is reasonable,” says Hockey. “They want these trusts closed as much as we do. If the intent is clear and the process is properly followed, they’re usually willing to work with us.”

Don’t Delay

With growing regulatory pressure and rising costs, the real risk is in doing nothing. “It’s really the elephant in the room,” says Hockey. “You know you’re not using the trust. You’re just delaying what needs to be done. And doing nothing could cost you far more in the future.”

For anyone with an inactive trust, now is the time to act. The tools and services exist to make it easier than ever and the risks of waiting are only increasing.

For more info go to www.lemsystems.co.za