IS YOUR FAMILY TRUST MANAGED EFFECTIVELY?
- Wendy
- Apr 14
- 3 min read
LEMS stands for Legal Entity Management Systems, and as the name suggests, it is designed to manage legal entities effectively. Specifically, our focus is on trusts, understanding them, managing them, and, when necessary, facilitating their closure.
A trust is a legal entity that holds assets on behalf of beneficiaries, typically used for estate planning. While various legal entities exist, our expertise is centred on trusts, particularly in South Africa. The financial responsibilities of trustees are significant, yet many trustees do not fully comprehend their obligations.
This issue is especially prevalent in KwaZulu-Natal, where numerous families have established trusts, often with family members as trustees. Unfortunately, many trustees do not fully understand what they agreed to when they signed up for these responsibilities. Over time, the administration of the trusts is neglected, and the trustees are oblivious to the risks that may be exposed to.
The recent “grey-listing” of South Africa has focused attention on the administration of trusts. One of the key issues requiring rectification was the lack of transparency regarding the beneficial ownership of trusts. This has led to additional reporting responsibilities on trustees and the threat of sizeable penalties for noncompliance.
Consequently, many trustees may now be wondering: what should they do? The first step is to assess whether they are meeting their legal and financial obligations. If a trust is no longer serving its intended purpose, the best course of action may be to close it down.
The reason for forming the trust needs to be assessed. Historically, the main reason for establishing a trust has been estate planning. The idea is simple: by placing assets into a trust, individuals can save estate duty and protect assets for future generations. Other motivations include creditor protection and safeguarding assets for minor children. However, while these benefits were more pronounced in the past, evolving tax laws and regulatory changes have made trusts less advantageous for many.
Furthermore, globalisation has introduced additional complications. Many trusts were originally set up with the assumption that beneficiaries would remain in South Africa. Today, however, it is common for beneficiaries to be scattered across different countries, creating significant tax and compliance challenges. The tax cost of maintaining a trust in South Africa can become disproportionately high when beneficiaries are based abroad, making the trust structure impractical.
Ultimately, the decision to retain or dissolve a trust should be based on a careful evaluation of its ongoing benefits versus its administrative and financial burdens. Given the increasing scrutiny on trusts and the responsibilities placed on trustees, it is more important than ever for trustees to understand their obligations and take appropriate action.
If you are a trustee or a member of a family trust, now is the time to assess whether your trust remains effective. If the complexities outweigh the benefits, closing it down may be the most prudent decision. We are here to guide you through this process and ensure that you remain compliant with legal and regulatory requirements.
Trusts were once seen as a simple estate planning tool, but in today’s evolving legal and financial landscape, they require careful management. If you are uncertain about your role or responsibilities as a trustee, we can provide expert advice before regulatory pressures catch up with you.
For more information contact:
Alan Hockey: +27 (0)71 673 9937 or Brian Payne: +27 (0)83 309 1982 W: www.lemsystems.co.za
