From Legacy to Liability: The Hidden Risks of Neglected Trusts

If your family trust has not been reviewed in the past five years, it is not just gathering dust — it could well be dangerously out of date.

“Too many South Africans are sitting on neglected, non-compliant family trusts that haven't been updated since the 1980s,” says Morne Janse van Rensburg, Managing Director at Hobbs Sinclair, a firm specialising in trust and company compliance, management and estate planning. “We regularly come across trusts where the original trustees have passed away, crucial documentation is missing, and tax returns haven’t been filed in years. It’s a ticking compliance timebomb.”

According to van Rensburg, many people treat family trusts as “set-and-forget” structures — established decades ago, typically with the help of a well-meaning accountant, lawyer, or in some cases, a family friend. “Uncle Bob may have been willing to be a trustee years ago when the trust was first established but does he know how to maintain a trust and ensure it is meeting its various statutory and compliance responsibilities? Is he familiar with applicable trust legislation? If not, it is time to appoint someone who does.”

Trusts Need Maintenance

Family trusts are governed by the Trust Property Control Act, and oversight is handled by the Master of the High Court. In recent years, the Master — along with SARS — have adopted a much firmer stance on compliance. Failing to meet basic administrative requirements can result in costly fines, delays in transactions, and

even restrictions on the trust’s legal operation. Without proper upkeep, a once reliable financial structure can quickly turn into a liability rather than an asset.

“Today, when establishing a new family trust, it's a legal requirement to appoint an independent trustee who is not a beneficiary or closely related to one,” explains van Rensburg. “This rule aims to bring more objectivity and transparency in trust management. However, many older trusts still run informally, often leading to significant compliance issues.”

Your Annual Trust Checklist

If you are a trustee, or a beneficiary of a family trust, ask yourself:

· When was the trust deed last reviewed? Is it still aligned with current legal and financial requirements?

· Who are the current trustees? Are they still alive, capable and actively managing the trust?

· Does the trust need to be registered with SARS and are annual tax returns being submitted on time?

· What assets does the trust own? Are they correctly recorded, up to date and properly maintained?

· Is the trust generating any income? If so, is that income being declared and properly accounted for?

· Are the listed beneficiaries still relevant, or have circumstances changed (e.g. deaths, births, divorces)?

“A trust must be fully compliant to buy or sell any assets — including property. If your trust is sitting idle and unmanaged, trustees may find themselves unable to transact when it matters most,” warns van Rensburg.

The Catch-Up is Costly

Restoring a neglected trust to full compliance is not quick or cheap. Hobbs Sinclair has seen trusts needing full forensic reconstructions — with missing trustee resolutions, unsigned financial statements, and decades of unfiled tax returns. “It’s far better to maintain a trust proactively than to be forced into emergency mode when there’s an urgent transaction or a death in the family,” says van Rensburg.

Trusts Under Scrutiny

Authorities are not turning a blind eye anymore. The Master’s Office has become far more stringent, rejecting submissions from trusts that lack proper paperwork. Meanwhile, SARS has ramped up enforcement, especially for trusts holding valuable assets or generating rental or investment income.

“South Africans need to approach their trusts with the same level of responsibility they give their personal finances,” stresses van Rensburg. “It may be a family trust, but it’s not a family hobby - it demands proper management and oversight. Governance matters. So does paperwork. It’s time for a compliance makeover.”