What Your Dormant Trust Could Be Costing You
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Over the past 70 years, more than 650,000 trusts have been registered in South Africa. However, a significant proportion of these trusts remain non-compliant with regulatory requirements. Recent data indicates that only about 66,000 trusts have submitted their Ultimate Beneficial Ownership (UBO) registers, and a slightly higher number have registered with the South African Revenue Service (SARS). This leaves hundreds and thousands of trusts potentially exposed to regulatory penalties, reputational risk and legal challenges, emphasising the urgent need for trustees and administrators to review their compliance status.
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Stacy Rouchos, Managing Director of Bannister Trust and Estate Planning advisor to Hobbs Sinclair, explains that one of the most prevalent misconceptions among trust founders and trustees is the idea of a "dormant trust." Many trustees believe that a trust with no economic activity is exempt from compliance obligations. However, this belief is incorrect.
“Trustees often assume that because a trust has no income or assets, it is not required to comply with administrative duties. This is a costly mistake,” says Rouchos. “South African trust law does not recognise dormancy in the same way it applies to companies. Even without economic activity, a trust still has significant compliance responsibilities.”
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What could it be costing you?
The South African Revenue Service (SARS) imposes administrative penalties on trusts that fail to submit required tax return submissions. These penalties are calculated based on the trust's taxable income and can range from R250 to R16,000 per month. Importantly, these penalties recur monthly for up to 35 months, leading to potential cumulative penalties of up to R560,000 if non-compliance persists.
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"In reality, the penalties can quickly accumulate, becoming a significant burden on trustees," Rouchos explains. “What may start as a small fine can spiral into a substantial liability, especially when compounded over multiple years of non-compliance."
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In addition to SARS penalties, trustees may incur significant accounting fees. For instance, preparing and filing 10 years’ worth of outstanding tax returns can cost between R40,000 and R60,000, depending on the complexity of the trust’s financials. Furthermore, the process of deregistering a trust—assuming all assets have been distributed, the bank account closed, and all tax obligations settled—typically incurs a once-off fee of around R5,000.
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"These figures can be far higher if the trust's affairs are not in order," Rouchos cautions. "If trustees have not filed returns for several years or if the trust still has unresolved financial obligations, the cost of rectifying these issues can run into tens of thousands of rands."
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Even trusts that have no economic activity are still required to register with SARS, maintain proper records, and comply with governance standards. If trustees neglect these
responsibilities, they risk reputational damage, legal challenges, and even the possibility of the trust being disregarded in legal proceedings.
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"Trustees must not assume that just because a trust is not generating income, it is free from legal scrutiny. The law is clear: non-compliance, even for dormant trusts, comes with serious risks," says Rouchos. "The costs of non-compliance—penalties, legal challenges, and rectification fees—are far higher than simply ensuring the trust remains in good standing with SARS and the Master of the High Court."
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Recommendations for Trustees
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· Register with SARS: Ensure the trust is registered for all applicable taxes, including income tax, even if there is no economic activity. Registration is a legal obligation, not a discretionary step.
· Maintain Accurate Records: Keep detailed financial records and minutes of trustee meetings, even if the trust is not actively trading.
· File Returns Promptly: Submit all required tax returns and supporting documents on time to avoid unnecessary penalties.
· Deregister When Appropriate: If the trust is no longer needed, follow the proper procedures to deregister with both SARS and the Master of the High Court. This includes settling all outstanding tax obligations and formally closing the trust’s bank account.
“For trustees who are unsure of their obligations or need assistance in managing their trust’s compliance, it’s always best to consult with professionals,” says Rouchos. “The small investment in expert advice can prevent large financial setbacks down the line.”