When does my family trust terminate?
“I have established a family trust for estate planning purposes to make sure my children are looked after when I pass away. I was wondering though if the trust can be terminated after my death, and if so, when? I wouldn’t like all my planning to be for nothing because the trust just ended.”
In South African law one must distinguish between two general types of trusts, namely a testamentary trust (established in your will) and an inter vivos trust, established in terms of a trust deed. The latter type includes your family trust.
Both types of trust do not ‘die’ or terminate because of disuse. In general a trust will continue to exist in perpetuity. This is supported by the fact that our Trust Property Control Act 57 of 1988 (“the Act”) which governs the operation of trusts in South Africa, does not explicitly provide for when and how a trust is terminated. This said, it does not mean that a trust can never be terminated, as there are a number of events that can occur during the lifetime of the founder, the trustees or the beneficiaries of a trust which could provide for grounds for the termination of a trust.
When considering the termination of an inter vivos family trust, the first step will always be to turn to the provisions of the trust deed. Often the trust deed will govern when the trust will or could be terminated. Some of the most common provisions to this effect encountered in trust deeds are:
• It may terminate once all of the trust assets have been distributed to the beneficiaries.
• It may terminate after a certain period of time or upon the happening of a specific event.
• It may terminate at the discretion of the trustees and/or through a resolution passed by the beneficiaries.
• It may terminate once its primary objective has been achieved.
• It may terminate in the event that it becomes impossible to achieve its main objective.
In the event that the trustees and/or beneficiaries wish to terminate a trust pursuant to circumstances that are not provided for in the trust deed itself, another option available would be to approach the High Court with a request to terminate the trust in terms of the Act.
There could be a number of reasons why the termination of a trust may be justified, such as that it has become uneconomical to continue to manage the trust on behalf of the beneficiaries or there is not sufficient value left in the trust, or even that the relationship between the beneficiaries and the trustees have deteriorated to the point where the management of the trust has become impossible. Each situation would however have to be considered on its own merits by the court.
For the termination of a trust, it is important that the assets be formally distributed to the beneficiaries in accordance with the trust deed. Once all liabilities have been settled and trust assets distributed to the beneficiaries, the trust can be considered terminated. Importantly though, the trust is not upon termination simultaneously deregistered as well. Deregistration has to be applied for separately at the Master’s office where the trust was first registered. The Master will require a list of documentation to verify that the trust has indeed been terminated, such as proof that the trust bank account has been closed and all of the assets have been distributed after which the deregistration of the trust will be approved.
In general however, if you have a well drafted trust deed that clearly provides for the grounds when the trust may be terminated, there should not be cause for concern about a random termination of your trust which leaves your beneficiaries unprotected. If you are unsure about your trust deed’s current termination provisions, consult your attorney or estate planner and discuss your trust deed and any concerns you may have.