Many years ago, when trusts were very popular, we decided to create a family trust in which to accumulate our assets, as it seemed to be the right thing to do at the time. However, we have never used the trust and since its creation it has been dormant without any activity or assets. Is it possible to close a trust?

The Trust Property Control Act does not provide for any formalities to be complied with for the termination and subsequent deregistration of a trust. An inter vivos trust as well as a testamentary trust will however terminate when the trust deed (or in the case of a testamentary trust, the will) stipulates it must terminate. There are numerous trust deeds that contain specific requirements for the termination of a trust, for example, that the trust may not be terminated prior to the death of a particular person or even worse, that the trust shall terminate upon the death of a specific person or after a specific time period or term (for example, when the youngest beneficiary reaches the age of 25 years or after 50 years of the creation of the trust). This may result in a serious loss of protection by the trust to the beneficiaries as the trust has to be terminated irrespective of whether any one of the beneficiaries may at that stage, or in future, find themselves in financial or other difficulties, requiring the protection of a trust. 

In view of the fact that there is no legal limitation on the duration of a trust in South Africa, modern trust deeds should allow the trustees to decide, in their discretion, when the trust should terminate and not link it with the lifetime or age of a specific person. Circumstances may require that the trust either continue for a longer period or terminate sooner than what is stated in the trust deed. The rule against perpetuities which limits the duration of a trust (that applies in other jurisdictions such as England), is not applicable in South African law where a trust can continue indefinitely. To link the termination of the trust to the happening of a specific event, such as death or the reaching of a specific age, can cause the protective qualities of the trust to be lost when it may be needed most by the beneficiaries.

Before the trust can be terminated, it has to be divested of all its assets, in other words, the entire trust fund which include all fixed assets, movable assets, investments, shares, etc., has to be distributed to the beneficiaries of the trust in accordance with the provisions of the trust deed. It is important that any loan accounts payable by or to the trust will first have to be settled before the trust can be terminated. Also bear in mind that the distribution of trust assets may result in certain taxes being payable, for example capital gains tax. If the trust is registered for income tax at the South African Revenue Service, the trust will also have to be deregistered. The same applies if the trust is registered for VAT.

Furthermore, it is important to take note of section 17 of the Trust Property Control Act which states that a trustee shall not without the written consent of the Master destroy any document which serves as proof of the investment, safe custody, control, administration, alienation or distribution of trust property before the expiry of a period of five years from the termination of a trust.

As can be seen, the termination and subsequent deregistration of a trust is not a simplistic exercise and the Master of the High Court also requires various supporting documentation to be submitted to its office. Should you wish to terminate your trust, kindly contact our Trust Department for assistance.