Speaker 0:
Hello and welcome to this session on the changes to the Trust Property Control Act. I'm joined today by Louis Van Buren, the chief executive officer at the Fiduciary Institute of Southern Africa.

Speaker 0:
The Van der be chief executive officer and co-founder at trustees as well as Doctor Rica Vansil from the School of Financial Planning Law at the University of the Free State.

Speaker 0:
Welcome to you all.

Speaker 0:
Thank you, Chloe. Thank you. Yep. So, um, Rihanna, I'm gonna kick off with you. What exactly defines a trust and what are the different types of trusts in South Africa?

Speaker 1:
Thank you, Chloe. It, um it's not really a easy question. Um, to answer, Um, and it needs me to explain the entire, um, trust structure in South Africa as we know it. Uh, actually, before the amendments were made.

Speaker 1:
So I'm going to discuss it, Um, by way of this slide,

Speaker 1:
Um, now you can see there. Um, there's a trust founder, um, the trust, uh, property. And then it is for the benefit of the beneficiaries, either income or capital beneficiaries.

Speaker 1:
Now, there's a A quite worthy a definition of a trust in the Trust Property control act. Um And there, it see says that it means the arrangement through which the ownership in property of one person is by virtue of a trust instrument made over or bequeathed and then a very wordy part. But if we break it down, um, in subsection A, it says, uh to a trustee

Speaker 1:
and you will see in subsection B, it says to the beneficiaries,

Speaker 1:
the rest of the, um, those two subsections just, um reiterates then that the administration of, um, the trust is still lies with the trustees, um, for the benefit of the trust beneficiaries.

Speaker 1:
So subsection A is what is known as an ownership trust. So that is where the ownership of the trust property is transferred to the trustee in his official capacity. We'll talk about that just now and then. Subsection B actually refers to a prevent trust where the ownership of the property is given to the beneficiaries.

Speaker 1:
Now there are different ways to create a trust, so that is also another, uh, description of a trust. So the trust founder can create a trust either by way of a will which will deem it them to be a testamentary trust or, um, by way of a contract which will then make it an inter vivos trust.

Speaker 1:
So that is the mode of creation of the trust. And then we also can refer to it is the trust or inter trust.

Speaker 1:
Uh, what is important for the trust founder is that he has, uh, to legally, uh, relinquish control of that trust property.

Speaker 1:
So it is important for him to relinquish that control, because if he does not, uh, relinquish control, that asset may be seen as his alter ego and still be property in his state, which we want to avoid by creating this trust in the first place.

Speaker 1:
Then if we move on to the trustees, we already saw that if the ownership, um to the property is given to the trustees, it is known as an ownership trust and, um, the bottom part there if it's given to the, uh, beneficiaries, it is called a event trust. But there's also another description. Um, and that is where we talk about the rights to the income or the capital of that trust property.

Speaker 1:
So if the, um, trustees

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have the discretion to distribute the income or the capital, um, in the entire discretion When? How much? Um, and if at all, they want to distribute anything to the beneficiaries. It is called a discretionary trust.

Speaker 1:
If the rights is given, um, automatically to the beneficiaries. And that would mean that the beneficiaries already have a right to, uh, the income or the capital. We call it a vesting trust. So you you will see that there are a lot of descriptions for a trust, and you can also have a combination of these. Um, so you can have a testamentary, uh, discretionary trust.

Speaker 1:
Um,

Speaker 1:
what is also important for the trustees, um, in this regard is that the trustees, if it's an ownership trust, they have, um, that ownership in an official capacity so important in section 12 of the Trust Property Control Act, it refers to the separation of ownership,

Speaker 1:
um, of that trust property. So the trustees do not keep that property in their personal estate. It is in their official capacity as a trustee,

Speaker 1:
and also important, uh, for the trustees is that they have a fiduciary duty in terms of section nine of the act, uh, to exercise their powers with, uh, care, diligence and skill that is very important, uh, for them to do,

Speaker 1:
and they lost the,

Speaker 1:
um the focus of a a trust can also be described by its aim. So if the purpose of the trust is to provide for the family, we call it a family trust. Um, if it's for minors, um, it can be a special trust or a business trust. So that's another description, uh, that we can use to describe a certain type of trust, Uh, depending on its characteristics.

Speaker 1:
Um, another important question when it comes to, uh, trust is the rights. Um, because if we talk about what rights, um, does the beneficiary or the trustee have,

Speaker 1:
Then it will have tax consequences. So that's why we always ask, what right does the, uh, beneficiary or the trustee have in this official capacity, uh, to determine how this structure is going to be taxed? So, yeah, that's a mouthful. But that's a brief crash course. Um, on the different types of trust in South Africa as we know it today,

Speaker 0:
thanks so much for providing such a comprehensive, uh, introduction. So now, focusing now on amendments, uh, to the Trust Property Control Act. Or perhaps the trust legislation. When did the amendments to the trust legislation come in? And what was its purpose?

Speaker 1:
Yes. So, um, you can see by the slide here as well. It actually all started with the Financial Action Task Force or the FA TF, uh, which is the watchdog for terrorist financing that is based in Paris, in France.

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And they warned South Africa that they could possibly be grey listed, um, at a meeting that were to be held in February 2023.

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So in um, 29 August 2022

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a bill was published hastily,

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uh, to try to provide for, um, these structures or measures to comply with, um the FA TFS requirements.

Speaker 1:
Um, and the bill was published and a couple of days later, um, there were, um, opportunity for comments to be made, But we were only given six days to actually make comments on this bill, uh, which were definitely not enough time for all the organisations, uh, to wrap their heads around. What this bill will, um uh, is proposing for us.

Speaker 1:
So while we were all, um, enjoying the last few days of our summer holiday in December on the 29th of December, Uh, 2022. This general Laws, uh, amendment act was published, um, in the government gazette.

Speaker 1:
So and this act, um, made amendments to, um, not only the trust property control act, but to, uh, other, um, legislation as well, uh, for instance, a the companies act and so on.

Speaker 1:
Um and they said that these amendments, uh, is to ensure that its regulatory environment is geared towards international standards in anti money laundering and combating financing of terrorism.

Speaker 1:
So hoping that they have done enough on paper at least, uh, to avoid the grey listing, their hope was shattered when South Africa was a grey. Listed in any case at that February meeting.

Speaker 1:
But the writing was already on the wall. The amendments were already scheduled to take effect on the first of April. Uh, 2023.

Speaker 1:
Um, so a day before, um, a special regulation gazette was published that contained certain amendments to the regulations under the Trust Property Control Act. Um, which will, which would also, uh, become effective on the next day? Um, and then the Financial Intelligence Centre also published certain directives. Um, on this day as well,

Speaker 1:
and then um, you will see now when we talk about, um, the requirements that needs to be met. So on the fifth of April 2023 electronic register was made available on the masters IC MS a web portal,

Speaker 1:
and, um, the the last update was also that SARS, um made some form and system changes. So this was the run up to these major events, Um, that these amendments sneaked into our industry, Um, literally, actually, overnight.

Speaker 0:
OK, so you've given quite a nice explanation as to why? Um, these changes, uh, came into being, but now focusing on to, uh, the beneficial ownership arguments what exactly is beneficial ownership and who are the types of individuals that would qualify for beneficial ownership? And then again, what are the challenges that this poses for us in our understanding of the parties to a trust?

Speaker 1:
Yes. Um, So the insertion of, um, a beneficial owner, uh, was included in the new amendments. And as you can see from the slide there, um, it's a lengthy definition. Um, and it says that ultimately it's a beneficial owner means a natural person who, directly or indirectly, ultimately owns the relevant trust property

Speaker 1:
or a natural person who exercises effective control of the administration of the trust arrangements. And if those were not enough, they expressly stated that each founder, each trustee and each beneficiary referred to by name, um, is also a beneficial owner.

Speaker 1:
Um, and the other subsections they just refers to if that founder, trustee or beneficiary is a legal, um, person, um, a person acting on behalf of a partnership, um will then also be regarded as, um, the beneficial owner.

Speaker 1:
Now, this was, um, a bitter pill to to swallow for especially on an academic side, because, as I just explained to you, um, the characteristics of a trust and, um, a trust founder which is legally obligated to relinquish control, um, of that property,

Speaker 1:
um, and the warning that if you do not relinquish a control, that asset is still going to be regarded as your property, uh, which will have tax consequences. But now it say it states that the founder is a beneficial owner.

Speaker 1:
The same goes for the trustees. The trustees do not, um, keep that property in their own personal estate. It is a separate, um um, official capacity that they keep that, um, trust property in. So how can a trustee be the beneficial owner of a trust?

Speaker 1:
Um,

Speaker 1:
the trust is created to benefit the beneficiaries. It is not to benefit the founder or the trustees.

Speaker 1:
Um, so again, also, if if it's, uh a beneficial owner is a a beneficiary name referred to by name. If we think about a discretionary trust where no rights, um, are given to the trust beneficiaries, they have no vested rights to the income or to the to the, uh, property. How can they be a beneficial owner?

Speaker 1:
It just doesn't fit with what we understand under, um, the current structure of a trust in South Africa.

Speaker 1:
So

Speaker 1:
that is the that is the the difficult thing to to get past, um, And this beneficial owner term is not a term that is frequently used in law, um, if at all, in relation to a trust.

Speaker 1:
So it seems that the drafters hastily tried to comply with the anti money laundering requirements set by the FA TF and copied that term to our legislation, but didn't understand the trust structure in South Africa at all. But now we have to deal with that

Speaker 1:
So we are dealing with that as if they did not mean that beneficial ownership is in the strict sense, as we would have understood it legally, ownership would mean, um because that would have some serious issues about the question on the rights and the tax consequences and so on. So with the money laundering agenda in the back of our minds that we know the aim was with this piece of legislation,

Speaker 1:
we understand that the aim of the term is rather to identify the the parties to a trust that is actually what they want from us. Um, and that is also why they inserted section 11 a. Um

Speaker 1:
if you can see the, uh, the slide there. It says that there are now certain duties on these beneficial owners. Um, and the one is that a trustee must establish and record the beneficial ownership. They must keep a record. They must lodge a register, and they must keep this information up to date. And also a duty on the master, uh, to keep a register and make this available to any person.

Speaker 1:
This in itself, uh, already creates, um, other problems on a practical side. Um but yes, from a from a legal point, that is, um, the problem that this term of beneficial ownership that is actually foreign to the trust law of South Africa creates for us at this moment.

Speaker 0:
Thank you very much. Rika. So there have been some amendments to the Trust Property Control Act, Um, which were pro promulgated, um, in December of 2022 and have come into effect on the first of April as you've mentioned Rika.

Speaker 0:
So amendments to the regulation introduced on the 31st of March 2023 provided detailed requirements for the implementation of these amendments. So, Louis, I'm gonna bring you in here a new section to, um uh, a new, uh, section 11 A. Sorry, um, what have been the amendments then to section 11 A. And perhaps you can also take us through some of the practical challenges that this amendment might bring. Um, for practitioners,

Speaker 0:
Yes. Uh, thank you, Clay. Um uh, Section 11 Capital A is A is a completely new section that was introduced into the Trust Property Control Act. And, um, it it basically reads that a trustee must establish and record beneficial ownership of the trust now. Um, uh, to my mind, there is the first problem because beneficial ownership is not defined in in the act at all.

Speaker 0:
Um,

Speaker 0:
it also then says that a trustee must keep a record of the prescribed information relating to the beneficial owners of the trust, Uh, beneficial owners as defined in section one that that, um, that referred to, um They must lodge a register the trustee or trustees must lost lodge a register of the prescribed information on beneficial owners of the trust with the master of the high court.

Speaker 0:
Um, and and this is the the one that I think, um, is problematic,

Speaker 0:
uh, even more problematic than the rest. And that is, uh, the trustee must ensure that the prescribed information referred to in paragraphs A to C that is the the previous three that I mentioned, um, is kept up to date.

Speaker 0:
Um, neither this, uh, section nor the regulations,

Speaker 0:
Um, give us any further clarity about what is meant by being kept up to date. And I we can we can come back to that a little bit later.

Speaker 0:
Um, the, uh, section, then 11. A. Then further says that the master must keep a register of the prescribed information.

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Um, the

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section further says that a trustee must make,

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uh, information

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contained in the register, uh, available to any person as prescribed.

Speaker 0:
Um, and the regulations Then tell us who those people are that are entitled to this information.

Speaker 0:
And, um, the

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section then continues and and closes with, uh, subsection four

Speaker 0:
uh 11, a subsection four which says that these prescribed requirements,

Speaker 0:
um, must be, uh, determined after consultation with the Minister of Finance and the Financial Intelligence Centre. Now, consultation by whom? By the Minister of Justice, who must make the regulations, um, under the Trust Property Control Act. So the minister then has to consult with the Minister of Finance and the financial Intelligence centre to, um

Speaker 0:
uh to determine what the prescribed requirements are and who the prescribed officials are that are, um,

Speaker 0:
entitled to the information about beneficial owner.

Speaker 0:
So quite a, uh, quite a uh um uh,

Speaker 0:
comprehensive, um, piece of legislation. This one section, um, and there are some some serious practical difficulties with it.

Speaker 0:
Perhaps you can comment on those practical difficulties that, uh, Louis is referring to,

Speaker 0:
um, yes, I want to start off by saying, You know, these things were just literally dumped on us. So everybody's trying to make sense, you know? First of all, what it means, what we have to do, what the format is. And then when we speak about timing, one big, big concern that, uh, the whole industry has raised is obviously the master only got out of the blocks. The fifth, um,

Speaker 0:
of the of of April to give us a format in which we have to upload the information. There are a lot of concerns around the security around the information and how it's created. Um, the format is apparently a temporary solution because it looks like, you know, somebody quickly had to put something together.

Speaker 0:
And I believe it's valid concerns that we, as an industry, really need to address with, um, you know, the powers in terms of we are giving information on my we are giving information on everybody where they live, their telephone numbers, their email addresses, et cetera. So it is really sensitive information,

Speaker 0:
and we just look at, you know, how are we trying to protect vulnerable people such as miners? And I don't know if It's a well known fact, but the master has been slapped with a fine by the poppy regulator recently because they haven't kept their security certificates up to date. So I believe it's a valid concern.

Speaker 0:
So we are sitting with an obligation, an onerous one of trustees because they can be slapped with fines and imprisonment and all sorts of horrific things. However, people are nervous to upload the information because I believe it's a valid concern not to upload these things. However, the legislation did not give us a discretion whether we want to upload it. Some people say we're just gonna keep it, and if we get approach, we can say we've got it. We just never wanted to upload it.

Speaker 0:
And I believe it's dangerous for the judiciary industry to actually advise clients. You know, don't upload it because you know it's risk, especially if you're not a trustee, because the trustees are the ones that are gonna take the flack. So if you just advise your your clients being the trustees, I, you know don't upload because the security issues

Speaker 0:
I don't know what the sympathy is gonna be, you know, once the fines are you know, getting dished out how much sympathy the government will have because we need to get off the grey list. I think that is obviously the ultimate objective is we need to get information. And the eight objectives that government came out after we've been Grey listed is they want real time information and transparency of beneficial owners.

Speaker 0:
And recently I've heard I'm not very close to in the company side, but I've heard only like 200 companies have uploaded their information on the trust side, we don't even have statistics, and I'm too nervous to find out. I don't think too many people have uploaded their, uh, you know as well.

Speaker 0:
And then the master was supposed or is supposed to come up. As Louis said, They're also under obligation. It was interesting to me when these new things came out. All the trustee obligations were made 1 April 1 April 1 April no date for the master because I think they kind of bought time to see how quickly they can get out of the blocks and obviously, on Friday evening, the 31st of March, when the regulations were published, Then it said

Speaker 0:
the master from 1 April. All of a sudden, everything had to be done. You know, April Fool's Day on Saturday morning, the first of April. So then the master also had the obligation. And then, as I said a couple of days later, they only you know, came out with the format. They are supposed to have a register handy, which, uh, I don't know about you, Louis, but I haven't seen a register or heard about a register that the master you know, has been able to produce.

Speaker 0:
The problem is, there's probably not too much information being uploaded up to now. So Concern number one is security and protection of information, very sensitive information.

Speaker 0:
Then clearly the, you know, our regular does up to date. So I had, you know, did a lot of investigations because, as I said, a couple of pieces of legislation have been affected. If you just look at the act, you know there are a lot of new accountable institutions are now because they broaden that list of accountable institutions so much so it's literally people who are selling stuff over 100,000 rand that are now becoming accountable institutions. That must be educated, et cetera.

Speaker 0:
And the fix has given them 18 months to kind of get into the motion of, you know, an account of an institution. You know, train yourself. They haven't given the trustees any leeway. You know, we, like have to had to comply, like, immediately real time, because to me, kept up to date Unless they, you know, qualify to me in his real time. And I don't know how the government is gonna interpret that if you just look at, you know, timing to give information to the master in in terms of

Speaker 0:
the the the, uh, trust control act, trustees are given 14 days to, you know, inform the master of any of their changes. That's already in the old act. So when you compare, you know, they're given 14 days here with these, you know, new measures they didn't give any days. So to me, unless we get clarification, you know, it means real time. That is a onerous, onerous requirement. Um, of trustees.

Speaker 0:
Thank you. Um, Louis, did you want to comment? Yes. Uh, just adding on to on to that. A couple of points I. I was approached this morning by by an attorney who wanted advice. Do I upload my, uh, trust information,

Speaker 0:
uh, or don't die? Um, and, um, the only advice that I can give is,

Speaker 0:
um, there's there's a law, and there are regulations. And if you don't comply, then you're liable for for a very stiff penalty.

Speaker 0:
Um, the the the keeping up to date is, um, I, I think is hugely problematic

Speaker 0:
because, um, as I always joke, I can't even keep up with my Children's cell phone numbers. So how can you expect a trustee to real time keep up to date with the residential addresses of all the beneficiaries of all the trusts in which, uh, such a person may be a trustee in some of the big trust companies? Um, the nominee of the company may be, uh, the trustee on more than 100 trusts.

Speaker 0:
Um uh, how do you How do you keep up up to date on a real time basis and nowhere in the legislation or in the regulations? Is there anything that says, Well, you need to do this every three months or every six months, months or whatever. So so, technically,

Speaker 0:
um, if the F IC um rocks up at your door and does an inspection.

Speaker 0:
Um, and five times that. That one beneficiary in trust, number 99.

Speaker 0:
Um uh, moved house

Speaker 0:
two weeks ago. And your record is not up to date. You are liable for conviction and penalty. Uh, which I think is is a unfair, um, and B, um, could be unconstitutional. Um, there was a There was a a constitutional court case last year from sale versus the road accident fund in which the Constitutional Court basically said

Speaker 0:
that a law is not a law if it is impossible to comply with.

Speaker 0:
So, um, those are some of the problems that we deal with and then the introduction overnight of the regulations and of the, um um the, uh, coming into effect of these amendments, um, in in a in A in the space of a couple of hours means that any trustee hasn't uploaded

Speaker 0:
everything

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after the, uh, by the first of April is already technically guilty of an offence. Um, in terms of the in terms of the legislation and and we'll get to what the what the the the, uh penalty clause in in the amend amended trust property control Act. Uh, amounts to thank you very much, Louis.

Speaker 0:
So there seems to be new measures relating to trustees interactions then with accountable institutions in terms of section 10 and 11. Louis, what are these new measures requiring trustees to keep record of, um, the interactions with accountable institutions. And again, perhaps you can take us through some of the challenges that these changes might bring. Um, for practitioners,

Speaker 0:
Um, Section 10 is, um, is basically a restatement. The amendment to section 10 is, uh is the insertion of a of A of a subsection two.

Speaker 0:
Um,

Speaker 0:
and it it's basically a restatement of what? What is, in any event, good practise. And that is that a trustee must now disclose,

Speaker 0:
um, the position as trustee to any accountable institution,

Speaker 0:
um, and must make known to the accountable institution,

Speaker 0:
um, that you do business with as a trustee make known to that accountable institution that this transaction

Speaker 0:
relates to trust property and that you are entering into this transaction in your capacity as a trustee. Now, uh, in in in practise. That's already, um, really the case, um, the only, uh, specifically with financial.

Speaker 0:
The only problem that he now faces as fear. Um, pointed out is that we have all these

Speaker 0:
newly defined, uh, uh, accountable institutions under the under. And, um, they, uh uh that will that means now that you as a trustee now have to go and look at schedule one to to find out whether the person you're dealing with is in fact, uh, an accountable institution

Speaker 0:
that becomes even more pertinent if you If you look at the amendment to section 11 of the Cross Property Control Act, where a paragraph E was inserted after paragraph D in subsection one of section 11, and that says that,

Speaker 0:
um, a trustee must record the prescribed details relating to accountable institutions, which the trustee uses as agents to perform any of the trustees functions relating to trust property

Speaker 0:
and from which the trustee obtains any services in respect of the trustees functions relating to trust property. Now, my my first problem with this amendment is that it it uses the word and in the middle. And one of the fundamental rules of interpretation of statutes is that and is never or and or is never. And

Speaker 0:
so, um, if you on a strict reading, it means that the only time that you have to record the prescribed details is if you use them as agents and, uh, obtain services from them.

Speaker 0:
Um, which I don't think was the intention here. So So, um, if you look at it from the point of view us as agents,

Speaker 0:
I have a further problem with this section and that Is that, uh or this para subparagraph. And that is that, um, a trustee cannot use an agent to perform his function.

Speaker 0:
Um, a trustee only a trustee can perform the functions of a trustee. We have several, uh, cases in our case law. Where where the court has said that you cannot delegate your function as a trustee. Now, what I think they mean

Speaker 0:
is, when you make when you make use of the services of a of an estate agent,

Speaker 0:
um then, um, you have to record,

Speaker 0:
um, the details of that accountable institution. And once again, the trustee will now have to go

Speaker 0:
look at the new schedule a, uh, schedule one to and go. And look at all these new

Speaker 0:
kinds of businesses that have now been defined as a a accountable institutions.

Speaker 0:
Um, and an ex an ex. An example would be if, uh if the trustees decide to sell fixed property from the trust or if they want to buy fixed property from the trust there is a There is the likelihood that there will be an estate agent involved.

Speaker 0:
Um,

Speaker 0:
if a trustee uses the services of an attorney practising attorneys are accountable institutions under F IC A. So you will have to record

Speaker 0:
that you used attorney A with all the with all the prescribed details that are required obviously, uh, none of this Trump's attorney client privilege. So you would not be required to record what you said to your attorney or what your attorney said to you. Um, but but you will have to record the fact that you entered, uh, as trustee into, um

Speaker 0:
um

Speaker 0:
a business relationship with with, uh, with an attorney.

Speaker 0:
Um, So, um, I think once again,

Speaker 0:
um, the

Speaker 0:
it looks like the drafting was done in a hurry.

Speaker 0:
Um, but what it boils down to is that as a trustee, you will have to record well, firstly, establish whether,

Speaker 0:
um, you are dealing with an accountable institution. And then secondly, record all the prescribed information. Um, the what the prescribed information happens to be you will find in the regulations, and we'll talk a little bit about the regulations later. And thank you very much, Louis. So it seems as though you know, this draught there's, um, a lot. It's open to misinterpretation.

Speaker 0:
But then I wanna understand. Then what kind of practical challenges, um, might these new measures bring in for? For practitioners,

Speaker 0:
these two particular measures freak me out quite a bit because I think people are focusing so much on beneficial ownership of registers and think once they take that, you know, they're off the hook. So few people are actually aware of these two. And so, by the way, that two of the three measures that, uh, you know, attract this massive penalty and fines now

Speaker 0:
so and the practical, you know, in, you know, application thereof. You know it's gonna require so much discipline. First of all, we need to educate our clients, you know, the the the old guy running into the estate agent to sell his house out of the trust. I mean, don't we know too well about these examples? We need to educate them discipline them. You don't You know, around, you know, speaking on behalf of your board of trustees, who so, by the way, you can now expose,

Speaker 0:
um, you need to kind of stick together. You know, understand these new requirements.

Speaker 0:
And if you just start off by thinking where they put these sections, I mean, don't you agree, Louis? I mean, if you see you know, the the the the first requirement under trust account, they put in that you have to disclose your your position as a trustee when you deal with an accountable institution. It's not just banks. No, most people think, you know, layperson trustees think, Oh, no, no accountable institutions. That's the banks. You know, The banks know I'm a trustee, You know that we're acting capacity. As Louis Andria said, It's so many more people now,

Speaker 0:
so yeah, they just put it in such a weird place under trust account. And the next one is where you actually have to keep a list of all accountable institutions you're dealing with, for heaven's sake, sits under the registration identification of trust property. I don't know why they put it there. It just it doesn't make sense to me at all. I think that should just created a new heading accountable institution. So people can, you know, understand. It's actually a broad range of counter parties that you actually may be dealing with. So education is key.

Speaker 0:
Discipline is key and record keeping, I believe. And I don't understand why they actually put that in. Yes, the banks know you're acting your capacity as a trustee because hopefully they asked for documents and resolutions before they do transactions. And before you can sell a, you know, a house, a state agent should do their as well because we are dealing with accountable institutions already. So people said, Why have they gone and almost doubled up, you know, So the account institution must do their trick. They should understand that they're dealing with the trust Now. The poor trustees

Speaker 0:
actually keep record that they actually told the institution that they are dealing with them in the capacity of trustees. Is that not who's trying to trick us here, you know, is now gonna come and order their state A and said right. Give us a list of all the trust that you've dealt with. Show us where this old woman you know, indicated he's acting in his capacity as a trustee. Are they really gonna go to kind of those measures where we need a piece of paper or something where they say, you know, I am acting in my capacity as a trustee, just in case you don't know. In case you

Speaker 0:
you didn't pick it up, you know? So it is paperwork gonna become so important, and then discipline, discipline. You know, you don't do the following without these following rules. We sit together as a board of trustees, we do a resolution, then you go and speak to an accountable institution. And so, by the way, after that, you better confirm that you act in your capacity as a trustee, just in case, you know, they didn't know it because on who's the owners of proof gonna be? You know, if the if the estate agent Oh, this old woman didn't tell me, it's, you know, in a trust. You know,

Speaker 0:
um, the owners is gonna be on the board of trustees to explain that, you know, they send this old, you know, as a trustee to to actually, you know, deal with the trust property.

Speaker 0:
The practical implication here worries me. And, um, just, uh we know in South Africa it's a fact. You know, the poor independent trustee you know often is the one that is excluded the one who supposedly guide, you know, to be guiding the trustees around all these, Um, you know, difficult pieces of legislation People run around. They treat the trust as it's as if it's their own. And it's really difficult, you know? And I feel sorry for the independent trustees. Unless you instil

Speaker 0:
quite a bit of fear in these trustees and educate them and discipline them and rather resign if, uh, they're not prepared to play your rules. Because, I tell you, these two are probably gonna be the most difficult to to to manage and to control, because that list of account of institutions is so wide now.

Speaker 0:
OK, thank you so much for eow.

Speaker 0:
Yeah. Um, uh, Chloe, just if you if you look at at the regulations at regulation, uh, the new regulation three Capital B, Um, under the Trust Property Control Act.

Speaker 0:
Um,

Speaker 0:
As as I said, um, if you if you're talking professional trustees, they should know because they should uh, already have been. And if they haven't been, they should now be registered as accountable institutions. Um, under the new, uh, item two or the newly defined Item two in schedule one to,

Speaker 0:
and the

Speaker 0:
the the the, uh, the your trust your professional trustee is is is not necessarily going to to be the problem here. But if you look at Regulation three B your layperson trustee in a family trust. Uh um, is, uh, I don't I don't even think

Speaker 0:
I. I think a fraction of them may be aware of of their duties under this new regulation three capital B

Speaker 0:
because it says that you have to record as a trustee

Speaker 0:
the name of the accountable institution. Um, if it's, uh, other than a natural person, the registration number if it's a natural person, the ID number, um, the nature of the functions that the this person fulfilled on behalf of the trustee, which I think is impossible. Um um as I as I pointed out, the

Speaker 0:
whether the trustee obtained services from the account accountable institution and what the nature of those services were And then importantly,

Speaker 0:
um, the layperson trustee will now have to go and study A

Speaker 0:
to figure out what is

Speaker 0:
a single transaction and what is a business relationship. Because the regulations require you as a trustee to record

Speaker 0:
the date on which a single transaction was entered into with A with an accountable institution or the date on which the business relationship with the accountable institution was entered into,

Speaker 0:
um

Speaker 0:
And what's frightening If you go and look at this at schedule one, the newly defined schedule one to what? What is really frightening is that, um, there is now a new category of accountable institution called, um um

Speaker 0:
I value business,

Speaker 0:
uh, or high value sales, um, businesses or or or something like that. So and and and that is set at 100,000. So

Speaker 0:
if you as a trustee,

Speaker 0:
if if you have interest, let's say a holiday home.

Speaker 0:
And now the trust has come into some money. And now you want to, um, redo the kitchens in the bathroom

Speaker 0:
and you get a contractor who does that.

Speaker 0:
And that contract is over. 100,000 rand does that is that contractor now,

Speaker 0:
Um, is that contractor now supposed to be an accountable institution or let's assume that contractor is an accountable institution, because he's he or she She sells high value goods.

Speaker 0:
Now, you as a trustee, a layperson trustee must now find out. Is this person an accountable institution? Because you have to record

Speaker 0:
the fact that you are entered into a single transaction, or, uh or or a business relationship with with this, Um

Speaker 0:
um, with this accountable institution, um, uh, high value goods, um, sales business or

Speaker 0:
whatever the case may be, there are other new categories in schedule. One that that that could also That's just the one that I that I thought of when I read through through the through the amendments, through the schedule and through these regulations.

Speaker 0:
Yeah. No, absolutely. So sometimes the practical application of some of these changes might be a little bit more challenging. So now we're just focusing on the amendments to section six. We have, um, spoken about this before Louis, what have been the amendments then to to the section of the Trust Property Control Act. And then again,

Speaker 0:
perhaps you can highlight some of the challenges that, um, these amendments might bring for practitioners.

Speaker 0:
Section six. I in in principle don't have a lot of problem

Speaker 0:
problems with, um because I'm

Speaker 0:
previously the

Speaker 0:
there. There were no grounds on which a person could be disqualified of being a trustee.

Speaker 0:
Um, there were only certain grounds on which the master could remove a trustee under section 20

Speaker 0:
of the Trust Property Control Act. Um, and and obviously, a court could remove a trustee for any reason. Now, in section six, there is a new section 61 Capital A was inserted, and that

Speaker 0:
includes a list of persons that are now disqualified,

Speaker 0:
um, from being authorised as a trustee by the master. So now the master has to determine,

Speaker 0:
as I read it, whether a person falls under any of these categories. And if so, the master may not authorise such a person, um, to act as a trustee and and and the list is rehabilitated. Insolvents, uh, a person prohibited by a court, Um uh, to be a director of a company,

Speaker 0:
a person prohibited in terms of any law to be, uh, a director of a company, a person who has been removed from an office of trust on the grounds of misconduct involving dishonesty. Um, and a person who's been convicted in South Africa or anywhere else of theft, fraud, forgery, perjury or any offence involving fraud, misrepresentation or dishonesty.

Speaker 0:
Any offence in connection with the promotion, formation or management of a company or any offence under the Trust Property Control Act, the companies act and a whole list of other pieces of legislation the so-called and the the uh uh

Speaker 0:
prevention of Com. Combating of corrupt activities and the protection of constitutional democracy against terrorism and related activities all those acts and even the tax administration. So if you, um if you've, um

Speaker 0:
if you've, uh, swindled SARS um, and you've been convicted of that, you, um you're you're also now off the list.

Speaker 0:
Um, and then also all persons on the United Nations Security Council uh, list of, uh, financial sanctions people against whom financial sanctions have been introduced. Um, uh, I can, uh, off the top of my head. Think of a couple of politicians in our neighbour neighbouring country, one of our neighbouring countries who are on that list,

Speaker 0:
Um, and any obviously any, um, un emancipated minor or a person with illegal dis disability. Um, and so on. They they are all disqualified um and the master has to keep a register of those people.

Speaker 0:
And the the person will only be removed from that register after five years or after serving his whole sentence if he or she has been sent to jail for that. So those are the the the the major provisions of section uh, of of the amendments to section six. there is more, but, um, I don't think we have time to go into the detail. OK, thank you very much, Louis. The what challenges might this bring for? For practitioners.

Speaker 0:
Yeah. So, first of all, I believe one would have to look at your trust deeds. A lot of trust deeds have disqualification criteria, and I think probably to bring that in line with these changes now and for people to understand. You know, it's taking so long to get any changes done through the master. So you better make sure that a person that you want to put forward as a trustee, you know, does not, you know, fall into one of these

Speaker 0:
categories because then we in a becoming issue backwards and forwards to the master, finding replacements, et cetera, especially where we fall below the sub minimum number of trustees. We just do not have the luxury to go backwards and forwards. So I think it's very important for the trustees or anybody who's appointing a new trustee or replacement trustee to actually be aware of these, uh, changes and we'll speak about I want to read

Speaker 0:
and I just always try to make it practical for myself. So when should you not be a trustee? OK, 61 A. Now says you can't be a trustee if you meet the following criteria. Why they're not. If you are already a trustee and and you're guilty of these things, why do you just not ripped off as a trustee? So there it says the master may remove you. Um, you know, if you naughty in terms of these, uh, 61 a criteria, why is it not the same? So to me, if you can't be

Speaker 0:
appointed, you should not be acting, you know, if you are, you know, falling into one of these categories. So that's just the first thing to me. II I would would think it should be the same. But the master may remove you, But you know you can't be a trustee, you automatically disqualify it. And it's then quite complicated because, you know, you, uh, as long as you're not there for five years, I think people really need to understand this very well before they actually,

Speaker 0:
um, appoint somebody. And then this is one you know, right in the middle there, which I haven't seen happening, is the master. In terms of one G, the master must notify each trust, which has a trustee to whom the order or conviction relates of the order or conviction. So what? You know what? What is that gonna help? What's gonna mean? Because even if they do,

Speaker 0:
uh, then you actually go into section 20 there the master may remove. So does the master have capacity to inform all the trusts where you know, where this person may be On how do they have systems to do it? You know, I haven't seen it happening in practise. I don't know if you've seen anything. Uh, Louis, but to me, that was quite an interesting one.

Speaker 0:
And clearly the master must keep a register of all these people that, uh, don't disqualify. Hopefully for us to kind of almost ping against before. We want to put somebody forward. I haven't seen them coming up with that kind of a register either. And you know, so they're also in breach because that was a 1 April, um, obligation on the master's end.

Speaker 0:
So from a practical perspective, I think you just need to do your homework. Uh, hopefully the master's register will help, and hopefully we've got access to it to before we even put somebody forward because we just don't have the luxury. And especially when we're under pressure to have somebody appointed.

Speaker 0:
No, Absolutely. Thank you so much. For So it seems as though there's a lot of ambiguity surrounding a lot of the wording within the the changes to to the regulations. But now to focus. Um, lastly, on the introduction of a penalty clause, Um, Louis, perhaps you can take us through some of the amendments, Um, in the space, uh, the introduction of this penalty clause for trustees. What are those penalties, and then fear once again, if you can go in.

Speaker 0:
Yes, Uh, Chloe, Um, I. I think it was it was one of the shortcomings of the act that the, um uh before these amendments, there was no way other than going to court on application that the master could act against trustees. The master could tell you to do things as a trustee,

Speaker 0:
um, and to to give an account of what you did with trust property under section 16. But there there was no, there was no sanction.

Speaker 0:
Um, the master had to use civil legal procedure to to, um, to force a trustee to do anything.

Speaker 0:
Um,

Speaker 0:
but, um, it it didn't get much better. Because only section 11 a,

Speaker 0:
um, and section 10, uh, which is, uh, the disclosure to accountable institutions that you, uh, that you act in a in a trustee capacity section 11, um, 1 E, which is the recording of the details of of, um, accountable institutions. And then section 11 A, which is keeping the beneficial ownership register only those,

Speaker 0:
um uh, or are included in the penalty clause. And only if you do not comply with those, um, the, um you will be guilty of an offence.

Speaker 0:
Um,

Speaker 0:
what is really nasty is that, um, if you are

Speaker 0:
convicted,

Speaker 0:
uh, you could be fined 10 million rand

Speaker 0:
or five years imprisonment or both.

Speaker 0:
So it This is really, really a stiff penalty clause.

Speaker 0:
And if you then bear in mind that since the first of April, most of us are already criminals because, um, a lot of trustees simply could not comply practically with, um uh, with the, um act and the regulations that were put into effect virtually overnight.

Speaker 0:
Um,

Speaker 0:
this is no way

Speaker 0:
to deal with legislation. This this is really a textbook case of not how how not to deal with legislative changes and the introduction of new regulations. Um, you cannot.

Speaker 0:
With the strike of a ping, it is extremely bad practise with the strike of the ping, uh, basically make criminals out of good, honest people who are just trying to do their job.

Speaker 0:
So perhaps you can comment on what the amendments to the penalty clauses they might bring for practitioners.

Speaker 0:
Yeah, I've been thinking, How is this gonna work? You know how they dish out these penalties? Where do they start? Who do they ask? So when you look at the regulations and un unless I'm misreading it, uh, it's actually these authorities or authorised entities that can interrogate us or knock on our doors They have only made provision for the master to actually make sure that it is in fact an eligible person who's knocking on the door.

Speaker 0:
So I don't know practically what we do. If they knock on the door of of trustees, do you send them to the master and then you go quickly. Time to upload new information. You know, if you have it handy,

Speaker 0:
do you do you? Do you have to answer them and take their calls and and let them in? And it may even people who you know, just malicious or you know who are not authorised in terms of the regulations, I physically don't know what we do practically, you know, we know what what happens when they can go to the master and then the master must vet them whether they are in. In fact, you know, one of those entities listed in the regulations,

Speaker 0:
what on earth do we do? Because when we looked at, you know, the the trans department controller, it says the trustees and the master have to keep the information handy and actually give it you look at the regulations. They only speak about the master's role. They Don't tell us as trustees. What do you do? Do you run away? Do you open the door? Do you send them to the master? Would you be locked up if you don't entertain them?

Speaker 0:
Yeah. No, Um, if you if you look at Regulation three Capital E, it says the master and a trustee must make the information contained in the beneficial ownership register that the master and a trustee keep in terms of section 11. I have the act available, too. And then there's a long list of people the National Prosecuting Authority, the Independent Independent Police Investigative Directorate, the State Security Agency,

Speaker 0:
Um, intelligence Division of the National Defence Force Special Investigating unit, The public protector, the revenue service, the Financial Intelligence Centre. A whole list of people. So? So I shared a few concern that how must the poor trustee know whether these people who knock who is who are knocking on his door or whether they are actually entitled to the information that they want from you?

Speaker 0:
I would think a a good a good response would be, Um, listen, there's a central register with the MasterCard. Get it there. Um, I think,

Speaker 0:
um, if they had any sense they would go to the master as a first port of call. Um, and, um, they would probably just knock on a trustee's door if if they, uh, had a suspicion that the trustee did not update the register with the master.

Speaker 0:
Um, and that the trustee had information that the master did not have.

Speaker 0:
Um, uh, that to me if I'd been, um

Speaker 0:
uh, a law enforcement agency. That would be the only the only time that I I that I would hit the trustee directly without first trying to get the information from the Masters register.

Speaker 0:
Well, there's there's way. If you look at three EY says the master and the trustee must, you know, give information to the following people. But if you look at 0.2 it only speaks about the master. It says the master must vet. They must actually, you know, uh, do it to, you know, to a director to the chief master, and then the master must, uh, you know, upon receive over those details. They don't speak about trustees.

Speaker 0:
Um, they just It worries me. I don't know what we do. It it it looks It looks as if, Um, they prescribe the process for the master to find out whether these people are actually entitled to to the information. But the trust is left to his, his or her own devices to to ascertain whether the person is actually entitled to the information.

Speaker 0:
Louis. So then what is FISA's stance on these amendments? And what could the potential solutions be?

Speaker 0:
Well, Clary II, I think, um

Speaker 0:
as, uh, Rica said in the beginning, these

Speaker 0:
these amendments and the regulations were rushed through in a helter skelter attempt to avoid the greying.

Speaker 0:
Now we are on the grey list and and I, I would really like to see a calm,

Speaker 0:
um,

Speaker 0:
sensible approach to rooking all of this and to and to start making sense of all of this I. I don't get a sense at the moment that that is happening.

Speaker 0:
Um, in fact, we we have been

Speaker 0:
talking to the regulator, um, on a continuous basis to say please involve industry and by industry, I don't mean only So we're not the only the only show in town in the industry. Um, but please involve the industry when it comes to the drafting of new legislation and so on because the the the the pattern at the moment is not

Speaker 0:
to involve industry. It's the state law advisors, and the particular department sits down and they just write new legislation.

Speaker 0:
Um, my impression about the amendments to the Trust Property Control Act is that they were mainly driven by the Financial Intelligence Centre and treasury.

Speaker 0:
Um, I think,

Speaker 0:
uh, an hour and a half in the standing committee on finance meeting last October or November in the run up to the to the, um, amendments going through. And the impression I gained was that the Treasury is really driving this this, um,

Speaker 0:
this lot and And they, um uh,

Speaker 0:
so I would I would really

Speaker 0:
at this stage plead for for a calm, relaxed re look at everything and and, um and and making sure that we clear the ambiguities, make sure that we clear the impracticality. The sense I get, uh, from being in meetings with the, uh, financial intelligence centre over the last month is that, um,

Speaker 0:
it's still helter skelter when we need to get off this grey list as soon as possible.

Speaker 0:
Um, and and hence the all the amendments to the schedules to as well.

Speaker 0:
So,

Speaker 0:
um, I hope at some stage, sanity will prevail and that we can calmly re look all these things and make sure that it is

Speaker 0:
that it is, uh, implement in practise. Rika. So any final comments from your son?

Speaker 1:
Yes. Um, it is so unfortunate, um, to be thrown with these types of amendments When, um

Speaker 1:
we are We have been in such a need of legislation and asking for proper legislation to govern certain aspects and specifically in, uh, the Trust Property Control Act as well, um, to to give clarity on certain issues. Um, and it's such a long road, usually to get legislation passed.

Speaker 1:
Um, so in, in the legal, um, um, industry, we rather hope for a a court case that could provide some details. Um, on how to go forward because we know the road to ask for legislation to be implemented is so long and, um, almost impossible sometimes.

Speaker 1:
And now, in this case, we were thrown with new amendments. Um, in a couple of months, um, that we did not ask for. There was no need for these types of, um of, um, amendments. Um, and now, it only, um, added to the confusion that already exists, Uh, within the trust, um, industry. Um, so it's really unfortunate, uh, to be to be thrown with all these, um, amendments.

Speaker 1:
Um, I think perhaps based on I think I Well, I hope that the the, um, cabinet knows that they were very hasty in in, um, giving all of these, um prescriptions to us. Um, so I would think that, for instance, the penalty clause

Speaker 1:
they might might not be too hasty to enforce the the penalty clause. And even if they do, um, that 10 million rand, you must remember, that's That's the maximum. So, um, I don't think it will ever get to a 10 million rand fine out. Um, you know, out and out. Um, that's at least that's the maximum.

Speaker 1:
Um, so I don't know, you know, for for small offences or where will there be, You know, uh, categories for smaller offences. And the maximum When will that 10 million Fine. Be, um, thrown, uh, to you. Um but yes. So a lot of uncertainties. And they added to the confusion already existing. So it's very unfortunate indeed.

Speaker 0:
So hopefully we have some of these, uh, challenges ironed out very soon. I wanna thank you each for sharing your insights into changes in the Trust Property Control Act. We appreciate your time. Thank you.