An introduction to trusts in South Africa: A beneficial ownership perspective

Overview

Trusts have been used in South Africa for nearly two centuries, with the first related recorded court case taking place in 1833. [1] Trusts have come to be seen as one of the most efficient ways for individuals or groups of individuals to arrange their assets and financials for the benefit of others (beneficiaries). Beneficiaries often include natural persons closely related to the person establishing a trust, such as their spouse and children, and, as such, they are commonly used in estate planning. [2]

However, the opaque nature of trusts and the protections they inherently provide to the relevant parties mean they are vulnerable to abuse for illicit purposes. They can be used in complex ownership structures in a deliberate attempt to disguise the true owners of legal entities and other assets. As a result, the Financial Action Task Force (FATF), an intergovernmental organisation which sets global standards for preventing money laundering and terrorism financing, developed Recommendation 25 on the transparency and beneficial ownership of legal arrangements, which states that countries “should take measures to prevent the misuse of legal arrangements for money laundering or terrorist financing.” [3] These measures include beneficial ownership transparency (BOT) reforms. BOT refers to the identification of the natural persons who ultimately exercise control over assets, legal entities, or legal arrangements like trusts. BOT reforms are increasingly implemented by authorities to combat illicit financial flows, money laundering, and terrorism financing, including in South Africa.

This briefing provides background information on the origins, elements, and classifications of trusts in South Africa relevant to the discussions on national BOT reforms, and serves as background to the Open Ownership briefing, Beneficial ownership transparency of trusts in South Africa. [4] It discusses the registration of trusts; the role of the Office of the Master of the High Court (the Master’s Office); and how trust instruments have been abused. Understanding the range of considerations applicable to trusts is necessary for considering how to approach reforms for the BOT of trusts.

At the time of writing, South Africa has no definition of beneficial ownership for trusts, and no obligation for beneficial owners of trusts to be comprehensively identified and disclosed, but is in the process of legislating for reforms. On 29 August 2022, the Minister of Finance introduced the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill (GLAB) – which contains provisions defining and requiring the disclosure of the beneficial ownership of trusts – to South Africa’s National Parliament. At the time of writing, the Bill is still being considered by Parliament’s Finance Standing Committee, and its contents are not considered in this briefing.

Next page: Origins of trust law in South Africa