Trustees Urged To Review Affairs As Grace Period For Inactive Trust Compliance Ends

Trustees who have assumed that inactive trusts no longer carry tax obligations are being urged to review their affairs urgently. Following a grace period that ended on Monday, 4 May 2026, trusts with outstanding tax returns, unresolved liabilities or incomplete deregistration processes now face the risk of penalties, highlighting the importance of ensuring all compliance requirements have been met.

This development comes against the backdrop of South Africa's extensive trust sector, where many trusts established for estate-planning, asset protection, or family-succession purposes remain registered long after their original objectives have been met. In some cases, trusts cease operating altogether but continue to exist on official records, creating compliance risks for trustees who assume no further action is required.

According to Stacy Wallace, managing director of Hobbs Sinclair Legacy, one of the most common misconceptions is that an inactive trust no longer carries any compliance obligations.

"Many trustees assume that once a trust stops holding assets or conducting transactions, its obligations simply fall away," says Wallace. "In reality, a trust can remain active on Sars' records long after it has ceased operating in any meaningful sense."

Trustee duties remain

Sars has made it clear that trusts which no longer serve a purpose must still follow a formal process before they can be removed from the tax system. This includes submitting all outstanding tax returns, settling any tax liabilities and providing supporting documentation confirming the termination of the trust.

"Trustees should not confuse inactivity with deregistration," says Wallace. "A trust that has effectively become dormant may still have filing obligations and other compliance requirements until Sars formally recognises its deregistration."

Even though administrative penalties are imposed on the trust itself, trustees remain responsible for ensuring that the trust complies with all tax and regulatory obligations.

"Trustees occupy a fiduciary position and are responsible for ensuring that a trust's affairs are properly administered," says Wallace. "Allowing a trust to drift into non-compliance can create unnecessary costs and complications that could have been avoided through timely action."

The issue is particularly relevant for older family trusts established for estate-planning purposes, as well as trusts created to hold specific assets that have since been sold, transferred, or distributed.

Wallace says it is not uncommon for trustees to discover that a trust has accumulated several years of outstanding returns after assuming no further action was required.

"Unfortunately, the passage of time does not remove the obligation to comply. In many cases, the longer a trust remains unattended, the more complicated and costly it becomes to rectify the position."

Act before penalties

Sars has encouraged trustees and their representatives to use the additional time afforded by the deferral to resolve outstanding compliance matters and to submit deregistration requests where appropriate. The revenue authority has also warned that failure to submit returns or formally deregister trusts may result in continued compliance obligations and the enforcement of administrative penalties.

Wallace recommends that trustees conduct a review of all trusts under their administration to determine whether they remain active, confirm that all tax returns have been submitted and ensure that Sars' records accurately reflect each trust's current status.

"The first step is understanding exactly where the trust stands from a compliance perspective," she says. "Trustees who are uncertain about their obligations should address the matter sooner rather than later. Once penalties begin accumulating, the cost of inaction can quickly outweigh the cost of resolving the issue properly."

For trustees who have not reviewed a trust's tax affairs in several years, the commencement of Sars penalties serves as a timely reminder that dormant does not necessarily mean deregistered — and that ignoring an inactive trust can become an increasingly costly mistake.