The roles and responsibilities of your trustees

If you intend setting up a trust, do not underestimate the importance of choosing appropriately skilled trustees to manage the trust assets, keeping in mind that the job a trustee is an onerous one that should not be taken lightly. Given the nature of the job, it is absolutely essential that your trustees have, amongst other skills, financial and legal acumen and a solid understanding of the investment landscape. While many trust founders elect to nominate close friends and/or family members as their trustees, given the onerous nature of the position, this is not always a good idea. Here, we delve deeper into the duties and responsibilities of trustees, and why appointing duly qualified people is so important.

Trusts are legal arrangements whereby the trust founder or donor transfers ownership of certain assets to a trust where they will be managed by the trustees for the benefit of the nominated beneficiaries. In managing the trust’s assets, the trustees have overall responsibility to do so in compliance with the Trust Property Control Act, relevant common law and the trust instrument, which can take the form of a trust deed in the case of living trusts, or one’s will in the case of testamentary trusts. To ensure the validity of your trust, it is imperative that the trustees know and understand the scope of their powers and that they do not act beyond their mandate, keeping in mind that the Act requires trustees to act ‘with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another’.

The fiduciary duty that trustees have in relation to the trust’s beneficiaries is an onerous legal duty that compels them to act at all times in the best interests of the beneficiaries. This duty means that trustees are effectively held to a higher standard than is required of them when managing their own affairs which, in the context of investing the trust’s assets, requires them to find a workable balance between protecting the asset from inflation while not taking on too much investment risk. Importantly, the fiduciary duty of a trustee is paramount, and no trust instrument can indemnify a trustee from this duty of care.

Relinquishment of control of the assets on the part of the trust founder is critical for the trust’s validity and, as such, one of the first duties of your trustees is to take control of the trust assets. In the case of an ownership trust, the trustees are required to ensure that the assets are duly registered in the names of the trustees, whereas in the case of a bewind trust, the assets must be registered in the names of the beneficiaries and placed under the control of the trustees. In the case of immoveable property, the trustees will need to ensure that the title deeds of the property are amended and registered accordingly. With respect to moveable property, such as artwork or jewellery, the trustees must make sure that the valuables are appropriately insured and secured. Other trust assets may include investments, shares in a private company or bank accounts, and the trustees are required to take control of these as well. Once all assets and liabilities have been identified and collated, the trustees are required to make a full inventory of the trust assets. 

Once the assets are transferred into the trust, they no longer belong to the trust founder and the trustees are required to take over full control of the assets and ensure that they are managed to achieve the best outcomes for the beneficiaries. In fact, the principal focus of a trustee’s fiduciary duty is the manner in which he/sue administers the trust’s assets. As soon as the trustees receive money on behalf of the trust, they are required to open a bank account in the trust’s name, keeping in mind that trustees may not use their personal bank accounts to house monies belonging to the trust.  In the case of investable assets, the trustees are required to have a good understanding of the investment environment and the associated investment risks to ensure optimal growth for the trust assets without taking on unnecessary risk. That said, in order to protect the trust assets against the effects of inflation, it is likely that the trustees will need to assume some investment risk. On this note, keep in mind that your trustees may be held personally liable by the beneficiaries for any losses suffered where it is found that they did not act with the necessary degree of care and skill in the administration of the trust assets.

When it comes to managing the trust assets, your trustees will have the power to transact and contract on behalf of the trust and, as such, can bind the trust when it comes to debt. The trustees will be required to determine capital and income distributions to its beneficiaries, contract with professionals such as lawyers, accountants and auditors, and operate bank account. In addition, they may negotiate and enter business contracts on behalf of the trust, make investment decisions, and buy or sell assets for the trust as they deem appropriate – all the while ensuring that the trust complies with all relevant legislation. Importantly, your trustees must ensure that at all times the trust assets are kept completely separate from the assets held in the trust founder’s personal estate to ensure that the trust remains valid – keeping in mind that this will also protect the trust from the potential insolvency of the trust founder.

With regard to the financial management of the trust, note that your trustees will be accountable to the Master of the High Court and to the trust beneficiaries. Although there is no legal requirement that a trust must be audited, your trustees will be required to create financial accounts for the trust, including a balance sheet, income statement and cashflow analysis, and will be required to make them available to the Master and the trust beneficiaries when requested to do so. Your trustees will further be required to keep records of the administration and disposal of trust property, keep accurate records and accounts, maintain the beneficial ownership register, and ensure that all accounting records are securely stored. In addition, your trustees must be able to explain and justify all transactions and ensure that the records fairly reflect the trust’s financial state of affairs, and ensure that all statutory filing requirements such as tax returns and the submission of VAT or PAYE are attended to.

As is evident from the above, your trustees have an enormous role to play in the management of the trust’s assets and our advice is to give careful consideration when selecting your trustees.

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