Once you’ve made the decision to set up a trust, one of the most critical decisions you face is selecting appropriate trustees to manage the trust assets. Governed by the Trust Property Control Act, in conjunction with common law and the stipulations within the trust deed, the duties and responsibilities of trustees are onerous and, as such, nominating trustees who have the appropriate character, skill and acumen to fulfil their duties is critical to ensuring your intentions for the trust are realised.
Trustees must uphold a fiduciary standard
In terms of the Trust Property Control Act, trustees are required to act with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another. Bound by a fiduciary duty, trustees are required to act together for and on behalf of the trust and in the best interests of the beneficiaries. This means that trustees are required to act with the utmost good faith at all times and to fully understand the contents and ambit of the trust deed and all related legislation. Remember, while a director of a company has a fiduciary duty to the company and not the shareholders, trustees have a fiduciary duty to the trust beneficiaries, meaning that their duty of care is more onerous than that of a company director. When appointing your trustee, you should therefore consider whether their character and morals are in line with what it means to uphold a fiduciary duty.
Trustees take legal control of the trust assets
As the trust founder, you will be required to relinquish control of your assets into the care of your nominated trustees and, in doing so, you will want to ensure that you have full trust in the person (or people) nominated as custodians of these assets. Remember, all assets are required to come under the direct control of your appointed trustees. In the case of an ownership trust, immoveable property must be registered in the name of the beneficiaries, while in the case of a bewind trust, such property must be registered in the name of the beneficiaries. Your trustees must secure all moveable property, ensure that it is protected and adequately insured. Upon taking control of the assets, the trustees must prepare an inventory of assets and open a bank account in the name of the trust.
Trustees bear personal liability for negligence
If a trustee is found guilty of negligence or wrongdoing, he can be held personally liable for any pecuniary loss suffered by the trust as a result of his actions. In administering the affairs of the trust, trustees are required to keep the trust assets separate from their own, ensure that trust assets are not used for their own benefit and that conflicts of interest are avoided. Keep in mind that, while a company director can be personally indemnified, a trustee cannot be indemnified against personal liability, and any such clause in the trust deed will be considered null and void.
A lack of skill is no defence
Trustees are required to have a certain level of financial, accounting and legislative skill in order to fulfil their duties, bearing in mind that they cannot rely on their ignorance or lack of skill as a defence if they are found to be wanting in the performance of their duties. When considering your trustees, you will therefore want to be sure that the person is capable of familiarising themselves with all related legislation, the contents of the trust deed, and that she has the necessary skill to do the job.
Trustees must be independent decision-makers
It is important that your trustees are capable of acting in accordance with the duties and obligations set out in the trust deed, and that they are not susceptible to external influence, including the influence of the trust founder. Remember, your trustees are bound by the contents of the trust deed and not the expressed wishes of the trust founder. As such, your trustees – especially where you have appointed family members or friends to the position – must be capable of utilising independent discretion.
Financial acumen is essential
While trustees are able to outsource the accounting functions of the trust, keep in mind that they remain responsible for the management of the trust assets. This includes keeping separate records of the trust assets, preparing annual financial statements, investing money on behalf of the trust, and maintaining accurate accounting records that fairly represent the trust’s affairs. Remember, while your trustees must ensure that the trust’s assets are not exposed to unnecessary risk, they also have a responsibility for ensuring that the trust assets are not invested too conservatively to produce poor investment returns.
The trust deed is the rulebook
Whereas a company is a creature of statute, a trust is a creature of document, and your trustees must be able to fully appreciate their duties and powers as set out by the trust deed. A trustee cannot claim ignorance of the contents of the trust deeds as a defence, so be sure to appoint someone you can trust to read and understand the founding documents. Remember, trustees cannot infer powers into a trust deed or assume certain powers in circumstances where the trust deed is silent. If a trust deed does not bestow a clear power on the trustees, then it must be assumed that no such power exists. Where a trustee acts beyond the powers granted to him in the trust deed, his actions can be deemed null and void.
Outsourcing doesn’t mean abdicating
Although your trustees can appoint professionals to assist with certain duties, they are not able to abdicate their powers, and it is therefore important that your trustees are able to exercise solid discretion when appointing professionals such as accountants or lawyers to assist with the affairs of the trust. For instance, where a trustee outsources the accounting functions of the trust to a chartered accountant, the trustee remains responsible for reading, understanding and signing off the financial statements.
Trustees must meet deadlines
The role of a trustee can be administratively intensive and includes adherence to several statutory deadlines. These include timely tax submissions to SARS, the submission of VAT and PAYE returns, scheduling meetings, and meeting deadlines issued by the Master’s Office. Keep in mind that tardiness and/late submissions can result in fines or financial penalties for the trust.
Trustees engage directly with beneficiaries
Often overlooked is the fact that your trustees will need to liaise with the beneficiaries of the trust and, as such, they should have the appropriate people skills to ensure that channels of communication are clear and amicable. Remember, in the case of a testamentary trust, your trustees will be required to make decisions on behalf of your minor or disabled children, and it is important to give thought to the ability of your trustees to listen, communicate and be compassionate.
Trustees perform essential administrative duties
The secretarial functions of your trustees include setting up regular meetings, keeping attendance registers, recording minutes, drafting resolutions and filing documentation. If requested by the Master’s Office, your trustees will need to account for the administration and disposal of trust property, submit any records to the Master, and respond to any other requirements from his office timeously, so it is wise to ensure that your trustees are administratively sound.
Trustees must collaborate as a team
Where you have appointed multiple trustees, keep in mind that your trustees are required to act together in the best interest of the trust. Your trustees will be required to attend meetings, communicate with the other trustees through discussion and debate, voice opinions, share ideas and reach conclusions. As such, ensure that your trustees are able to clearly express themselves, debate openly with others without taking offence, and can put their personal feelings aside when meeting with the other trustees.
While it may be tempting to appoint trustees based on familiarity or convenience, the long-term success of your trust hinges on selecting trustees with the appropriate skill, character, and integrity. Take the time to choose wisely—your beneficiaries, your assets, and the realisation of your wishes depend on it.
Have a super day.
Sue
