For some years now, the question whether an independent trustee on SA trusts is required, has been a much debated issue.
Although not yet a legal requirement that an independent trustee has to be appointed on South African registered trusts, the offices of the Master of the High Court apply it as such, and to such an extent, that it has become common practice.
Why the requirement for an independent trustee?
The Master adopted this practice following the judgement in the well-known Parker case. In this case Appellate Judge Cameron remarked that, in order to avoid the large scale abuse of trusts that have been experienced in the past, the Master should ensure that there is adequate separation between control over trust assets by the trustees and the enjoyment of trust assets by the beneficiaries. The judge recommended that the Master do this by insisting on the appointment of an independent trustee on family trusts.
It seems as though we are moving towards adopting the practice which already exists for offshore trusts. For offshore trusts, it is common practice that there is only one trustee in office, being the independent offshore trust company. The beneficiaries and settlor of the trust are typically not appointed as trustees on the trust and they can merely communicate their wishes by means of a letter of wishes addressed to the trustees.
The Chief Master issued a directive to formally implement the decision taken in the Parker case.
The directive indicates that the Master is particularly interested in trusts where:
- the trustees have the power to transact with independent third parties, thereby creating trust creditors;
- the trustees are all beneficiaries; and
- the beneficiaries are all related to each other.
What is an ‘independent trustee’
Until recently it was widely understood that an independent trustee is one who is not a beneficiary of the trust himself, or is not related to the other beneficiaries or trustees and that this person does not have to be a professional. A family friend could therefore have qualified as an independent trustee.
However, the Master has now for the first time defined in the said Directive what it perceives to be an independent trustee.
The Directive issued by the Master in 2017 states that an independent trustee:
- must be an independent outsider with proper realisation of the responsibilities of trusteeship, and who accepts office in order to ensure that the trust functions properly and that the provisions of the trust deed are observed. Such independent outsider does not have to be a professional person such as an attorney or accountant;
- may be a professional accountant, admitted attorney or an advocate who is affiliated to the relevant professional body or association, trust companies, board of executors or fiduciary practitioners who are members of FISA and may even be chosen from the ranks of business associates;
- who has no family relation or connection, blood or other, to any of the existing or proposed trustees, beneficiaries or founder of the trust;
- must be competent to scrutinise and check the conduct of the other appointed trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust instrument;
- has no reason for concluding or approving transactions that may prove to be invalid, because he or she would be knowledgeable about the law of trusts;
- would not have any interest in the trust property as a beneficiary of the trust;
- is not disqualified by the Trust Property Control Act of 1988 from acting as a trustee;
- has knowledge and experience of the business field in which the trust operates;
- should be a person who will not accept office without being aware that failure to observe the duties of an independent trustee may risk action for breach of trust.
The benefits of an ‘independent trustee’
In most cases it is better to have an independent trustee in office, and even better if the independent trustee is a ‘professional trustee’, as they have the necessary expertise and skills, and they keep up to date with changes in legislation, court cases and tax matters applicable to trusts. So when new legislation is proposed that affects trusts the professional trustee can help to ensure that it is implemented with regard to trust transactions and does not negatively affect the trust.
Having an independent trustee in office, who plays an active role in the trust management, also goes a long way in proving to SARS that the trust is not being controlled by a single trustee or the founder, and can thus not be deemed to be his or her alter ego.
Fidelis Vox as independent trustee
The Fidelis Vox provides professional trustee services to our clients. As part of our service offering we do the following:
- Keep the trust deed up to date at all times, in line with legislation, regulations, case law and compliance practise;
- Draft documentation placing all trustees’ participation and decision making on record;
- Facilitate trustees’ meetings by way of teleconference, video conference or in person;
- Ensure that the requirements of the trust deed are met as far as quorums, meetings and decision making (unanimous or majority vote) is concerned;
- Measure proposed trust transactions against exchange control regulations and legislation applicable in South Africa from time to time;
- Draft resolutions for all trust transactions, and loan agreements for loans with the trust;
- Compile agendas and minutes of trustee meetings;
- Draft deeds of donation for donations to the trust;
- Draft resolutions authorising trustees in office to sign financial statements every year, sign confirmation of loan balances and movements in loans on an annual basis;
- Action agenda items after trustees’ meetings and see to it that it is done timeously;
- The board of trustees will also have access to the expertise and skills of Fidelis Vox for ongoing advice on trust matters;
- Ensure that compliance requirements for the trust are met and are kept up to date;
- Review financial statements of the trust as compiled by the accountants for correctness and completeness;
- We are registered as an accountable institution with the Financial Intelligence Centre as trustee as required by law.
If you wish to enquire about the independent trustee services which Fidelis Vox offers, kindly contact Jean Michau at jean@fidelisvox.co.za, who will gladly assist you
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)