All trusts should have an independent trustee in office. Although it is not yet a legal requirement in South Africa, most offices of the Master of the High Court are insisting on an independent trustee being appointed as a requirement on new trusts which can be classified as family business trusts in terms of a Directive issued by the Chief Master in 2017 (2/2017). An independent trustee is not a beneficiary of the trust, nor a family member of a trust beneficiary, and does not have to be a professional person such as an attorney or accountant. It is however important that the independent trustee understands the responsibilities of trusteeship and he/she must ensure that the trust functions properly. In addition, an independent trustee must ensure that the provisions of the trust deed are observed and must always act independently.
The Chief Master’s Directive/2017 clearly defines who can act as independent trustees. These persons cannot be related to the other trustees or beneficiaries, by blood or otherwise. They also should not be beneficiaries of the trust. It is not essential for them to be a professional person, such as an auditor or attorney, but they do need an understanding of the law of trusts and what a trustee should and should not do.
An independent trustee can be known to the family, for example, as the family lawyer or accountant, or even a wealth or portfolio manager or broker or financial advisor, as long as they’re an independent outsider. It has to be borne in mind that in most cases, these individuals will be answerable to other authorities and professional bodies, and will be duty-bound to report any irregularities, even though this may be against the interests of their clients.
The Chief Master’s Directive 2/2017 indicated that the Master should in particular apply the independent trustee requirement to trusts in which the:
- Trustees have the power to transact with independent third parties, thereby creating trust creditors;
- Trustees are all beneficiaries; and
- Beneficiaries are all related to each other.
The Master of the High Court already started to adopt this practice following the judgement in the well-known Land and Agricultural Development Bank of SA v Parker and Others case ((186/2003) [2004] ZASCA 56; [2004] 4 All SA 261 (SCA) (23 September 2004)) (“Parker case”), in which Appellate Judge Edwin Cameron remarked that in order to avoid the large-scale abuse of trusts experienced in the past, it was recommended that the office of the Master should ensure adequate separation between trustees’ control over trust assets and the beneficiaries’ enjoyment of trust assets, and that independent outsiders should be appointed as trustees in trusts where the trustees are all trust beneficiaries and all the trust beneficiaries are related to each other.
Duties of an independent trustee
Ultimately, all trustees have the same fiduciary duty to look after the trust assets in the beneficiaries’ best interests, in a legal manner.
An independent trustee has a particular duty, however, to protect the trust or its creditors from dishonest activities. They should also see to it that the trust is being administered as per the terms of the trust deed.
Independent trustees should have a finger on the pulse of all activities of the trust, since ultimately, they’re there to ensure the trust operates in the interests of the beneficiaries on the one hand, and in compliance with the law on the other hand.
It has become common practice for many of the offices of the Master of the High Court to require that an independent trustee be appointed on South African-registered trusts, although not it is not yet a legal requirement.
The appointment of an independent trustee provides a safeguard for both the trust and third parties against illegal actions and non-compliance. It should be noted, however, that it is just a safeguard, and not a guarantee against dishonest behaviour.
The independent trustee has to make sure that he/she is not controlled by others, and has to act in the utmost good faith at all times.
It is a question of fact to determine whether an independent trustee acts independently in the best interests of the trust beneficiaries. If a beneficiary exercises control over a trustee, the trustee can be seen to act as an agent of the beneficiary and not as an independent trustee.
Fidelis Vox (Pty) Ltd accepts trusteeship as independent trustee. As independent trustee we manage and attend trustee meetings, do recordkeeping thereof, do all resolutions for transactions in the Trust and make sure that they are signed properly and kept on record, we review financial statements at the end of the financial year, we give advice about tax consequences when distributions are done, and we keep the co-trustees up to date on changes in legislation and court cases which might have an impact on the trust, as well as recommend how such decisions or changes should be handled by the trustees.
Please contact marteen@fidelisvox.co.za if you need further advice in this regard or would like to discuss the appointment of an independent trustee on a trust.
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)